UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
SCHEDULE 13D
Under the Securities Exchange Act Of 1934
Computer Outsourcing Services, Inc.
(Name of Issuer)
Common Stock, $0.01 par value
(Title of Class of Securities)
2052 65101
(CUSIP Number)
Tyler T. Zachem with copies to:
DB Capital Partners, Inc. S. Ward Atterbury, Esq.
130 Liberty Street White & Case LLP
New York, NY 10006 1155 Avenue of the Americas
212-250-2500 New York, NY 10036
212-819-8200
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
May 10, 2000
-------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d(f) or 13d-1(g), check the following
box /_/.
------------
<PAGE>
CUSIP No. 2052 65101
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Taunus Corporation I.R.S. Identification No. _________________
- -------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)/_/
(b)/X/
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS
N/A
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED /_/
PURSUANT TO ITEMS 2(d) or 2(e)
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
- ----------------------------------- ------- ------------------------------------
NUMBER OF SHARES BENEFICIALLY 7 SOLE VOTING POWER
OWNED BY EACH REPORTING PERSON 0
WITH
------- ------------------------------------
8 SHARED VOTING POWER
2,427,848
------- ------------------------------------
9 SOLE DISPOSITIVE POWER
0
------- ------------------------------------
10 SHARED DISPOSITIVE POWER
2,427,848
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,427,848
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES /_/
CERTAIN SHARES
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.64%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
- -------- -----------------------------------------------------------------------
<PAGE>
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
DB Capital Partners, Inc. I.R.S. Identification No. __________
- -------- -----------------------------------------------------------------------
2 THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) /_/
(b) /X/
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS
N/A
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
- ----------------------------------- ------- ------------------------------------
NUMBER OF SHARES BENEFICIALLY 7 SOLE VOTING POWER
OWNED BY EACH REPORTING PERSON 0
WITH
------- ------------------------------------
8 SHARED VOTING POWER
2,427,848
------- ------------------------------------
9 SOLE DISPOSITIVE POWER
0
------- ------------------------------------
10 SHARED DISPOSITIVE POWER
2,427,848
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,427,848
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.64%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
- -------- -----------------------------------------------------------------------
<PAGE>
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
DB Capital Partners, L.P. I.R.S. Identification No.___
- -------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) /_/
(b) /X/
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS
N/A
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS EQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
- ----------------------------------- ------- ------------------------------------
NUMBER OF SHARES BENEFICIALLY 7 SOLE VOTING POWER
OWNED BY EACH REPORTING PERSON
WITH 0
------- ------------------------------------
8 SHARED VOTING POWER
2,427,848
------- ------------------------------------
9 SOLE DISPOSITIVE POWER
0
------- ------------------------------------
10 SHARED DISPOSITIVE POWER
2,427,848
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,427,848
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.64%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
PN
- -------- -----------------------------------------------------------------------
<PAGE>
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
DB Capital Investors, L.P. I.R.S. Identification No.___
--------------------
- -------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) /_/
(b) /X/
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
- --------------------------------------------------------------------------------
NUMBER OF SHARES BENEFICIALLY 7 SOLE VOTING POWER
OWNED BY EACH REPORTING PERSON
WITH 0
------- ------------------------------------
8 SHARED VOTING POWER
2,427,848
------- ------------------------------------
9 SOLE DISPOSITIVE POWER
0
------- ------------------------------------
10 SHARED DISPOSITIVE POWER
2,427,848
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,427,848
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.64%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
PN
- -------- -----------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
Computer Outsourcing Services, Inc.
Item 1. Security and Issuer
This statement on Schedule 13D relates to the common stock, $0.01 par
value per share ("Common Stock"), of Computer Outsourcing Services, Inc., a
Delaware corporation (the "Company"), the principal executive offices of which
are located at 2 Christie Heights Street, Leonia, New Jersey, 07605.
Item 2. Identity and Background
This statement on Schedule 13D is being filed by Taunus Corporation
("Taunus"), a corporation organized under the laws of the State of Delaware, DB
Capital Partners, Inc. ("DBCP Inc."), a corporation organized under the laws of
the State of Delaware, DB Capital Partners, L.P. ("DBCP L.P."), a limited
partnership organized under the laws of the State of Delaware, and DB Capital
Investors, L.P. ("DBCI"), a limited partnership organized under the laws of the
State of Delaware. Taunus, DBCP Inc., DBCP L.P. and DBCI are hereinafter
sometimes collectively referred to as the "Reporting Persons."
Taunus's principal business is to function as a holding company for
Deutsche Bank AG's United States operations. DBCI is an indirect wholly-owned
subsidiary of Taunus and DBCI's principal business is to function as the
merchant banking arm of Deutsche Bank AG. DBCP Inc. is the general partner of
DBCP L.P, which is the general partner of DBCI. The principal business of DBCP
Inc. and DBCP L.P. is to serve as holding companies.
The address of Taunus's principal place of business and principal
office is 31 West 52nd Street, New York, New York 10019. The address of DBCP
Inc.'s, DBCP L.P.'s, and DBCI's principal place of business and principal office
is 130 Liberty Street, New York, New York 10006.
The attached Schedule I is a list of each general partner of DBCI and
DBCP L.P. and executive officers and directors of Taunus and DBCP, Inc., which
contains the following information with respect to each such person: (i) name;
(ii) business address; (iii) present principal occupation or employment and the
name, principal business and address of any corporation or other organization in
which such employment is conducted; and (iv) citizenship, if applicable.
During the last five years, neither Taunus, DBCP, Inc., DBCP L.P.,
DBCI nor, to the best of Taunus's, DBCP Inc.'s, DBCP L.P.'s or DBCI's knowledge,
as the case may be, any person named on Schedule I hereto has been convicted in
a criminal proceeding (excluding traffic violations or similar misdemeanors) or
has been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration
As of April 7, 2000, the Company, DBCI, Sandler Capital Partners IV,
L.P., Sandler Capital Partners IV FTE, L.P., Sandler Internet Partners, L.P.,
and Sandler Co-Investment Partners, L.P. entered into a Securities Purchase
Agreement whereby among other things, the Company issued and sold to DBCI
78,688.5 shares of its Series A Preferred Stock, which are initially convertible
into 786,885 shares of Common Stock, together with 1,265,963 Warrants to
purchase an aggregate of 1,265,963 shares of Common Stock at an exercise price
of $0.01. Pursuant to an Assignment and Assumption of Securities Agreement,
dated as of May 10, 2000, (i) Sandler Capital Partners IV, L.P., Sandler Capital
Partners IV FTE, L.P., Sandler Internet Partners, L.P., and Sandler
Co-Investment Partners, L.P. (the "Assignors") assigned all of their right,
title and interest in the Series A Preferred Stock and Warrants to be purchased
by the Assignors under the Securities Purchase Agreement to Sandler Capital
Partners V, L.P., Sandler Internet Partners, L.P., Sandler Co-Investment
Partners, L.P., Price Family Limited Partners, and Benake, L.P. (the
"Assignees"), (ii) the Assignees assumed all obligations of the Assignors under
the Securities Purchase Agreement and (iii) the Company consented to the
assignment and assumption.
Additionally, pursuant to an Option Agreement, dated as of May 10,
2000, between Zach Lonstein, Chairman of the Board and Chief Executive Officer
of the Company, and DBCI, Mr. Lonstein granted an irrevocable Option to DBCI to
purchase up to 375,000 shares of Common Stock held by him at a purchase price of
$25.00 per share.
The source of the funds used in entering into the transactions
described above is working capital of DBCI. The amount of funds used in making
the purchase of the Series A Preferred Stock, the Warrants and the Option is
$30,000,000.
Item 4. Purpose of the Transaction
DBCI purchased the Series A Preferred Stock, the Warrants, and the
Option for the purpose of investment. Although the DBCI does not presently plan
to convert the Series A Preferred Stock or exercise the Warrants or the Option,
it reserves the right to do so.
Pursuant to a Stockholders Agreement, dated as of May 10, by and among
the Company, DBCI, Sandler Capital Partners V, L.P., Sandler Internet Partners,
L.P., Sandler Co-Investment Partners, L.P., certain Management Stockholders
party thereto and certain Non-Management Stockholders party thereto, the board
of directors of the Company will be increased from 7 to 9 directors, two of
which will be directors designated by DBCI and two of which will be directors
designated by the Sandler Entities, as defined in the Stockholders Agreement,
(together, the "Series A Directors"). The following acts, expenditures,
decisions and obligations made or incurred by the Company shall require the
prior unanimous written approval of the Series A Directors:
(i) the hiring or termination of any senior officers of the Company or
any Subsidiary including, without limitation, with respect to the Company
and its subsidiary, Infocrossing, Inc., the Chief Executive Officer, Chief
Financial Officer, Chief Operating Officer, President or any officer
reporting directly to the President, or Chief Executive Officer and, with
respect to any other Subsidiary, the Chief Executive Officer, Chief
Operating Officer or President;
(ii) approval of the Company's annual business plan, operating budget
and capital budget;
(iii) any capital expenditure or series of related capital
expenditures by the Company or any Subsidiary to the extent (x) not
otherwise included in the approved annual capital budget or (y) such
expenditure or series of expenditures would cause, together with all other
capital expenditures to such time, the Company's capital budget to be
exceeded by $250,000 in the aggregate;
(iv) in a single transaction or series of related transactions, the
consolidation or merger with or into, or sale, assignment, transfer, lease,
conveyance or disposal of all or substantially all of the Company's assets
to, any person; the agreement to any plan of recapitalization; consent to,
approval or recommendation of any tender offer for any class or series of
the Company's capital stock or consent to, approval or recommendation of
any change of control of, or action which is expected to result in a change
of control of, the Company; or adoption of a plan of liquidation or the
making of any payments in liquidation or with respect to the winding up of
the Company;
(v) the authorization or creation of, modification of the terms of or,
increase in the authorized amount of any class or series of equity
securities of the Company or the issuance or sale of any equity securities
or any equity securities which are convertible or exchangeable into or
exercisable for any equity securities of the Company, other than (i)
compensatory or incentive stock options (or any shares of Common Stock
issued upon the exercise thereof) issued pursuant to employee stock option
plans of the Company which have been approved by the Board of Directors of
the Company, (B) issuances of Common Stock to employees, officers,
directors and consultants of the Company, pursuant to employee benefit
plans approved by the Board of Directors of the Company, or (C) shares of
Common Stock issued upon (x) the conversion of the Series A Preferred Stock
or (y) the exercise of the Warrants.
(vi) the making, or permitting of any subsidiary of the Company to
make, any acquisition or divestiture in which the total consideration
exceeds $5,000,000;
(vii) incurring, guaranteeing or otherwise incurring or assuming any
obligations or any indebtedness for borrowed money or capitalized leases
(other than indebtedness of the Company to any of its wholly owned
subsidiaries or of any subsidiary of the Company to the Company or any
wholly owned subsidiary of the Company) (other than trade payables in the
ordinary course of business) in excess of $2,500,000 in the aggregate;
(viii) entering into any transaction with (including, without
limitation, the purchase, lease or sale of any property of the rendering of
or contracting for any services) with any affiliate (other than a wholly
owned subsidiary) of the Company; provided, that the Company may issue
options or shares of Common Stock to affiliates (other than wholly owned
subsidiaries) of the Company to the extent such options or shares are
issued pursuant to the terms of employee benefit plans approved by the
Board of Directors of the Company; and
(ix) increasing the number of options, shares of Common Stock, or
other securities which may be granted under, or which are subject to or
underlie any employee benefits plan of the Company or any subsidiary,
including, without limitation, any stock option plan, stock incentive plan,
restricted stock plan, stock appreciation rights plan, phantom stock plan
or other similar plan.
Pursuant to a Certificate of Designation of the Powers, Preferences
and Other Special Rights of Series A Cumulative Convertible Participating
Preferred Stock, the approval of the holders of at least two thirds of the then
outstanding shares of Series A Preferred Stock voting or consenting, as the case
may be, as one class, will be required for the Company to:
(i) amend the Certificate of Incorporation, the Certificate of
Designation or the By-Laws so as to (A) affect adversely the rights,
preferences (including, without limitation, liquidation preferences,
conversion price, dividend rate and optional redemption provisions),
privileges or voting rights of holders of the shares of Series A Preferred
Stock, or (B) increase or decrease the number of authorized shares of
Series A Preferred Stock;
(ii) in a single transaction or series of related transactions,
consolidate or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, any
person, agree to any plan of recapitalization, consent to, approve or
recommend any tender offer for any class or series of the Company's capital
stock or consent to, approve or recommend any change of control of, or
action which is expected to result in a change of control of, the Company
or adopt a plan of liquidation or make any payments in liquidation or with
respect to the winding up of the Company;
(iii) enter into, or permit any of its subsidiaries to enter into, any
agreement that would impose material restrictions on the Company's ability
to honor the exercise of any rights of the holders of the Series A
Preferred Stock;
(iv) issue or sell any equity securities of the Company which ranks
senior to, or pari passu with, the Series A Preferred Stock in right of
distribution or dividend or right of liquidation or issue or sell any class
or series of equity securities which are convertible or exchangeable into
or exercisable for any equity securities of the Company which rank senior
to, or pari passu with, the Series A Preferred Stock in right of
distribution, dividend or right of liquidation;
(v) subdivide, consolidate, convert, reclassify or modify any
outstanding shares of the Company to the extent it would impair or reduce
the rights of holders of the Series A Preferred Stock; and
(vi) pay any dividends on any class of stock (other than the Series A
Preferred Stock) or redeem, purchase or repurchase or set aside any funds
for the redemption, purchase or repurchase of, any shares of capital stock
or other equity securities of the Company or any subsidiary of the Company.
Except as described above and elsewhere herein, neither the Reporting
Persons nor, to the best of their knowledge, any of the individuals referred to
in Item 2, has any present plan or proposal which relates to, or could result in
the occurrence of, any of the events referred to in subparagraphs (a) through
(j) of Item 4 of Schedule 13D (although they reserve the right to develop such
plans).
Item 5. Interest in Securities of the Issuer
(a) DBCI's beneficial ownership of 2,427,848 shares of Common Stock
constitutes beneficial ownership of 32.64% of the total number of shares of
outstanding Common Stock. Each of Taunus, DBCP Inc. and DBCP L.P. may be deemed
to be the beneficial owner of the shares of Common Stock beneficially owned by
DBCI.
(b) Each of DBCI, DBCP L.P., DBCP Inc., and Taunus has the shared
power to vote, dispose or direct the vote or disposition of the 2,427,848 shares
of Common Stock.
(c) During the past sixty days, none of DBCI, DBCP L.P., DBCP Inc. nor
Taunus, nor, to the best knowledge of DBCI, DBCP L.P., DBCP Inc., and Taunus,
any of the persons set forth on Schedule I, has effected any transactions in
shares of Common Stock.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer
Securities Purchase Agreement. Pursuant to the Securities Purchase
Agreement the Company, among other things, issued and sold to DBCI 78,688.5
shares of its Series A Preferred Stock, which are initially convertible into
786,885 shares of Common Stock, together with 1,265,963 Warrants to purchase an
aggregate of 1,265,963 shares of Common Stock at an exercise price of $0.01.
DBCI has customary preemptive rights with respect to issuances of common stock
issued below the then applicable conversion price. For so long as the Series A
Preferred Stock is outstanding, the Company shall provide the holders of the
Series A Preferred Stock with the information specified in Rule 144A(d) under
the Securities Act of 1933. The Securities Purchase Agreement contains covenants
which are customary for similar transactions of its kind.
Registration Rights Agreement. The holders of a majority of the
securities issued to DBCI pursuant to the Securities Purchase Agreement (the
"DBCI Holders") have certain registration rights pursuant to a Registration
Rights Agreement, dated as of May 10, 2000, including the right to request on
two occasions that the Company, at the Company's expense, register pursuant to
the Securities Act of 1933, shares of Series A Preferred Stock, Warrants, and
any shares of Common Stock received upon conversion of any Series A Preferred
Stock, exercise of any Warrants, or purchase pursuant to the Option, that are
held by the DBCI Holders. Additionally, one of the DBCI Holder's requests may be
a request that the Company effect a shelf registration covering any of the
securities mentioned in the preceding sentence. The DBCI Holders also have the
right, subject to limitations, to request that the Company, at the Company's
expense, include shares of Series A Preferred Stock in a registration undertaken
by the Company. All requests for registration are subject to customary terms and
conditions.
Stockholders Agreement. Pursuant to the Stockholders Agreement the
parties thereto agreed to certain restrictions on the transfer of the Series A
Preferred Stock. Additionally, the parties to the Stockholders Agreement agreed
to vote all of their securities for an increase in the size of the Board of
Directors from 7 to 9 and for the election of two directors designated by DBCI
and two directors designated by the Sandler Entities, as defined in the
Stockholders Agreement. Additionally, certain actions of the Company will
require the approval of the Series A Directors, as described in Item 4 above.
Certificate of Designation. Pursuant to the Certificate of Designation
of the Powers, Preferences and Other Special Rights of the Series A Cumulative
Convertible Participating Preferred Stock the shares of Series A Preferred
Stock, with respect to dividend rights and rights on liquidation, winding-up and
dissolution, rank senior to all shares of Common Stock. Holders of Series A
Preferred Stock are entitled to receive, when, as, and if authorized by the
Board of Directors of the Company, (i) cumulative dividends from May 10, 2000,
at a rate of 8% per annum and (ii) distributions in an amount per share of
Series A Preferred Stock equal to the product of the number of shares of Common
Stock into which such shares of Series A Preferred Stock could then be
converted, multiplied by the per share dividend, if any, declared on the Common
Stock. Arrearages of unpaid dividends ("Accumulated Dividends") will cumulate
and compound quarterly at the rate of 8% per annum.
Holders of Series A Preferred Stock may at any time convert each share
of Series A Preferred Stock into ten shares of Common Stock, subject to
customary adjustment provisions.
The shares of Series A Preferred Stock may be redeemed at any time
commencing on or after June 1, 2005, in whole or from time to time in part, at
the election of the Company, at a redemption price per share in cash as set
forth in Section 10 of the Certificate of Designation.
If a change of control occurs, each holder of Series A Preferred Stock
shall have the rights, but not the obligation, within sixty days after receipt
of notice of the change of control, to sell to the Company any or all of such
holder's shares of Series A Preferred Stock for a price as set forth in Section
13(c) of the Certificate of Designation. If a change of control occurs prior to
May 10, 2003, the holders of the Series A Preferred Stock are entitled to a
special payment as set forth in Section 13(b) of the Certificate of Designation.
Additionally, the Certificate of Designation requires the approval of
the holders of at least two thirds of the then outstanding shares of Series A
Preferred Stock in order for the Company to take certain actions, as described
in Item 4 above.
Warrant Agreement. The Warrant Agreement, dated as of May 10, 2000,
between the Company and the Warrantholders party thereto, entitles the holder of
each Warrant to purchase one share of Common Stock at an exercise price of $0.01
per share. The Warrant Agreement contains certain customary anti-dilution
protections.
Option Agreement. Pursuant to an Option Agreement, dated as of May 10,
2000, between Zach Lonstein, Chairman of the Board and Chief Executive Officer
of the Company, and DBCI, Mr. Lonstein granted an irrevocable Option to DBCI to
purchase up to 375,000 shares of Common Stock held by him at a purchase price of
$25.00 per share.
Item 7. Material to be Filed as Exhibits
The following exhibits are filed with this statement:
1. Joint Filing Agreement
2. Certificate of Designation of the Powers, Preferences and
Other Special Rights of Series A Cumulative Convertible Participating
Preferred Stock.
3. Securities Purchase Agreement, dated as of April 7, 2000, by
and among the Company, DB Capital Investors, L.P., Sandler Capital Partners
IV, L.P., Sandler Capital Partners IV FTE, L.P., Sandler Internet Partners,
L.P., and Sandler Co-Investment Partners, L.P.
4. Registration Rights Agreement, dated as of May 10, 2000, DB
Capital Investors, L.P., Sandler Capital Partners V, L.P., Sandler Internet
Partners, L.P., Sandler Co-Investment Partners, L.P., Price Family Limited
Partners and Benake, L.P.
5. Stockholders Agreement, dated as of May 10, 2000, DB Capital
Investors, L.P., Sandler Capital Partners V, L.P., Sandler Internet
Partners, L.P., Sandler Co-Investment Partners, L.P. the Management
Stockholders party thereto and the Non-Management Stockholders party
thereto.
6. Warrant Agreement, dated as of May 10, 2000, by and among the
Company and the Warrantholders party thereto.
7. Option Agreement, dated as of May 10, 2000, by and between
DBCI and Zach Lonstein.
8. Assigment and Assumption Agreement, dated as of May 10, 2000,
by and between the Company and each of the Assignors and Assignees party
thereto.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 22, 2000
TAUNUS CORPORATION
By:/s/ David M. Mellgard
----------------------------
Name: David M. Mellgard
Title: Secretary
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 22, 2000
DB CAPITAL PARTNERS, INC.
By:/s/ Frank Schiff
----------------------------
Name: Frank L. Schiff
Title: Managing Director
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 22, 2000
DB CAPITAL PARTNERS, L.P.
By: DB CAPITAL PARTNERS, INC.,
its General Partner
By:/s/ Frank Schiff
----------------------------
Name: Frank L. Schiff
Title: Managing Director
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 22, 2000
DB CAPITAL INVESTORS, L.P.
By: DB CAPITAL PARTNERS, L.P.
its General Partner
By: DB CAPITAL PARTNERS, INC.,
its General Partner
By:/s/ Frank Schiff
----------------------------
Name: Frank L. Schiff
Title: Managing Director
The following table sets forth a list of each general partner of DBCI
and DBCP L.P. and executive officers and directors of DBCP, Inc., which contains
the following information with respect to each such person: (i) name; (ii)
business address, (iii) present principal occupation or employment and the name,
principal business and address of any corporation or other organization in which
such employment is conducted; and (iv) citizenship.
<TABLE>
A.
General Partners of DBCI
<CAPTION>
Present principal occupation or employment
Name/Position Citizenship and name and business address of employer
- ------------- ------------------ ------------------------------------------
<S> <C> <C>
DB Capital Partners, L.P. Delaware 130 Liberty Street, 25th Floor
General Partner New York, New York 10006
</TABLE>
<TABLE>
B.
General Partners of DBCP L.P.
<CAPTION>
Present principal occupation or employment and
Name/Position Citizenship name and business address of employer
- ------------- ------------------ ------------------------------------
<S> <C> <C>
DB Capital Partners, Inc. Delaware 130 Liberty Street, 25th Floor
General Partner New York, New York 10006
</TABLE>
<TABLE>
C.
Executive Officers and Directors of DBCP Inc.
<CAPTION>
Present principal occupation or employment and
Name/Position Citizenship name and business address of employer
- ------------- ------------------ ------------------------------------
<S> <C> <C>
Charles Ayres United States Managing Director of
Managing Director DB Capital Partners, Inc.
130 Liberty Street, 25th Floor
New York, New York 10006
Joseph T. Wood United States Managing Director of
Managing Director DB Capital Partners, Inc.
130 Liberty Street, 25th Floor
New York, New York 10006
James Edward Virtue United States President of Deutsche Bank Securities Inc.
Managing Director 130 Liberty Street, 25th Floor
New York, New York 10006
</TABLE>
<TABLE>
D.
Executive Officers and Directors of Taunus
<CAPTION>
Present principal occupation or employment and
Name/Position Citizenship name and business address of employer
- ------------- ------------------ ------------------------------------
<S> <C> <C>
Richard W. Ferguson/ United States Managing Director of Deutsche Bank AG,
Director and Treasurer New York Branch
31 West 52nd Street
New York, NY 10019
Gary T. Handel/ United States Managing Director of Deutsche Bank AG,
Director New York Branch
31 West 52nd Street
New York, NY 10019
John A. Ross/ United States Executive Vice President and General Manager of
Director, President and Chief Deutsche Bank AG,
Executive Officer New York Branch
31 West 52nd Street
New York, NY 10019
Troland S. Link/ United States Managing Director and General Counsel of
Vice President Deutsche Bank AG,
New York Branch
31 West 52nd Street
New York, NY 10019
David M. Mellgard/ United States Director and Counsel of Deutsche Bank AG,
Secretary New York Branch
31 West 52nd Street
New York, NY 10019
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
1. Joint Filing Agreement
2. Certificate of Designation of the Powers,
Preferences and Other Special Rights of Series A
Cumulative Convertible Participating Preferred
Stock.
3. Securities Purchase Agreement, dated as of April 7,
2000, by and among the Company, DB Capital
Investors, L.P., Sandler Capital Partners IV, L.P.,
Sandler Capital Partners IV FTE, L.P., Sandler
Internet Partners, L.P., and Sandler Co-Investment
Partners, L.P.
4. Registration Rights Agreement, dated as of May 10,
2000, DB Capital Investors, L.P., Sandler Capital
Partners V, L.P., Sandler Internet Partners, L.P.,
Sandler Co-Investment Partners, L.P., Price Family
Limited Partners and Benake, L.P.
5. Stockholders Agreement, dated as of May 10, 2000, DB
Capital Investors, L.P., Sandler Capital Partners V,
L.P., Sandler Internet Partners, L.P., Sandler
Co-Investment Partners, L.P. the Management
Stockholders party thereto and the Non-Management
Stockholders party thereto.
6. Warrant Agreement, dated as of May 10, 2000, by and
among the Company and the Warrantholders party
thereto.
7. Option Agreement, dated as of May 10, 2000, by and
between DBCI and Zach Lonstein.
8. Assigment and Assumption Agreement, dated as of
May 10, 2000, by and between the Company and each
of the Assignors and Assignees party thereto.
<PAGE>
EXHIBIT 1
JOINT FILING AGREEMENT
Pursuant to paragraph (iii) of Rule 13d-1(k)(1) promulgated by the
Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934, as amended, each of the undersigned hereby agrees that the
statement on Schedule 13D to which this Agreement shall be attached as an
exhibit, including all amendments thereto, shall be filed with the Commission on
behalf of each of the undersigned.
Dated: May __, 2000
Taunus Corporation
By:/s/ David M. Mellgard
-------------------------
Name: David M. Mellgard
Title: Secretary
DB Capital Partners, Inc.
By:/s/ Frank Schiff
-------------------------
Name: Frank L. Schiff
Title: Managing Director
DB Capital Partners, L.P.
By: DB Capital Partners, Inc.,
its General Partner
By:/s/ Frank Schiff
-------------------------
Name: Frank L. Schiff
Title: Managing Director
DB Capital Investors, L.P.
By: DB Capital Partners, L.P.
its General Partner
By: DB Capital Partners, Inc.
its General Partner
By:/s/ Frank Schiff
-------------------------
Name: Frank L. Schiff
Title: Managing Director
EXHIBIT 2
COMPUTER OUTSOURCING SERVICES, INC.
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND OTHER SPECIAL RIGHTS OF SERIES A
CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK
Series A Cumulative Convertible Participating Preferred Stock due 2007
Computer Outsourcing Services, Inc., a company organized and existing
under the General Corporation Law of the State of Delaware (the "Company"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation (the "Certificate of Incorporation") and its By-Laws (the
"By-Laws"), and in accordance with Section 151 of the General Corporation Law of
the State of Delaware, the board of directors of the Company (the "Board of
Directors") at a meeting duly called and held on April 5, 2000, duly approved
and adopted the following resolution, which resolution remains in full force and
effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors by the Certificate of Incorporation and By-Laws, the Board of
Directors does hereby create, authorize and provide for the issue of a series of
Preferred Stock having the following designation, voting powers, preferences and
relative, participating, optional and other special rights:
Capitalized terms used herein are defined in Section 17.
1. Number and Designation. The Company shall have a series of
Preferred Stock, which shall be designated as its Series A Cumulative
Convertible Participating Preferred Stock due 2007 (the "Series A Preferred
Stock"), par value $0.01 per share, with 300,000 shares initially authorized
and, subject to the limitations set forth herein, such number of additional
shares as are authorized from time to time by resolution of the Board of
Directors for payment of dividends (including Special Payments) on the Series A
Preferred Stock in accordance with Section 11 hereof. Unless otherwise
specified, references herein to any "Section" refer to the Section number
specified in this Certificate of Designation.
2. Issuance. The Company may issue up to 157,377 shares of Series A
Preferred Stock in accordance with the Purchase Agreement dated April 7, 2000,
and may issue additional shares of Series A Preferred Stock as dividends on the
Series A Preferred Stock as may be determined from time to time by the Board of
Directors, in accordance with the terms of this Certificate of Designation.
3. Registered Form; Liquidation Preference; Registrar. Certificates
for shares of Series A Preferred Stock shall be issuable only in registered
form, with a liquidation preference equal to the Issuance Price per share of
Series A Preferred Stock (the "Liquidation Preference"). The Company shall serve
as initial Registrar and Transfer Agent (the "Registrar") for the Series A
Preferred Stock.
4. Registration; Transfer. Shares of the Series A Preferred Stock have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be resold, pledged or otherwise transferred prior
to the date when they may be resold pursuant to Rule 144 under the Securities
Act other than (i) to the Company, (ii) pursuant to an exemption from
registration under the Securities Act or (iii) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States. Until such
time as it is no longer required pursuant to the Securities Act, certificates
evidencing the Series A Preferred Stock shall contain a legend (the "Restricted
Shares Legend") evidencing the foregoing restrictions in substantially the form
set forth on the form of Series A Preferred Stock attached hereto as Exhibit A.
5. Paying Agent and Conversion Agent. (a) The Company shall maintain
(i) an office or agency where shares of Series A Preferred Stock may be
presented for payment (the "Paying Agent") and (ii) an office or agency where
shares of Series A Preferred Stock may be presented for conversion (the
"Conversion Agent"). The Company may appoint the Registrar, the Paying Agent and
the Conversion Agent and may appoint one or more additional paying agents and
one or more additional conversion agents in such other locations as it shall
determine. The term "Paying Agent" includes any additional paying agent, and the
term "Conversion Agent" includes any additional conversion agent. The Company
may change any Paying Agent or Conversion Agent without prior notice to any
Holder. The Company shall notify the Registrar of the name and address of any
Paying Agent or Conversion Agent appointed by the Company. If the Company fails
to appoint or maintain another entity as Paying Agent or Conversion Agent, the
Registrar shall act as such. Notwithstanding the foregoing, the Company or any
of its Affiliates may act as Paying Agent, Registrar, co-registrar or Conversion
Agent and the Company shall be the initial Paying Agent and the initial
Conversion Agent.
(b) Neither the Company nor the Registrar shall be required (A) to
issue, countersign or register the transfer of or exchange any share of Series A
Preferred Stock during a period beginning at the opening of business 15 days
before any Redemption Date and ending at the close of business on such
Redemption Date or (B) to register the transfer of or exchange any share of
Series A Preferred Stock so selected for redemption in whole or in part, except
the unredeemed portion of any share of Series A Preferred Stock being redeemed
in part.
(c) If shares of Series A Preferred Stock are issued upon the
transfer, exchange or replacement of shares of Series A Preferred Stock bearing
the Restricted Shares Legend, or if a request is made to remove such Restricted
Shares Legend on shares of Series A Preferred Stock, the shares of Series A
Preferred Stock so issued shall bear the Restricted Shares Legend, or the
Restricted Shares Legend shall not be removed, as the case may be, unless the
Holders of such shares shall request that the Restricted Shares Legend be
removed, and outside counsel for such Holders reasonably determines that the
transfer of such shares is no longer restricted by the Securities Act.
(d) If any payment due on the shares of Series A Preferred Stock is in
cash, it shall be payable by United States dollar check drawn on, or wire
transfer (provided that appropriate wire instructions have been received by the
Registrar at least two Business Days prior to the applicable date of payment) to
a United States dollar account maintained by the Holder with, a bank located in
New York City; provided that at the option of the Company payment of dividends
in cash may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the books and records of the Registrar
maintained with respect to the Series A Preferred Stock.
6. Dividend Rights. (a) The Company shall pay, and the Holders of the
shares of Series A Preferred Stock shall be entitled to receive, when, as, and
if authorized by the Board of Directors (or any authorized committee thereof),
(i) cumulative dividends from the date of initial issuance of such shares of
Series A Preferred Stock at a rate of 8% per annum on the amount of the then
effective Liquidation Preference of the shares of Series A Preferred Stock
("Coupon Dividends") and (ii) distributions in an amount per share of Series A
Preferred Stock equal to the product of the number of shares of Common Stock
into which such shares of Series A Preferred Stock could then be converted,
multiplied by the per share dividend (whether in cash or property), if any,
declared on the Company's Outstanding Common Stock.
(b) Coupon Dividends will be computed on the basis of a 360 day year
of twelve 30 day months and will be payable (to the extent not accumulated in
accordance with the terms hereof) in cash; provided that Coupon Dividends shall
not be paid in cash (but instead shall accumulate) until the thirteenth Dividend
Payment Date after the issuance of the Series A Preferred Stock. Coupon
Dividends will be paid or accrued quarterly in arrears on each Dividend Payment
Date, commencing June 1, 2000, for so long as the shares of Series A Preferred
Stock are Outstanding. The Company may elect not to declare dividend payments on
any Dividend Payment Date; provided, however, that Coupon Dividends on shares of
the Series A Preferred Stock will accrue whether or not the Company has earnings
or profits, whether or not there are funds legally available for the payment of
such dividends and whether or not dividends are declared. Coupon Dividends will
accumulate to the extent they are not paid on the Dividend Payment Date for the
period to which they relate. Arrearages of unpaid Coupon Dividends ("Accumulated
Dividends") will cumulate and compound quarterly at the rate of 8% per annum and
such cumulated and compounded dividends shall thereafter constitute Accumulated
Dividends. The Company will take all actions required or permitted under the
General Corporation Law of the State of Delaware to permit the payment of
dividends on the shares of Series A Preferred Stock.
7. Payment of Dividend; Mechanics of Payment; Dividend Rights
Preserved. (a) Coupon Dividends on any share of Series A Preferred Stock that
are payable, and are punctually paid or duly provided for, on any Dividend
Payment Date shall be paid in arrears to the Person in whose name such share of
Series A Preferred Stock (or one or more predecessor shares of Series A
Preferred Stock) is registered at the close of business on the next preceding
May 15, August 15, November 15 and February 15 (each, together with any record
date established for the payment of Accumulated Dividends, a "Dividend Record
Date"). Dividends payable pursuant to Section 6(a)(ii) shall be payable on the
date set for payment thereof to Holders of shares of Series A Preferred Stock
Outstanding on the record date established with respect to such dividends
(b) Unless full cumulative dividends on all Outstanding shares of
Series A Preferred Stock for all past dividend periods shall have been declared
and paid, or declared and a sufficient sum for the payment thereof set apart,
then:
(i) no dividend (other than (A), with respect to Junior Shares or
Parity Shares, a dividend payable solely in any Junior Shares or Parity
Shares, respectively, or (B) with respect to Parity Shares, a partial
dividend paid pro rata on such Parity Shares and the shares of Series A
Preferred Stock) shall be declared or paid upon, or any sum set apart for
the payment of dividends upon, any Junior Shares or Parity Shares,
respectively;
(ii) no other distribution shall be declared or made upon, or any
sum set apart for the payment of any distribution, upon, any Junior Shares
or Parity Shares, other than a distribution consisting solely of Junior
Shares or Parity Shares, respectively;
(iii) no Junior Shares or Parity Shares or any warrants, rights,
calls or options (other than any cashless exercises of options or option
buybacks) exercisable for or convertible into any Parity Share or Junior
Share shall be purchased, redeemed or otherwise acquired or retired for
value (other than in exchange for other Junior Shares or Parity Shares,
respectively and other than any Series A Common Stock Warrant of the
Company held by any Holder of Series A Preferred Stock) by the Company or
any of its subsidiaries; and
(iv) no monies shall be paid into or set apart or made available
for a sinking or other like fund for the purchase, redemption or other
acquisition of any Junior Shares or Parity Shares or any warrants, rights,
calls or options exercisable for or convertible into any Parity Shares or
Junior Shares by the Company or any of its subsidiaries (other than any
cashless exercises of options or option buybacks).
(c) The Company will notify the Registrar and make a public
announcement no later than the close of business on the tenth Business Day prior
to the record date for each dividend as to whether it will pay such dividend
and, if so, the form of consideration it will use to make such payment.
(d) Any Accumulated Dividends on any share of Series A Preferred Stock
may be paid, subject to Section 6, by the Company in any lawful manner (which
shall include the establishment of a record date not more than 45 days prior to
the payment thereof) not inconsistent with the requirements of any securities
exchange on which the shares of Series A Preferred Stock may be listed, and upon
such notice (which shall precede the record date by at least ten Business Days)
as may be required by such exchange, if, after notice given by the Company to
the Registrar of the proposed payment pursuant to this clause (d), such manner
of payment shall be deemed practicable by the Registrar.
(e) Subject to the foregoing provisions of this Section 7, each share
of Series A Preferred Stock delivered under this Certificate of Designation upon
registration of transfer of or in exchange for or in lieu of any other share of
Series A Preferred Stock shall carry the rights to unpaid Accumulated Dividends,
that were carried by such other shares of Series A Preferred Stock.
(f) The Holder of record of a share of Series A Preferred Stock at the
close of business on a Dividend Record Date with respect to the payment of
dividends on the shares of Series A Preferred Stock will be entitled to receive
such dividends with respect to such share of Series A Preferred Stock on the
corresponding Dividend Payment Date, notwithstanding the conversion of such
share after such Dividend Record Date and prior to such Dividend Payment Date.
8. Voting Rights. (a) The Holders of record of shares of Series A
Preferred Stock shall not be entitled to any voting rights except as hereinafter
provided in this Section 8 or as otherwise provided by law.
(b) The Holders of record of shares of Series A Preferred Stock shall
be entitled to vote on all matters that the Holders of the Company's Common
Stock are entitled to vote upon on, with each share of Series A Preferred Stock
having a number of votes equal to the number of shares of Common Stock into
which such share could be converted as of the record date for such vote, in
accordance with Section 12 of this Certificate of Designation.
(c) The approval of the Holders of at least two thirds of the then
Outstanding shares of Series A Preferred Stock voting or consenting, as the case
may be, as one class, will be required for the Company to:
(i) amend the Certificate of Incorporation, this Certificate of
Designation or the By-Laws so as to (A) affect adversely the rights,
preferences (including, without limitation, liquidation preferences,
conversion price, dividend rate and Optional Redemption provisions),
privileges or voting rights of Holders of the shares of Series A Preferred
Stock, or (B) increase or decrease the number of authorized shares of
Series A Preferred Stock;
(ii) in a single transaction or series of related transactions,
consolidate or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, any
Person, agree to any plan of recapitalization, consent to, approve or
recommend any tender offer for any class or series of the Company's Capital
Stock or consent to, approve or recommend any Change of Control of, or
action which is expected to result in a Change of Control of, the Company
or adopt a plan of liquidation or make any payments in liquidation or with
respect to the winding up of the Company;
(iii) enter into, or permit any of its subsidiaries to enter
into, any agreement that would impose material restrictions on the
Company's ability to honor the exercise of any rights of the Holders of the
Series A Preferred Stock;
(iv) issue or sell any equity securities of the Company which
ranks senior to, or pari passu with, the Series A Preferred Stock in right
of distribution or dividend or right of liquidation or issue or sell any
class or series of equity securities which are convertible or exchangeable
into or exercisable for any equity securities of the Company which rank
senior to, or pari passu with, the Series A Preferred Stock in right of
distribution, dividend or right of liquidation;
(v) subdivide, consolidate, convert, reclassify or modify any
Outstanding shares of the Company to the extent it would impair or reduce
the rights of Holders of the Series A Preferred Stock; and
(vi) pay any dividends on any class of stock (other than the
Series A Preferred Stock) or redeem, purchase or repurchase or set aside
any funds for the redemption, purchase or repurchase of, any shares of
Capital Stock or other equity securities of the Company or any Subsidiary.
(d) In exercising the voting rights set forth in Section 8(b), each
share of Series A Preferred Stock shall be entitled to vote on an as-converted
basis with the Holders of the Company's Common Stock. In exercising the other
voting rights set forth in this Section 8, each share of Series A Preferred
Stock entitled to vote shall have one vote per share, except that when any other
series of preferred stock shall have the right to vote with the Series A
Preferred Stock as a single class on any matter, then the Series A Preferred
Stock shall have with respect to such matters one vote per $381.25 (or fraction
thereof) of the aggregate Liquidation Preference plus all Accumulated Dividends.
(e) Except as otherwise required by applicable law or as set forth
herein, the shares of Series A Preferred Stock shall not have any relative,
participating, optional or other special voting rights and powers and the
consent of the Holders thereof shall not be required for the taking of any
corporate action.
9. Ranking. (a) The shares of Series A Preferred Stock will, with
respect to dividend rights and rights on liquidation, winding-up and
dissolution, rank (i) senior to all shares of Common Stock (whether issued in
one or more classes) and to each other class of Capital Stock or series of
Preferred Stock of the Company, the terms of which do not expressly provide that
it ranks on a parity with, or senior to, the shares of Series A Preferred Stock
as to dividend rights and rights on liquidation, winding-up and dissolution of
the Company (collectively referred to, together with all shares of Common Stock
(whether issued in one or more classes) of the Company, as "Junior Shares");
(ii) on a parity with additional shares of Series A Preferred Stock issued by
the Company and each other class of Capital Stock or series of Preferred Stock
of the Company issued by the Company in compliance with the terms of Section 8,
the terms of which expressly provide that such class or series will rank on a
parity with the shares of Series A Preferred Stock as to dividend rights and
rights on liquidation, winding-up and dissolution of the Company (collectively
referred to as "Parity Shares"); and (iii) junior to each class of Capital Stock
or series of Preferred Stock of the Company issued by the Company in compliance
with Section 8, the terms of which expressly provide that such class or series
will rank senior to the shares of Series A Preferred Stock as to dividend rights
and rights upon liquidation, winding-up and dissolution of the Company
(collectively referred to as "Senior Shares").
(b) In the event of any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the Holders of the shares of Series A
Preferred Stock then Outstanding shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Company to the
Holders of shares of Common Stock or Junior Shares by reason of their ownership
thereof, the greater of (i) an amount equal to the then effective Liquidation
Preference, plus all Accumulated Dividends, if any, plus an amount equal to all
dividends accrued and unpaid from the last Dividend Payment Date to the date
fixed for liquidation, dissolution or winding-up (the "Liquidation Amount") and
(ii) an amount equal to (x) the amount which would be payable with respect to
one share of Common Stock (assuming the conversion of all Outstanding shares of
Series A Preferred Stock immediately prior to such liquidation, dissolution or
winding-up) multiplied by (y) the number of shares of Common Stock into which
(x) all issued and Outstanding shares of Series A Preferred Stock plus (y) all
Accumulated Dividends, if any, in respect thereof, plus (z) all accrued and
unpaid dividends in respect thereof from the last Dividend Payment Date to the
date of such liquidation, conversion or winding up, could be converted
immediately prior to such liquidation, dissolution or winding-up. If upon the
occurrence of such event the assets of the Company shall be insufficient to
permit the payment to such Holders of the full preferential amount described in
the immediately preceding sentence and all liquidating payments on all Parity
Securities, the entire assets of the Company legally available for distribution
shall be distributed among the Holders of the shares of Series A Preferred Stock
and the Holders of all Parity Shares ratably in accordance with the respective
amounts that would be payable on such shares of Series A Preferred Stock and any
such Parity Securities if all amounts payable thereon were paid in full.
10. Redemption. (a) The shares of Series A Preferred Stock may be
redeemed at any time commencing on or after June 1, 2005, in whole or from time
to time in part, at the election of the Company (the "Optional Redemption"), at
a redemption price per share (the "Optional Redemption Price") in cash equal to
the greater of (i) 100% of the then effective Liquidation Amount applicable to
such share (treating the applicable date of redemption (the "Optional Redemption
Date") as the date of liquidation dissolution or winding-up for such purpose)
and (ii) the product of (A) the Current Market Value multiplied by (B) the
number of shares of Common Stock into which such share of Series A Preferred
Stock (assuming for this purpose that all Accumulated Dividends, if any, and all
accrued and unpaid dividends from the last Dividend Payment Date to the
applicable Optional Redemption Date with respect to such share of Series A
Preferred Stock had been paid immediately prior to such Optional Redemption Date
through the issuance of shares of Series A Preferred Stock with a Liquidation
Preference equal to the amount of such Accumulated Dividends and accrued and
unpaid dividends) could be converted on the applicable Optional Redemption Date.
(b) If on June 1, 2007, the Current Market Value of one share of
Common Stock is less than or equal to an amount equal to (x) 110% of the then
current Liquidation Amount with respect to one share of Series A Preferred Stock
(determined as if June 1, 2007, is the date of liquidation, dissolution or
winding-up) divided by (y) a number equal to the number of shares of Common
Stock into which (i) one share of Series A Preferred Stock, plus (ii) all
Accumulated Dividends, if any, attributable to such share of Series A Preferred
Stock, plus (iii) all accrued and unpaid dividends in respect of one share of
Series A Preferred Stock from the last Dividend Payment Date to June 1, 2007,
could be converted in accordance with the terms hereof, then, for the one year
period immediately following June 1, 2007, each Holder of Series A Preferred
Stock shall have the right, but not the obligation, to require the Company to
purchase all or any part of the shares of Series A Preferred Stock held by such
Holder on a date (which shall be a Business Day) specified by such Holder (the
"Holders' Redemption Date") in a written notice to the Company specifying the
applicable Holders' Redemption Date and the number of shares of Series A
Preferred to be redeemed on such date at a redemption price per share (the
"Holders' Redemption Price") in cash equal to 100% of the then effective
Liquidation Amount (determined as if the applicable Holders' Redemption Date is
the date of liquidation, dissolution or winding up) with respect to such share
of Series A Preferred Stock.
(c) In the event of a redemption of fewer than all the shares of
Series A Preferred Stock pursuant to Section 10(a), the shares of Series A
Preferred Stock will be chosen for redemption by the Registrar from the
Outstanding shares of Series A Preferred Stock not previously called for
redemption, pro rata or by lot or by such other method as the Registrar shall
deem fair and appropriate, provided that the Company may redeem (an "Odd-lot
Redemption") all shares held by Holders of fewer than 100 shares of Series A
Preferred Stock (or by Holders that would hold fewer than 100 shares of Series A
Preferred Stock following such redemption) prior to its redemption of other
shares of Series A Preferred Stock. If fewer than all the shares of Series A
Preferred Stock represented by any share certificate are so to be redeemed, (i)
the Company shall issue a new certificate for the shares not redeemed and (ii)
if any shares represented thereby are converted before termination of the
conversion right with respect to such shares, such converted shares shall be
deemed (so far as may be) to be the shares represented by such share certificate
that was selected for redemption. Shares of Series A Preferred Stock that have
been converted during a selection of shares of Series A Preferred Stock to be
redeemed shall be treated by the Registrar as Outstanding for the purpose of
such selection but not for the purpose of the payment of the Redemption Price
and, for the avoidance of doubt, any shares of Common Stock issued upon the
conversion prior to the Redemption Date of any shares of Series A Preferred
Stock which are called for redemption shall not be redeemed and shall remain
Outstanding.
(d) In the event the Company elects to effect an Optional Redemption,
the Company shall (i) make a public announcement of the redemption and (ii) give
a redemption notice (the "Redemption Notice") to the Holders not fewer than 30
days nor more than 60 days before the applicable Optional Redemption Date.
Whenever a Redemption Notice is required to be delivered to the Holders, such
Notice shall provide the information set forth below and be given by first class
mail, postage prepaid to each Holder of shares of Series A Preferred Stock to be
redeemed, at such Holder's address appearing in the Series A Preferred Stock
Share Register. All Redemption Notices shall identify the shares of Series A
Preferred Stock to be redeemed (including CUSIP number) and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) if fewer than all the Outstanding shares of Series A
Preferred Stock are to be redeemed, the identification (and, in the case of
partial redemption, the certificate number, the total number of shares
represented thereby and the number of such shares being redeemed on the
Redemption Date) of the particular shares of Series A Preferred Stock to be
redeemed;
(iv) that, on the Redemption Date, the Redemption Price will
become due and payable upon each such share of Series A Preferred Stock to
be redeemed and that dividends thereon will cease to accrue on and after
said date;
(v) the conversion price and the date on which the right to
convert shares of Series A Preferred Stock to be redeemed will terminate
and the place or places where such shares of Series A Preferred Stock may
be surrendered for conversion; and
(vi) the place or places where such shares of Series A Preferred
Stock are to be surrendered for payment of the Redemption Price.
The Redemption Notice shall be given by the Company or, at the
Company's request, by the Registrar in the name and at the expense of the
Company; provided that if the Company so requests, it shall provide the
Registrar adequate time, as reasonably determined by the Registrar, to deliver
such notices in a timely fashion.
(e) Prior to any Redemption Date, the Company shall deposit with the
Registrar or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust) an amount of consideration sufficient to pay
the Redemption Price of all the shares of Series A Preferred Stock that are to
be redeemed on that date. If any share of Series A Preferred Stock called for
redemption is converted, any consideration deposited with the Registrar or with
any Paying Agent or so segregated and held in trust for the redemption of such
share of Series A Preferred Stock shall be paid or delivered to the Company upon
Company Order or, if then held by the Company, shall be discharged from such
trust.
(f) Notice of redemption having been given as aforesaid, the shares of
Series A Preferred Stock so to be redeemed shall, on the Redemption Date, become
due and payable at the applicable Redemption Price, and from and after such date
(unless the Company shall default in the payment of the applicable Redemption
Price) dividends on such shares of Series A Preferred Stock shall cease to
accrue and such shares shall cease to be convertible into shares of Common
Stock. Upon surrender of any such shares of Series A Preferred Stock for
redemption in accordance with said notice, such shares of Series A Preferred
Stock shall be redeemed by the Company at the applicable Redemption Price. If
any share of Series A Preferred Stock called for redemption shall not be so paid
upon surrender thereof for redemption, the Redemption Price thereof shall, until
paid, bear interest from the Redemption Date at the dividend rate payable on the
shares of Series A Preferred Stock.
(g) Any certificate that represents more than one share of Series A
Preferred Stock and is to be redeemed only in part shall be surrendered at any
office or agency of the Company designated for that purpose (with, if the
Company or the Registrar so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Registrar
duly executed by, the Holder thereof or his attorney duly authorized in
writing), and the Company shall execute, and the Registrar shall countersign and
deliver to the Holder of such share of Series A Preferred Stock without service
charge, a new Series A Preferred Stock certificate or certificates, representing
any number of shares of Series A Preferred Stock as requested by such Holder, in
aggregate amount equal to and in exchange for the number of shares not redeemed
and represented by the Series A Preferred Stock certificate so surrendered.
(h) If a share of Series A Preferred Stock is redeemed subsequent to a
Dividend Record Date with respect to any Dividend Payment Date specified above
and on or prior to such Dividend Payment Date, then any accumulated but unpaid
dividends will be paid to the Person in whose name such share of Series A
Preferred Stock is registered at the close of business on such Dividend Record
Date.
11. Method of Payments. The Company shall make any Coupon Dividend
payments (to the extent not accumulated in accordance with terms hereof) in cash
when, and if, declared. Dividends payable pursuant to Section 6(a)(ii) shall be
payable in the same form as the related common stock dividends.
12. Conversion. (a) Subject to and upon compliance with the provisions
of this Certificate of Designation, at the option of the Holder thereof, any
share of Series A Preferred Stock may be converted at any time, into that number
of fully paid and nonassessable shares of Common Stock (calculated as to each
conversion to the nearest 1/100 of a share) equal to (i) the sum of (x) the then
effective Liquidation Preference thereof, plus (y) all Accumulated Dividends in
respect thereof, if any, plus (z) all accrued and unpaid dividends in respect
thereof from the last Dividend Payment Date to the date of conversion, divided
by (ii) the Conversion Price, determined as hereinafter provided, in effect at
the time of conversion. In case a share of Series A Preferred Stock is called
for redemption, such conversion right in respect of the share so called shall
expire at the close of business on the Business Day next preceding the
Redemption Date, unless the Company defaults in making the payment due upon
redemption.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Price") shall initially be equal to
$38.125. The Conversion Price shall be adjusted in certain instances as provided
in Section 12(d) and Section 12(e).
(b) In order to exercise the conversion privilege, the Holder of any
share of Series A Preferred Stock to be converted shall surrender the
certificate for such share, duly endorsed or assigned to the Company or in
blank, at any office or agency of the Company maintained for that purpose,
accompanied by written notice to the Company at such office or agency that the
Holder elects to convert such share or, if fewer than all the shares of Series A
Preferred Stock represented by a single share certificate are to be converted,
the number of shares represented thereby to be converted.
Shares of Series A Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day of surrender of
such shares for conversion in accordance with the foregoing provisions, and at
such time the rights of the Holders of such shares as Holders shall cease, and
the Person or Persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the record Holder or
Holders of such shares of Common Stock at such time. As promptly as practicable
on or after the conversion date, the Company shall issue and shall deliver at
such office or agency a certificate or certificates for the number of full
shares of Common Stock issuable upon conversion, together with payment in lieu
of any fraction of a share, as provided in Section 12(c).
In the case of any conversion of fewer than all the shares of Series A
Preferred Stock evidenced by a certificate, upon such conversion the Company
shall execute and the Registrar shall countersign and deliver to the Holder
thereof, at the expense of the Company, a new certificate or certificates
representing the number of unconverted shares of Series A Preferred Stock.
(c) No fractional shares of Common Stock shall be issued upon the
conversion of a share of Series A Preferred Stock. If more than one share of
Series A Preferred Stock shall be surrendered for conversion at one time by the
same Holder, the number of full shares of Common Stock which shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Series A Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
share of Series A Preferred Stock, the Company shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the closing
price (as defined in Section 12(d)(v)) per Common Share at the close of business
on the Business Day prior to the day of conversion.
(d) The Conversion Price shall be adjusted from time to time by the
Company as follows:
(i) If the Company shall hereafter pay a dividend or make a
distribution to Holders of the Outstanding shares of Common Stock (other
than a dividend or distribution in which the Holders of the Series A
Preferred Stock participate in accordance with Section 6(a)) in shares of
Common Stock, the Conversion Price in effect at the opening of business on
the date following the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator
shall be the number of shares of Common Stock Outstanding at the close of
business on the Common Stock Record Date (as defined in Section 12(d)(v))
fixed for such determination and the denominator shall be the sum of such
number of shares and the total number of shares constituting such dividend
or other distribution, such reduction to become effective immediately after
the opening of business on the day following the Common Stock Record Date.
If any dividend or distribution of the type described in this Section
12(d)(i) is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect if
such dividend or distribution had not been declared;
(ii) If the Company shall issue, sell or distribute any shares of
Common Stock (including, without limitation, any ETG Earnout Shares, which
such ETG Earnout Shares shall, for purposes of this Section 12(d)(ii) be
deemed issued for no additional consideration) or issue, sell or distribute
options, rights or warrants to any Person entitling them to subscribe for
or purchase shares of Common Stock or issue, sell or distribute convertible
or exchangeable securities which are convertible or exchangeable for shares
of Common Stock, in each case, at a price per share less than $14.61, the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect at the opening of
business on the date immediately prior to such sale, issuance or
distribution of shares, options, rights, warrants or exchangeable or
convertible securities by a fraction of which the numerator shall be the
number of shares of Common Stock Outstanding at the close of business on
such date plus the number of shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock to be issued,
sold or distributed or subject to such options, rights, warrants or
exchangeable or convertible securities would purchase at a price of $14.61
per share and of which the denominator shall be the number of shares of
Common Stock Outstanding at the close of business on such date plus the
total number of additional shares of Common Stock to be issued, sold or
distributed or subject to such options, rights, warrants or exchangeable or
convertible securities for subscription or purchase. Such adjustment shall
become effective immediately after the opening of business on the day
following the issuance, sale or distribution of such shares, options,
rights, warrants or exchangeable or convertible securities. To the extent
that shares of Common Stock are not delivered pursuant to such options,
rights, warrants or exchangeable or convertible securities, upon the
expiration or termination of such options, rights, warrants or exchangeable
or convertible securities the Conversion Price shall again be adjusted to
be the Conversion Price which would then be in effect had the adjustments
made upon the issuance of such options, rights, warrants or exchangeable or
convertible securities been made on the basis of delivery of only the
number of shares of Common Stock actually delivered. If such shares,
options, rights, warrants or exchangeable or convertible securities are not
so issued, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such date fixed for the
determination of shareholders entitled to receive such shares, options,
rights, warrants or exchangeable or convertible securities had not been
fixed. In determining whether any shares, options, rights, warrants or
exchangeable or convertible securities entitle the Holders to subscribe for
or purchase shares of Common Stock at less than $14.61 per share, and in
determining the aggregate offering price of such shares of Common Stock,
there shall be taken into account any consideration received for such
options, rights, warrants or exchangeable or convertible securities, with
the value of such consideration, if other than cash, to be determined in
good faith by the Board of Directors and the amount of any exercise price
or subscription price required to be paid upon exercise of such options,
rights, warrants or exchangeable or convertible securities ;
(iii) If the Outstanding shares of Common Stock shall be
subdivided or reclassified into a greater number of shares of Common Stock,
the Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall be
proportionately reduced, and, conversely, if the Outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common
Stock, the Conversion Price in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the case may be,
to become effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes
effective;
(iv) If any event occurs as to which the foregoing provisions of
this Section 12(d) are not strictly applicable or, if strictly applicable,
would not, in the good faith judgment of the Board of Directors, fairly and
adequately protect the conversion rights of the Holders in accordance with
the essential intent and principles of such provisions, then the Board of
Directors shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, as
shall be reasonably necessary, in the good faith opinion of such Board of
Directors, to protect such purchase rights as aforesaid, but in no event
shall any such adjustment have the effect of increasing the Conversion
Price or decreasing the number of shares of Common Stock issuable upon the
conversion of the Series A Preferred Stock.
(v) For purposes of this Section 12(d), the following terms shall
have the meaning indicated:
"closing price" with respect to any securities on any day means
the closing price on such day or, if no such sale takes place on such day,
the average of the reported high and low prices on such day, in each case
on the Nasdaq National Market or the New York Stock Exchange, as
applicable, or, if such security is not listed or admitted to trading on
such national market or exchange, on the principal national securities
exchange or quotation system in the United States on which such security is
quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system
in the United States, the average of the high and low prices of such
security on the over-the-counter market on the day in question as reported
by the National Quotation Bureau Incorporated or a similar generally
accepted reporting service in the United States, or, if not so available,
in such manner as furnished by any New York Stock Exchange member firm
selected from time to time by the Board of Directors for that purpose, or a
price determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors.
"Common Stock Record Date" shall mean with respect to any
dividend, distribution or other transaction or event in which the Holders
of Common Stock have the right to receive any cash, securities or other
property or in which the Common Stock (or other applicable security) is
exchanged for or converted into any combination of cash, securities or
other property, the date fixed for determination of shareholders entitled
to receive such cash, securities or other property (whether such date is
fixed by the Board of Directors or by statute, contract or otherwise).
(vi) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 1%
in such price; provided, however, that any adjustments which by reason of
this Section 12(d)(vi) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this Section 12 shall be made by the Company and shall be made to the
nearest cent. No adjustment need be made for a change in the par value or
no par value of the Common Stock.
(vii) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Registrar an Officers'
Certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the Company shall prepare a
notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Conversion
Price to each Holder of shares of Series A Preferred Stock at such Holder's
last address appearing on the register of Holders maintained for that
purpose within 20 days of the effective date of such adjustment. Failure to
deliver such notice shall not affect the legality or validity of any such
adjustment.
(viii) In any case in which this Section 12(d) provides that an
adjustment shall become effective immediately after a Common Stock Record
Date for an event, the Company may defer until the occurrence of such event
issuing to the Holder of any share of Series A Preferred Stock converted
after such Common Stock Record Date and before the occurrence of such event
the additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the shares
of Common Stock issuable upon such conversion before giving effect to such
adjustment.
(ix) For purposes of this Section 12(d), the number of shares of
Common Stock at any time Outstanding shall not include shares held in the
treasury of the Company. The Company shall not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the Company.
(x) Notwithstanding anything to the contrary set forth herein,
this Section 12 shall not apply, and no adjustment to the Conversion Price
shall be made with respect to (A) compensatory or incentive stock options
(or any shares of Common Stock issued upon the exercise thereof) issued
pursuant to employee stock option plans of the Company which have been
approved by the Board of Directors of the Company, (B) issuances of Common
Stock to employees, officers, directors and consultants of the Company,
pursuant to employee benefit plans approved by the Board of Directors of
the Company, (C) shares of Common Stock issued upon the conversion of the
Series A Preferred Stock, or (D) shares of Common Stock issued upon
exercise of the Warrants.
(xi) Notwithstanding anything to the contrary set forth herein,
for federal income tax purposes (but not for any other purpose of this
Certificate of Designation), any adjustments to the Conversion Price made
in respect of any ETG Earnout Shares shall be treated as an adjustment to
the purchase price of the Series A Preferred.
(e) Subject to Section 13, in case of any consolidation of the Company
with, or merger of the Company into, any other corporation, or in case of any
merger of another corporation into the Company (other than a merger that does
not result in any reclassification, conversion, exchange or cancellation of
Outstanding shares of Common Stock of the Company), or in case of any sale,
conveyance or transfer of all or substantially all the assets of the Company,
the Holder of each share of Series A Preferred Stock shall have the right
thereafter, during the period such share of Series A Preferred Stock shall be
convertible as specified in Section 12(a), to convert such share of Series A
Preferred Stock into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer by a Holder
of the number of shares of shares of Common Stock of the Company into which such
share of Series A Preferred Stock might have been converted immediately prior to
such consolidation, merger, conveyance or transfer, assuming such Holder of
shares of Common Stock of the Company failed to exercise his rights of election,
if any, as to the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer (provided
that, if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance or transfer is not the same for each
Common Share of the Company in respect of which such rights of election shall
not have been exercised ("nonelecting share"), then for the purpose of this
Section 12 the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance or transfer by each nonelecting
share shall be deemed to be the kind and amount so receivable per share by a
plurality of the nonelecting shares). Such securities shall provide for
adjustments which, for events subsequent to the effective date of the triggering
event, shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 12. The above provisions of this Section 12 shall
similarly apply to successive consolidations, mergers, conveyances or transfers.
(f) If the Company shall take any action requiring an adjustment to
the Conversion Price pursuant to Section 12(d) or 12(e), then the Company shall
cause to be filed with the Registrar and at each office or agency maintained for
the purpose of conversion of shares of Series A Preferred Stock, and shall cause
to be mailed to all Holders at their last addresses as they shall appear in the
shares of Series A Preferred Stock Register, at least 20 Business Days (or 10
Business Days in any case specified in clause (i) or (ii) above) prior to the
applicable date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of which the Holders
of shares of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and the date as of
which it is expected that Holders of shares of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. Failure to give the notice
required by this Section 12(f) or any defect therein shall not affect the
legality or validity of any dividend, distribution, right, warrant,
reclassification, consolidation, merger, sale transfer, dissolution, liquidation
or winding-up, or the vote upon any such action.
(g) The Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of shares of Series A
Preferred Stock, the full number of shares of Common Stock then issuable upon
the conversion of all Outstanding shares of Series A Preferred Stock.
(h) The Company will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of Common Stock on conversion of
shares of Series A Preferred Stock pursuant hereto.
13. Change of Control. (a) If a Change of Control shall have occurred
(the date of such occurrence being a "Change of Control Date"), the Company
shall cause to be filed with the Registrar and at each office or agency
maintained for the purpose of conversion of shares of Series A Preferred Stock,
and shall cause to be mailed to all Holders at their last addresses as they
shall appear in the Series A Preferred Stock Register, in any case within 10
days after the Change of Control Date, a notice stating (1) the Change of
Control Date, (2) the fact that Holders shall, if the Change of Control Date
occurs prior to the third anniversary of the Closing Date, receive the Special
Payment on such shares, (3) the fact that Holders of the Series A Preferred
Stock shall have the right to require the Company to purchase all or any part of
its Outstanding shares of Series A Preferred Stock (including any and all shares
received as part of the Special Payment) at a price equal to 101% of the sum of
(x) the aggregate Liquidation Preference thereof plus (y) all Accumulated
Dividends in respect of such shares plus (z) all accrued and unpaid dividends
thereon from the last Dividend Payment Date, (4) the relevant circumstances and
facts regarding such Change of Control and (5) the instructions that such Holder
must follow in order to exercise the rights identified above.
(b) Upon the occurrence of a Change of Control, if the Change of
Control Date occurs prior to the third anniversary of the Closing Date, the
Holders of the Series A Preferred Stock shall become entitled to receive the
Special Payment with respect to such shares, and the Company shall pay, and each
Holder shall be entitled to receive for each share of Series A Preferred Stock
held (or deemed to be held) by such Holder on the Change of Control Date
(without giving effect to any conversion or redemption of shares of Series A
Preferred Stock on the Change of Control Date and assuming for this purpose that
all Accumulated Dividends, if any, and all accrued and unpaid dividends from the
last Dividend Payment Date to the Change of Control Date, with respect to such
shares of Series A Preferred Stock had been paid immediately prior to the Change
of Control Date through the issuance of shares of Series A Preferred Stock with
a Liquidation Preference equal to the amount of such Accumulated Dividends and
accrued and unpaid dividends), shares of Series A Preferred Stock, with a
Liquidation Preference equal to the product of (x) the Share Factor with respect
to such share and (y) the Aggregate Special Payment Amount (the "Special
Payment"). Such Special Payment shall accrue as of the Change of Control Date
whether or not the Company has earnings or profits, whether or not there are
funds legally available for the payment of such dividend and whether or not such
dividend is declared and shall be in all respects identical to any other
dividend declared or accrued on the Series A Preferred Stock and all provisions
of this Certificate of Designation applicable to dividends shall apply to such
Special Payment (except as set forth above).
(c) Each Holder of Series A Preferred Stock shall have the right, but
not the obligation, at any time and from time to time during the 60 day period
after the receipt by such Holder of the notice specified in Section 13(a), to
sell to the Company (the "put") any or all of such Holder's shares of Series A
Preferred Stock (including any and all shares received as part of the Special
Payment) for a price equal to 101% of the sum of (x) the aggregate Liquidation
Preference of such shares of Series A Preferred Stock plus (y) all Accumulated
Dividends, if any, related to such shares, plus (z) all accrued and unpaid
dividends related to such shares from the last Dividend Payment Date through the
date such shares are purchased by the Company (the "Put Price").
Each Holder of Series A Preferred Stock may exercise the put by
delivering to the Company a written notice specifying (i) the number of shares
of Series A Preferred Stock that are subject to the put and (ii) the date on
which the put shall be exercised (the "Put Exercise Date").
On the Put Exercise Date, (i) such Holder shall deliver to the Company
the certificates representing the number of shares of Series A Preferred Stock
subject to the put and (ii) the Company shall deliver to such Holder, in
immediately available funds, the applicable Put Price for each share of Series A
Preferred Stock subject to the put.
14. Consolidation, Merger, Conveyance or Transfer. Without the vote or
consent of the Holders of the Series A Preferred Stock as set forth in Section
8(c), the Company may not consolidate or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets to, any Person.
15. SEC Reports, Reports by Company. So long as any shares of Series A
Preferred Stock are Outstanding, the Company shall file with the SEC and, within
15 days after it files them with the SEC, with the Registrar and, if requested,
furnish to each Holder of shares of Series A Preferred Stock all annual and
quarterly reports and the information, documents, and other reports that the
Company is required to file with the SEC pursuant to Section 13(a) or 15(d) of
the Exchange Act ("SEC Reports"). In the event the Company is not required or
shall cease to be required to file SEC Reports pursuant to the Exchange Act the
Company will nevertheless file such reports with the SEC (unless the SEC will
not accept such a filing). Whether or not required by the Exchange Act to file
SEC Reports with the SEC, so long as any shares of Series A Preferred Stock are
Outstanding, the Company will furnish or cause to be furnished copies of the SEC
Reports to the Holders of shares of Series A Preferred Stock at the time the
Company is required to make such information available to the Registrar and to
prospective investors who request it in writing.
16. Rights to Purchase. (a) The Company shall not sell or issue (other
than in an underwritten public offering) any shares of Capital Stock of the
Company, or other securities convertible into or exchangeable for Capital Stock
of the Company, or options, warrants or rights carrying any rights to purchase
Capital Stock of the Company, unless the Company first submits a written offer
to the Holders of Series A Preferred Stock identifying the terms of the proposed
sale (including price, number or aggregate principal amount of securities and
all other material terms), and offer to each of the Holders of Series A
Preferred Stock the opportunity to purchase its Pro Rata Allotment (as
hereinafter defined) of the securities so offered on terms and conditions,
including price, not less favorable than those on which the Company proposes to
sell such securities.
(b) The Company's offer pursuant to this Section 16 shall remain open
and irrevocable for a period of 30 days, and the recipients of such offer (the
"Purchasers") shall elect to purchase by giving written notice thereof to the
Company within such 30-day period, including therein the maximum number of
shares or other securities which the Purchasers would purchase (not to exceed
their Pro Rata Allotment), with the rights of electing Purchasers to purchase
such additional shares to be based upon the relative holdings of Common Stock
(including shares of Common Stock issuable upon conversion of Series A Preferred
Stock and upon the exercise of Series B Common Stock Warrants) of the electing
Purchasers in the case of over-subscription.
(c) For the purpose of this Section 16, each Purchaser's "Pro Rata
Allotment" of such securities shall be based on the ratio of the shares of
Common Stock based on such Holders' ownership of Series A Preferred Stock and
Series A Common Stock Warrants (in each case on an as-converted and/or as
exercised basis) held by he, she or it on an as-converted basis bears to all the
issued and Outstanding shares of Common Stock held by all of the Purchasers
calculated on a fully-diluted basis giving effect to the conversion of
convertible securities and the exercise of all Outstanding options and warrants
as of the date of such written offer.
(d) Any securities offered pursuant to this Section 16 which are not
purchased pursuant to such offer may be sold by the Company but only on the
terms and conditions set forth in the initial offer, at any time within 90 days
following the termination of the above-referenced 30-day period but may not be
sold to any other Person or on terms and conditions, including price, that are
more favorable to the purchaser than those set forth in such offer or after such
90-day period without renewed compliance with this Section 16.
(e) Notwithstanding the foregoing, the right to purchase granted under
this Section 16 shall be inapplicable with respect to any issuance or proposed
issuance by the Company of (i) securities issued in connection with the
acquisition of another corporation by the Company, whether by merger, purchase
of all or substantially all of the assets of such corporation, or otherwise,
(ii) securities issued as a result of any stock split, stock dividend,
reclassification or reorganization of the Company's stock, (iii) securities
issued upon exercise or conversion of any option, warrant or convertible
security approved by the Board of Directors, (iv) compensatory or incentive
stock options (or any shares of Common Stock issued upon the exercise thereof)
issued pursuant to employee stock option plans of the Company which have been
approved by the Board of Directors of the Company; and (v) issuances of Common
Stock to employees, officers, directors and consultants of the Company, pursuant
to employee benefit plans approved by the Board of Directors of the Company.
(f) The rights of the Holders of Series A Preferred Stock are
transferable to each transferee of Series A Preferred Stock or Common Stock held
by such Holders.
17. Definitions. For purposes of this Certificate of Designation, the
following terms shall have the meaning set forth below:
"Accumulated Dividends" has the meaning set forth in Section 6(b).
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For the purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Aggregate Change of Control Date Accreted Value" means the product
obtained by multiplying (x) the Change of Control Date Accreted Value by (y) the
number of shares of Series A Preferred Stock Outstanding as of the Change of
Control Date (without giving effect to any conversion or redemption of shares of
Series A Preferred Stock on the Change of Control Date).
"Aggregate Special Payment Amount" means the difference (if positive)
between (x) the Aggregate Three Year Accreted Value and (y) the Aggregate Change
of Control Date Accreted Value.
"Aggregate Three Year Accreted Value" means the product obtained by
multiplying (x) the Three Year Accreted Value by (y) the number of shares of
Series A Preferred Stock Outstanding on the Change of Control Date (without
giving effect to any conversion or redemption of shares of Series A Preferred
Stock on the Change of Control Date).
"Board of Directors" has the meaning set forth in the Recitals.
"Business Day" means any day other than a Saturday, a Sunday, or a day
when banks in The City of New York are authorized to be closed.
"By-Laws" has the meaning set forth in the Recitals.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting and/or non-voting) of such Person's capital stock, whether
Outstanding on the Closing Date or issued after the Closing Date, and any and
all rights (other than any evidence of indebtedness), warrants or options
exchangeable for or convertible into such capital stock.
"Certificate of Incorporation" has the meaning set forth in the
recitals.
"Change of Control" means the occurrence of any of the following
events: (a) any "Person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
Voting Capital Stock of the Company or (b) the Company consolidates with, or
merges with or into, another Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with, or merges with or into the Company, in
any such event pursuant to a transaction in which the Holders of the Outstanding
Voting Capital Stock of the Company immediately prior to such transaction hold
less than 50% of the Outstanding Voting Capital Stock of the surviving or
transferee company or its parent company immediately after the transaction or
immediately after such transaction any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), is the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total Voting Capital Stock of the surviving or transferee
company or its parent company immediately after the transaction as applicable or
(c) during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office or (d) any transaction subject to Rule 13e-3 under the
Exchange Act if following such Rule 13e-3 transaction a Person owns more than
50% of the total Voting Capital Stock of the Company.
"Change of Control Date" has the meaning set forth in Section 13(a).
"Change of Control Date Accreted Value" means with respect to each
$381.25 of original Liquidation Preference, the value that $381.25 would accrete
to between the Closing Date and the Change of Control Date compounded quarterly
at an annual rate of 8%.
"Closing Date" means any Closing Date under the Purchase Agreement.
"closing price" has the meaning set forth in Section 12(d)(v).
"Common Stock Record Date" has the meaning set forth in Section
12(d)(v).
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Company" has the meaning set forth in the Recitals.
"Company Order" means a written request or order signed in the name of
the Company by its Chairman of the Board, its President or a Vice President and
by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary.
"Conversion Agent" has the meaning set forth in Section 5(a).
"Conversion Price" has the meaning set forth in Section 12(a).
"Coupon Dividends" has meaning set forth in Section 6(a).
"Current Market Value" per share of Common Stock or any other security
at any date means (i) if the security is not registered under the Exchange Act,
the value of the security, determined in good faith by the Board of Directors
and certified in a board resolution, or (ii) if the security is registered under
the Exchange Act, the average of the daily closing bid prices (or the equivalent
in an over-the-counter market) for each Business Day during the period
commencing 15 Business Days before such date and ending on the date one day
prior to such date, or if the security has been registered under the Exchange
Act for less than 15 consecutive Business Days before such date, the average of
the daily closing bid prices (or such equivalent) for all of the Business Days
before such date for which daily closing bid prices are available; provided,
however, that if the closing bid price is not determinable for at least ten
Business Days in such period, the "Current Market Value" of the security shall
be determined as if the security were not registered under the Exchange Act.
"Dividend Payment Date" means each June 1, September 1, December 1 and
March 1, provided, however, that if such date shall not be a Business Day, then
the Dividend Payment Date shall be the next Business Day.
"Dividend Record Date" has the meaning set forth in Section 7(a).
"ETG Earnout Shares" shall mean any shares of Common Stock issued
subsequent to April 7, 2000, pursuant to the terms of the Asset Purchase
Agreement dated as of December 16, 1998, by and among the Company, COSI
Acquisition Corp., Enterprise Technology Group, Incorporated and certain
stockholders of Enterprise Technology Group, Incorporated as amended from time
to time, (including, without limitation, Sections 3.3 and 3.4 thereof).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means the Person in whose name the Series A Preferred Stock
is registered.
"Holders' Redemption Date" has the meaning set forth in Section 10(b).
"Holders' Redemption Price" has the meaning set forth in Section
10(b).
"Issuance Price" of each share of Series A Preferred Stock means,
$381.25 the original purchase price of such share.
"Junior Shares" has the meaning set forth in Section 9(a).
"Liquidation Amount" has the meaning set forth in Section 9(b).
"Liquidation Preference" has meaning set forth in Section 3.
"nonelecting share" has the meaning set forth in Section 12(e).
"Odd-lot Redemption" has the meaning set forth in Section 10(c).
"Officers' Certificate" means a certificate of the Company signed in
the name of the Company by its Chairman of the Board, its President or a Vice
President and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary.
"Optional Redemption" has the meaning set forth in Section 10(a).
"Optional Redemption Date" has the meaning set forth in Section 10(a).
"Optional Redemption Price" has the meaning set forth in Section
10(a).
"Outstanding" means when used with respect to shares of Series A
Preferred Stock, as of the date of determination, all shares of Series A
Preferred Stock theretofore authenticated and delivered under this Certificate
of Designation, except (a) shares of Series A Preferred Stock theretofore
converted into shares of Common Stock in accordance with Section 12 and shares
of Series A Preferred Stock theretofore canceled by the Registrar or delivered
to the Registrar for cancellation; (b) shares of Series A Preferred Stock for
whose payment or redemption money in the necessary amount has been theretofore
deposited with the Registrar or any Paying Agent (other than the Company) in
trust or set aside and segregated in trust by the Company (if the Company shall
act as its own Paying Agent) for the Holders of such shares of Series A
Preferred Stock; provided that, if such shares of Series A Preferred Stock are
to be redeemed, notice of such redemption has been duly given pursuant to this
Certificate of Designation or provision therefor satisfactory to the Registrar
has been made; and (c) shares of Series A Preferred Stock (x) that are
mutilated, destroyed, lost or stolen which the Company has decided to pay or (y)
in exchange for or in lieu of which other shares of Series A Preferred Stock
have been authenticated and delivered pursuant to this Certificate of
Designation; provided, however, that, in determining whether the Holders of the
shares of Series A Preferred Stock have given any request, demand,
authorization, direction, notice, consent or waiver or taken any other action
hereunder, shares of Series A Preferred Stock owned by the Company or any other
obligor upon the shares of Series A Preferred Stock or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Registrar shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only shares of Series A Preferred Stock
which the Registrar has actual knowledge of being so owned shall be so
disregarded. Shares of Series A Preferred Stock so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Registrar the pledgee's right so to act with respect to such
shares of Series A Preferred Stock and that the pledgee is not the Company or
any other obligor upon the shares of Series A Preferred Stock or any Affiliate
of the Company or of such other obligor.
"Parity Shares" has the meaning set forth in Section 9(a).
"Paying Agent" has the meaning set forth in Section 5(a).
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference stock,
whether now Outstanding or issued after the date hereof, including all series
and classes of such preferred or preference stock.
"Pro Rata Allotment" has the meaning set forth in Section 16(c).
"Purchase Agreement" means the Securities Purchase Agreement dated
April 7, 2000, among the Company and the Purchaser named therein.
"Purchasers" has the meaning set forth in Section 16(b).
"put" has the meaning set forth in Section 13(c).
"Put Exercise Date" has the meaning set forth in Section 13(c).
"Put Price" has the meaning set forth in Section 13(c).
"Redemption Date" means any Optional Redemption Date or any Holders'
Redemption Date.
"Redemption Notice" has the meaning set forth in Section 10(d).
"Redemption Price" means the Optional Redemption Price or the Holders'
Redemption Price as the case may be.
"Registrar" has the meaning set forth in Section 3.
"Restricted Shares Legend" has the meaning set forth in Section 4.
"SEC" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or, if at
any time after the adoption of this Certificate of Designation such commission
is not existing and performing the duties now assigned to it, then the body
performing such duties at such time.
"SEC Reports" has the meaning set forth in Section 15.
"Securities Act" has the meaning set forth in Section 4.
"Senior Shares" has the meaning set forth in Section 9(a).
"Series A Preferred Stock" has the meaning set forth in Section 1.
"Share Factor" means with respect to each share of Series A Preferred
Stock, a fraction, the numerator of which is the Liquidation Preference of such
share as of the Change of Control Date, without giving effect to the Special
Payment, and the denominator of which is the aggregate Liquidation Preference of
all Outstanding shares of Series A Preferred Stock as of the Change of Control
Date, without giving effect to the Special Payment.
"Special Payment" has the meaning set forth in Section 13(b).
"Three Year Accreted Value" means with respect to each $381.25 of
original Liquidation Preference, $483.52.
"Voting Capital Stock" means with respect to any Person, securities of
any class or classes of Capital Stock in such Person ordinarily entitling the
Holders thereof (whether at all times or at the times that such class of Capital
Stock has voting power by reason of the happening of any contingency) to vote in
the election of members of the board of directors or comparable governing body
of such Person.
"Warrants" means the warrants issued pursuant to the Warrant Agreement
dated as of May 10, 2000, between the Company and each of the warrantholders
party thereto.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be duly executed by Robert B. Wallach, President of the Company,
and attested by Nicholas J. Letizia, Secretary of the Company, this 10th day of
May 2000.
COMPUTER OUTSOURCING SERVICES, INC.
By: /s/Robert B. Wallach
--------------------------------
Name: Robert B. Wallach
Title: President
ATTEST:
By /s/ Nicholas J. Letizia
-------------------------------
Name: Nicholas J. Letizia
Title: Secretary
<PAGE>
EXHIBIT A
FACE OF SECURITY
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES. SUCH SHARES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS."
Number of Shares
Number: __________ ________ Shares
144A CUSIP NO.: [__________]
IAI CUSIP NO.: [__________]
SERIES A CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK
DUE 2007
OF
COMPUTER OUTSOURCING SERVICES, INC.
[TO BE UPDATED TO REFLECT THE FINAL TERMS IN THE CERTIFICATE OF DESIGNATIONS]
Computer Outsourcing Services, Inc., a company organized under the
laws of Delaware (the "Company"), hereby certifies that [HOLDERS] (the
"Holders") is the registered owner of [_____________] fully paid and
non-assessable preference securities of the Company designated the Series A
Cumulative Convertible Participating Preferred Stock due 2007, par value
U.S.$0.01 (the "Preferred Stock") having a liquidation value equal the sum of
(x) to the original purchase price per share plus (y) all Accumulated Dividends,
if any, in respect thereof, plus (z) all accrued and unpaid dividends from the
last Dividend Payment Date . The shares of Preferred Stock are transferable on
the books and records of the Registrar, in person or by a duly authorized
attorney, upon surrender of this certificate duly endorsed and in proper form
for transfer. The designation, rights, privileges, restrictions, preferences and
other terms and provisions of the Preferred Stock represented hereby are issued
and shall in all respects be subject to the provisions of the Certificate of
Designation of the Company dated May 10, 2000, as the same may be amended from
time to time in accordance with its terms (the "Preferred Stock Certificate of
Designation"). Capitalized terms used herein but not defined shall have the
meaning given them in the Preferred Stock Certificate of Designation. The
Company will provide a copy of the Preferred Stock Certificate of Designation to
a Holder without charge upon written request to the Company at its principal
place of business.
Reference is hereby made to select provisions of the Preferred Stock
set forth on the reverse hereof, and to the Preferred Stock Certificate of
Designation, which select provisions and the Preferred Stock Certificate of
Designation shall for all purposes have the same effect as if set forth at this
place.
Upon receipt of this certificate, the Holder is bound by the Preferred
Stock Certificate of Designation and is entitled to the benefits thereunder.
Unless the Transfer Agent's valid countersignature appears hereon, the
shares of Preferred Stock evidenced hereby shall not be entitled to any benefit
under the Preferred Stock Certificate of Designation or be valid or obligatory
for any purpose.
IN WITNESS WHEREOF, the Company has executed this certificate as of
the date set forth below.
COMPUTER OUTSOURCING SERVICES, INC.
By
------------------------------
Name:
Title:
[Seal]
By
------------------------------
Name:
Title:
Dated:
<PAGE>
REVERSE OF SECURITY
COMPUTER OUTSOURCING SERVICES, INC.
Series A Cumulative Convertible Preferred Stock due 2007
Dividends on each share of Preferred Stock shall be payable at a rate
per annum set forth on the face hereof or as provided in the Preferred Stock
Certificate of Designation. Dividends may be paid, to the extent not cumulated
in accordance with the terms of the Preferred Stock Certificate of Designation.
The shares of Preferred Stock shall be redeemable as provided in the
Preferred Stock Certificate of Designation. The shares of Convertible Preferred
Stock shall be convertible into the Company's Common Stock in the manner and
according to the terms set forth in the Preferred Stock Certification of
Designation.
The Company shall furnish to any Holder upon request and without
charge, a full summary statement of the designations, voting rights preferences,
limitations and special rights of the shares of each class or series authorized
to be issued by the Company so far as they have been fixed and determined and
the authority of the Board of Directors to fix and determine the designations,
voting rights, preferences, limitations and special rights of the class and
series of shares of the Company.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers the shares
of Preferred Stock evidenced hereby to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints:
agent to transfer the shares of Preferred Stock evidenced hereby on the books of
the Transfer Agent and Registrar. The agent may substitute another to act for
him or her.
Date:
Signature:
(Sign exactly as your name appears-on the other side of this Convertible
Preferred Stock Certificate)
Signature Guarantee: ____________________(1)
- ---------------------
1 Signature must be guaranteed by an "eligible guarantor institution" (i.e.,
a bank, stockbroker, savings and loan association or credit union) meeting
the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined
by the Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934.
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Preferred Stock)
The undersigned hereby irrevocably elects to convert (the
"Conversion") shares of Series A Cumulative Convertible Preferred Stock due 2007
(the "Preferred Stock"), represented by stock certificate No(s). __________ (the
"Preferred Stock Certificates") into shares of common stock, par value U.S. $.01
per share ("Common Stock"), of Computer Outsourcing Services, Inc. (the
"Company") according to the conditions of the Certificate of Designation
establishing the terms of the Preferred Stock (the "Preferred Stock Certificate
of Designation"), as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any conversion. A copy of
each Preferred Stock Certificate is attached hereto (or evidence of loss, theft
or destruction thereof).(1)
The undersigned represents and warrants that all offers and sales by
the undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Preferred Stock shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933 (the "Act"), or pursuant to an
exemption from registration under the Act.
Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in or pursuant to the Preferred Stock Certificate of
Designation.
Date of Conversion:
Applicable Conversion Price:
Number of shares of Preferred Stock to be Converted:
Number of shares of Common Stock to be Issued:
Signature:
Name:
Address:(2)
Fax No.:
- ------------------------
(1) The Company is not required to issue shares of Common Stock until the
original Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Company or its
Transfer Agent. The Company shall issue and deliver shares of Common Stock
to an overnight courier not later than three business days following
receipt of the original Preferred Stock Certificate(s) to be converted.
(2) Address where shares of Common Stock and any other payments or certificates
shall be sent by the Company.
EXHIBIT 3
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of April 7, 2000 (this
"Agreement"), by and between Computer Outsourcing Services, Inc., a Delaware
corporation (the "Company"), each of the purchasers set forth on Schedule A
attached hereto (each a "Purchaser" and collectively "Purchasers").
W I T N E S S E T H:
WHEREAS, the Company proposes, subject to the terms and conditions set
forth herein, to issue and sell to Purchasers 157,377 shares (the "Shares") of
its 8% Series A Cumulative Convertible Participating Preferred Stock, par value
$0.01 per share (the "Series A Preferred Stock"), together with Series A Common
Stock Warrants (the "Warrants") to purchase an aggregate of 2,531,926 shares
(the "Warrant Shares") of common stock, par value $0.01 per share, of the
Company (the "Common Stock"), to be issued upon exercise of the Warrants;
WHEREAS, Purchaser desires, subject to the terms and conditions set
forth herein, to purchase such Series A Preferred Stock from the Company; and
WHEREAS, the parties intend that the proceeds of the sale of the
Securities will be used to fund the business plan of Infocrossing;
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows.
ARTICLE I
DEFINITIONS
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For the purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Law" means (a) any United States federal, state, local or
foreign law, statute, rule, regulation, order, writ, injunction, judgment,
decree or permit of any Governmental Authority and (b) any rule or listing
requirement of any applicable national stock exchange or listing requirement of
any national stock exchange or Commission recognized trading market on which
securities issued by the Company or any of the Subsidiaries are listed or
quoted.
"Business Day" means any day other than a Saturday, a Sunday, or a day
when banks in The City of New York are authorized by Applicable Law to be
closed.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock and (ii) with respect to any
other Person, any and all partnership or other equity interests of such Person.
"Certificate of Designation" means the Certificate of Designation of
the Powers, Preferences and Other Special Rights and Qualifications thereof
relating to the Series A Preferred Stock, in the form attached hereto as Exhibit
A.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated and rulings issued thereunder.
"Commission" means the United States Securities and Exchange
Commission.
"Commission Filings" means all reports, registration statements and
other filings filed by the Company with the Commission (and all notes, exhibits
and schedules thereto and all documents incorporated by reference therein).
"Company Disclosure Schedule" shall mean the Company disclosure
schedule delivered by the Purchaser concurrently with the date hereof.
"Company Stockholders' Meeting" means the annual meeting of the
Company to be held on or about May 5, 2000, in connection with the vote of such
stockholders.
"Confidential Information" shall mean any and all secret, confidential
or proprietary technical and non-technical information, knowledge or data
regarding the business, affairs, products and accounts of the Company and its
Subsidiaries; provided, however, that any information disclosed by a disclosing
party will be considered "Confidential Information" of such party by the
receiving party only if such information (a) if provided as information fixed in
a tangible medium of expression, is conspicuously designated as "Confidential",
"Proprietary" or some similar designation, or (b) if provided orally, is
identified as confidential at the time of disclosure and confirmed in writing
within thirty (30) days of disclosure. Notwithstanding anything to the contrary
contained herein, "Confidential Information" shall not include any information,
knowledge or data which (a) was in the public domain at or subsequent to the
time such portion was communicated to the receiving party by the disclosing
party through no fault of the receiving party, (b) was rightfully in the
receiving party's possession free of any obligation of confidence at or
subsequent to the time such portion was communicated to the receiving party by
the disclosing party, (c) was developed by employees or agents of the receiving
party independently of and without reference to any information communicated to
the receiving party by the disclosing party, or (d) was communicated by the
disclosing party to an unaffiliated third party free of any obligation of
confidence.
"Contract" means any contract, lease, loan agreement, mortgage,
security agreement, trust indenture, note, bond, instrument, or other agreement
or arrangement (whether written or oral).
"Conversion Shares" means the shares of Common Stock issuable upon the
conversion of the Series A Preferred Stock in accordance with the terms of the
Certificate of Designation.
"DB Capital" shall mean DB Capital Investors, L.P., a Delaware limited
partnership.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all regulations promulgated thereunder, as in effect from time to
time.
"Equity Documents" means this Agreement, the Registration Rights
Agreement, the Certificate of Designation, the Warrant Agreement and the
Stockholders Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, and the
rules and regulations of the Commission promulgated thereunder.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"Governmental Authority" means (i) any foreign, Federal, state or
local court or governmental or regulatory agency or authority, (ii) any
arbitration board, tribunal or mediator and (iii) any national stock exchange or
Commission recognized trading market on which securities issued by the Company
or any of the Subsidiaries are listed or quoted.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and applicable rules and regulations.
"Infocrossing" shall mean, Infocrossing, Inc., a Delaware corporation
and a wholly owned Subsidiary of the Company.
"Lien" means any mortgage, pledge, lien, security interest, claim,
restriction, charge or encumbrance of any kind.
"Management Stockholders" means the individuals listed on Schedule A
to the Stockholders Agreement, as of the Closing Date.
"Material Adverse Effect" means a material adverse effect on the
condition (financial or otherwise), business, properties, assets, liabilities,
operations, results of operations or prospects of the Company and the
Subsidiaries, taken as a whole.
"Permitted Transferee" means, with respect to Purchaser, or any
Permitted Transferee of Purchaser, any Purchaser Affiliate or an Affiliate of
such holder or any successor in interest of any of them, whether by merger,
consolidation, dissolution, liquidation, or otherwise, provided, however, that
each Permitted Transferee must agree in writing pursuant to a Permitted
Transferee Agreement, in accordance with the provisions of Section 6.5, to be
bound by the terms, and subject to the conditions, of this Agreement to the same
extent, and in the same manner, as Purchaser prior to the transfer of any Shares
to such Permitted Transferee; and provided, further, that the transfer of Shares
from such Purchaser to such Permitted Transferee is in compliance with all
applicable securities laws.
"Person" means any individual, partnership, corporation, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity.
"Proxy Statement" means the proxy statement and form of proxy mailed
to the Company's Stockholders on February 28, 2000, as supplemented by
Supplement and as otherwise supplemented from time to time.
"Purchaser Affiliate" means (a) any direct or indirect holder of any
equity interests or securities in Purchaser (whether limited or general
partners, members, stockholders or otherwise), (b) any Affiliate of Purchaser,
(c) any director, officer, employee, representative or agent of (i) Purchaser,
(ii) any Affiliate of Purchaser or (iii) any holder of equity interests or
securities referred to in clause (a) above or (d) any person who is a "control
person" of Purchaser, as defined under Section 15 of the Securities Act or
Section 20 of the Exchange Act.
"Registration Rights Agreement" means the Registration Rights
Agreement, to be dated as of the Closing Date, to be entered into by and between
the Company and Purchaser, in the form attached hereto as Exhibit B.
"Securities" shall mean, collectively, the Shares and the Warrants.
"Securities Act" means the Securities Act of 1933, and the rules and
regulations of the Commission promulgated thereunder.
"Series A Preferred Stock" has the meaning set forth in the first
recital to this Agreement. The Series A Preferred Stock has the designation,
powers, preferences and rights, and qualifications, limitations and restrictions
thereof set forth in the Certificate of Designation.
"subsidiary" means, with respect to any Person (i) a corporation a
majority of whose capital stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by a subsidiary of such Person, or by such Person and one or more subsidiaries
of such Person, (ii) a partnership in which such Person or a subsidiary of such
Person is, at the date of determination, a general partner of such partnership
and has the power to direct the policies and management of such partnership or
(iii) any other Person (other than a corporation) in which such Person, a
subsidiary of such Person or such Person and one or more subsidiaries of such
Person, directly or indirectly, at the date of determination thereof, has (A) at
least a majority ownership interest or (B) the power to elect or direct the
election of a majority of the directors or other governing body of such Person.
"Subsidiary" means a subsidiary of the Company.
"Transactions" means the transactions contemplated by this Agreement.
"Warrant Agreement" means the Warrant Agreement, to be dated as of the
Closing Date, to be entered into by and between the Company and the party
thereto, in the form attached hereto as Exhibit C.
"Warrantholders" means the warrantholders party to the Warrant
Agreement.
(b) As used in this Agreement, the following terms shall have the
meanings given thereto in the Sections set forth opposite such terms:
Term Section
Agreement Preamble
Closing 2.2
Closing Date 2.2
Common Stock First Recital
Company Preamble
Company Property 3.18
DGCL 3.2(d)
Employees 3.12(a)
Employee Benefit Plans 3.12(a)
Environmental Claims 3.18
Environmental Law 3.18
Governmental Licenses 3.10
Hazardous Materials 3.18
Immigration Laws 3.12(i)
Indemnified Party 8.1(c)
indemnified person 8.1(b)
Indemnifying Party 8.1(c)
Information 3.8
Intellectual Property 3.11
Issuance 2.1
Kennedy-Wilson Credit Facility 3.14
KW Securities 2.1(b)
Losses 8.1(b)
Material Contracts 3.15
Notices 8.2
Permitted Liens 3.14
Permitted Transferee Agreement 6.5
Projections 3.8
Purchaser or Purchasers Preamble
Release 3.18
Shares First Recital
Share Transfer 6.5
Stockholders Agreement 2.2(d)
Supplement 5.14(b)
Tax 3.13(f)
Tax Controversy 3.13(c)
Tax Return 3.13
URL 3.11
Warrants First Recital
Warrant Shares First Recital
ARTICLE II
SALE AND PURCHASE
SECTION 2.1. Agreement to Sell and to Purchase; Purchase Price. (a) On
the Closing Date, and upon the terms and subject to the conditions set forth in
this Agreement, the Company shall issue and sell to Purchaser, and Purchaser
shall purchase from the Company, the Securities set forth opposite such
Purchaser's name on Schedule A attached hereto (the "Issuance"), for the
aggregate purchase price set forth opposite such Purchaser's name on Schedule A
attached hereto.
(b) In lieu of repaying the indebtedness under the Kennedy Wilson
Credit Facility in accordance with Section 7.2(n) of this Agreement, the Company
may issue additional Securities (the "KW Securities") in amounts to be approved
by the Purchasers, such approval not to be unreasonably withheld, in exchange
for all outstanding notes and other securities issued pursuant to the Kennedy
Wilson Credit Facility or any related agreements or understandings; provided,
however, that upon the consummation of such exchange, the Company, Infocrossing
and its Subsidiaries shall have no further obligation or liability in respect
of, or in relation to, the Kennedy Wilson Credit Facility or any related
agreements or understandings (other than obligations or liabilities in respect
of the KW Securities). The terms of any exchange agreement entered into by the
Company in order to give effect to this Section 2.1(b) shall be no more
favorable to the holders of indebtedness under the Kennedy Wilson Credit
Facility than the terms of this Agreement are to the Purchasers and, in any
event, shall be subject to the reasonable consent of the Purchasers, not to be
unreasonably withheld.
SECTION 2.2. Closing. Subject to the satisfaction or waiver of the
conditions set forth in this Agreement, the purchase and sale of the Securities
hereunder (the "Closing") shall take place at 10:00 p.m. at the offices of White
& Case LLP, counsel to Purchaser, at 1155 Avenue of the Americas, New York, New
York, on the date which is three Business Days after the conditions set forth in
Article VII have been satisfied or on such other date as the parties shall
mutually agree upon (the "Closing Date").
At the Closing:
(a) each Purchaser shall deliver:
(i) against delivery of certificates representing the Securities
being purchased by such Purchaser pursuant to Section 2.1, an amount equal
to the aggregate purchase price of such Securities as set forth on Schedule
A attached hereto via wire transfer of immediately available funds to such
bank account as the Company shall designate not later than two Business
Days prior to the Closing Date; and
(ii) a copy of the Registration Rights Agreement executed by such
Purchaser.
(iii) a copy of the Warrant Agreement executed by such Purchaser.
(b) The Company shall deliver to Purchasers:
(i) against payment of the purchase price therefor as set forth
opposite such Purchaser's name on Schedule A attached hereto, (A) a
certificate or certificates representing the Shares being purchased by such
Purchaser pursuant to Section 2.1, which shall be in definitive form and
registered in the name of such Purchaser or its nominee or designee and in
a single certificate or in such other denominations as such Purchaser shall
request not later than two Business Days prior to the Closing Date and (B)
a certificate or certificates for the Warrants registered in the name of
such Purchaser or the nominee or designee and in a single certificate or in
such other denominations as such Purchaser shall request not later than two
Business Days prior to the Closing Date;
(ii) an opinion of counsel to the Company, dated the Closing
Date, covering such matters as are customarily covered by such opinions, in
form and substance acceptable to Purchasers;
(iii) an officer's certificate of the Company as contemplated by
Section 7.2(f);
(iv) a certificate of the secretary of the Company setting forth
(A) a copy of the Certificate of Incorporation of the Company and all
amendments thereto (including, without limitation, the Certificate of
Designation) as in effect on the date hereof and on the Closing Date all
certified by the Secretary of State of the State of Delaware, (B) a copy of
the by-laws of the Company, as in effect on the date hereof and on the
Closing Date, (C) copies of all resolutions of the Company authorizing the
Transactions; and (D) an incumbency certificate setting forth the name,
title and authorized signature of each officer of the Company who will
execute documents in connection with the transaction contemplated hereby;
(v) a certificate of the Secretary of each Subsidiary setting
forth (A) a copy of the Certificate of Incorporation or similar organic
document of such Subsidiary, together with all amendments thereof, as in
effect on the date hereof and on the Closing Date, in each case certified
by the Secretary of State or similar authority of the jurisdiction of
incorporation of such Subsidiary and (B) the by-laws, operating agreement
or any similar document of such Subsidiary;
(vi) a long-form good standing certificate of the Company and
each Subsidiary issued by the Secretary of State of the relevant state of
organization;
(vii) a copy of the Registration Rights Agreement executed by the
Company and Zach Lonstein; and
(viii) a copy of the Warrant Agreement executed by the Company.
(c) The Company shall deliver to DB Capital (or its designee) a
transaction fee equal to $1,200,000 in immediately available funds by wire
transfer to an account designated by Purchaser at least two Business Days prior
to the Closing Date.
(d) The Company shall deliver to Purchasers the Stockholders Agreement
in the form of Exhibit D hereto, executed by the Company and the Management
Stockholders (the "Stockholders Agreement").
(e) The Company shall deliver to Purchasers evidence of the payment of
all costs and expenses of Purchasers required to be reimbursed by the Company
pursuant to Section 8.10 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to each Purchaser on the
date hereof and on and as of the Closing Date as follows:
SECTION 3.1. Organization and Standing. Each of the Company,
Infocrossing and the other Subsidiaries is duly organized, validly existing and
in good standing under the laws of its state of incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and assets and to carry on its business as it is now being conducted and as
proposed to be conducted. Each of the Company, Infocrossing and the other
Subsidiaries is duly qualified to transact business as a foreign corporation and
is in good standing in each jurisdiction in which the character of the
properties owned or leased by it or the nature of its business makes such
qualification necessary, except for any such failures to so qualify or be in
good standing that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Company has delivered to
Purchasers true and complete copies of the Company's Certificate of
Incorporation, as amended to date, and by-laws, as in effect on the date hereof
and the certificates of incorporation, by-laws or other similar organizational
documents of Infocrossing and its other Subsidiaries, in each case, as amended
through the date hereof.
SECTION 3.2. Capital Stock; Warrants. (a) As of April 4, 2000, the
authorized Capital Stock of the Company consists solely of (i) 10,000,000 shares
of Common Stock, of which 5,009,487 shares are issued and outstanding, 5,608
shares are held in treasury and 1,160,100 are reserved for issuance upon the
exercise of outstanding warrants, options and other convertible or exchangeable
securities (other than the Securities), and (ii) 1,000,000 shares of preferred
stock, par value $0.01 per share, of which, prior to the issuance of the Shares
on the Closing Date as contemplated by this Agreement, no shares have been
designated and no shares are issued or outstanding. As of the Closing Date, the
authorized Capital Stock of the Company will consist solely of (i) 50,000,000
shares of Common Stock, of which 5,009,487 shares will be issued and outstanding
(assuming no additional exercises of existing stock options), 5,608 shares will
be held in treasury and 1,509,600 will be reserved for issuance upon the
exercise of outstanding warrants, options and other convertible or exchangeable
securities (other than the Securities), and (ii) 3,000,000 shares of preferred
stock, par value $0.01 per share of which, prior to the issuance of the Shares
on such date, as contemplated by this Agreement, no Shares will be designated or
outstanding. Each share of Capital Stock of the Company that will be issued and
outstanding immediately following the Closing, including without limitation the
Shares, will be duly authorized and validly issued and fully paid and
nonassessable, and the issuance thereof will not have been subject to any
preemptive rights or made in violation of any Applicable Law.
(b) Except as set forth on Schedule 3.2 of the Company Disclosure
Schedule, as of the date of this Agreement, there are and on the Closing Date
there will be (i) no outstanding options, warrants, agreements, conversion
rights, exchange rights, preemptive rights or other rights (whether contingent
or not) to subscribe for, purchase or acquire any issued or unissued shares of
Capital Stock of the Company or any Subsidiary, and (ii) no restrictions upon,
or Contracts or understandings of the Company or any Subsidiary, or, to the
knowledge of the Company, Contracts or understandings of any other Person, with
respect to, the voting or transfer of any shares of Capital Stock of the Company
or any Subsidiary. Infocrossing is a wholly owned subsidiary of the Company.
(c) The Conversion Shares have been duly authorized and validly
reserved for issuance in contemplation of the conversion of the Series A
Preferred Stock and, when issued and delivered in accordance with the terms of
the Certificate of Designation, will have been validly issued and will be fully
paid and nonassessable, and the issuance thereof will not have been subject to
any preemptive rights or made in violation of any Applicable Law.
(d) The holders of the Series A Preferred Stock will, upon issuance
thereof, have the rights set forth in the Certificate of Designation (subject to
the limitations and qualifications set forth therein and under the General
Corporation Law of the State of Delaware (the "DGCL")).
(e) The Warrants have been duly authorized by the Company and, when
issued and delivered by the Company in accordance with the terms of this
Agreement and the Warrant Agreement will constitute valid and legally binding
obligations of the Company, enforceable in accordance with their terms.
(f) The Warrant Shares have been duly and validly authorized and
validly reserved for issuance in contemplation of the exercise of the Warrants
and, when issued and delivered in accordance with the terms of the Warrant
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance thereof will not have been subject to any pre-emptive rights or made in
violation of Applicable Law.
SECTION 3.3. Authorization; Enforceability. The Company has all
necessary power and authority to execute, deliver and perform its obligations
under each of the Equity Documents, and has taken all action necessary to
authorize the execution, delivery and performance by it of each of such Equity
Documents and to consummate the Issuance. No other corporate or stockholder
proceeding (other than the approval of the stockholders of the Company
contemplated by Section 5.14) on the part of the Company is necessary for such
authorization, execution, delivery and consummation. The Company has duly
executed and delivered this Agreement and, at the Closing, the Company will have
duly executed and delivered each of the other Equity Documents to be executed
and delivered at or prior to Closing. This Agreement constitutes, and each of
the other Equity Documents, when executed and delivered by the Company, will
constitute, a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
SECTION 3.4. No Violation; Consents. (a) The execution, delivery and
performance by the Company of each of the Equity Documents and the consummation
by the Company of the Issuance do not and will not contravene any Applicable
Law. Except as set forth on Schedule 3.4 of the Company Disclosure Schedule, the
execution, delivery and performance by the Company of each of the Equity
Documents and the consummation of the Issuance (i) will not (A) violate, result
in a breach of or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under any Contract to which the Company, Infocrossing or any other
Subsidiary is a party or by which the Company, Infocrossing or any other such
Subsidiary is bound or to which any of its assets is subject, or (B) result in
the creation or imposition of any Lien upon any of the assets of the Company,
Infocrossing or any other Subsidiary, except for any such violations, breaches,
defaults or Liens that would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect or have a material adverse effect
on the ability of the Company to perform its obligations under the Equity
Documents and (ii) will not conflict with or violate any provision of the
certificate of incorporation or by-laws or other governing documents of the
Company, Infocrossing or the other Subsidiaries.
(b) Except for (i) the filings by the Company, if any, required by the
HSR Act, (ii) applicable filings, if any, required by applicable federal and
state securities laws and (iii) filing of the Certificate of Designation with
the Secretary of State of the State of Delaware, in each case, which shall be
made (to the extent required) on or prior to the Closing Date, no consent,
authorization or order of, or filing or registration with, any Governmental
Authority or other Person is required to be obtained or made by the Company for
the execution, delivery and performance of this Agreement or the consummation by
the Company of the Issuance, or for the execution, delivery and performance by
the Company of the Equity Documents, except where the failure to obtain such
consents, authorizations or orders, or make such filings or registrations, would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or a material adverse effect on the ability of the Company to
perform its obligations under the Equity Documents.
SECTION 3.5. Commission Filings; Financial Statements. (a) The Company
has timely filed all reports, registration statements and other filings,
together with any amendments or supplements required to be made with respect
thereto, that it has been required to file with the Commission under the
Securities Act and the Exchange Act. As of the respective dates of their filing
with the Commission, the Commission Filings complied in all material respects
with the applicable provisions of the Securities Act and the Exchange Act and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the historical consolidated financial statements of the
Company (including any related notes or schedules) included in the Commission
Filings was prepared in accordance with GAAP (except as may be disclosed
therein), and complied in all material respects with the rules and regulations
of the Commission. Such financial statements fairly present the consolidated
financial position of the Company and the Subsidiaries as of the dates thereof
and the consolidated results of operations, cash flows and changes in
stockholders' equity for the periods then ended (subject, in the case of the
unaudited interim financial statements, to normal, recurring year-end audit
adjustments). Except as set forth or reflected in the Commission Filings filed
prior to the date hereof, the Company does not have any liabilities or
obligations of any nature (whether accrued, absolute, contingent, unasserted or
otherwise) that individually or in the aggregate would be expected to have a
Material Adverse Effect.
SECTION 3.6. Absence of Certain Changes. Except as disclosed in the
Commission Filings filed prior to the date hereof or on Schedule 3.6 of the
Company Disclosure Schedule, since October 31, 1999, there has not been (i) any
event, occurrence or development of a state of circumstances or facts (or the
failure of any of the foregoing to occur) that has had, or would reasonably be
expected to have (a) a Material Adverse Effect or (b) a material adverse effect
on the ability of the Company to perform its obligations under this Agreement or
the Equity Documents; (ii) the businesses of the Company, Infocrossing and the
other Subsidiaries have been conducted only in the ordinary course; (iii)
neither the Company, Infocrossing or any of the other Subsidiaries has incurred
any material liabilities (direct, contingent or otherwise) or engaged in any
material transaction or entered into any material agreement outside of the
ordinary course of business, except that on January 26, 2000, the Company
entered into the Kennedy-Wilson Credit Facility; (iv) the Company, Infocrossing
and its other Subsidiaries have not increased the compensation of any officer or
director or granted any general salary or benefits increase, other than in the
ordinary course of business; (v) neither the Company, Infocrossing nor any of
the other Subsidiaries has taken any action referred to in Section 5.1, except
as permitted thereby and, except that on January 26, 2000, the Company entered
into the Kennedy-Wilson Credit Facility; (vi) there has been no declaration,
setting aside or payment of any dividend or distribution with respect to any
Capital Stock of the Company; or (vii) there has been no change by the Company,
Infocrossing or the other Subsidiaries in accounting principles, practices or
methods.
SECTION 3.7. Private Offering. The offer and sale of the Securities is
exempt from the registration and prospectus delivery requirements of the
Securities Act. Neither the Company, nor anyone acting on behalf of it, has
offered or sold or will offer or sell any securities, or has taken or will take
any other action (including, without limitation, any offering of any securities
of the Company under circumstances that would require, under the Securities Act,
the integration of such offering with the offering and sale of the Shares),
which would subject the Issuance to the registration provisions of the
Securities Act.
SECTION 3.8. Provided Information. All written information (excluding
information of a general economic nature and financial projections) concerning
the Company, Infocrossing and the other Subsidiaries and the Transactions (the
"Information") that has been or will be prepared by or on behalf of the Company
or any of the Company's authorized representatives and that has been made or
will be made available to Purchaser or any of their authorized representatives
in connection with the Issuance, when taken as a whole, was or will be, at the
time made available, correct in all material respects and did not or will not,
at the time made available, contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which such
statements are made. All financial projections concerning the Company,
Infocrossing and the Issuance (the "Projections") that have been prepared by or
on behalf of the Company or any of the Company's authorized representatives and
that have been or will be made available to the Purchasers or any of their
authorized representatives in connection with the Issuance have been, and at the
time made available will be, reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the Company's management as to
the future financial performance of the Company, Infocrossing, the other
Subsidiaries and the individual business segments thereof.
SECTION 3.9. Litigation. Except as disclosed in the Commission Filings
or as set forth in Schedule 3.9, there is no action, suit, proceeding at law or
in equity, or any arbitration or any administrative or other proceeding by or
before (or to the knowledge of the Company any investigation by) any
Governmental Authority, pending, or, to the best knowledge of the Company,
threatened, against or affecting the Company, Infocrossing or any of its other
Subsidiaries, or any of their properties or rights which could have a Material
Adverse Effect or would be reasonably likely to prevent or materially delay
consummation of the Transactions. There are no such suits, actions, claims,
proceedings or investigations pending or, to the knowledge of the Company,
threatened, seeking to prevent or challenging the transactions contemplated by
this Agreement. Except as disclosed in the Commission Filings filed prior to the
date hereof, neither the Company, Infocrossing nor any of its other Subsidiaries
is subject to any judgment, order or decree entered in any lawsuit or proceeding
which could have a material adverse effect on the ability of the Company,
Infocrossing or any other Subsidiary to conduct its business as presently
conducted or contemplated to be conducted or would be reasonably likely to
prevent or materially delay consummation of the Transactions.
SECTION 3.10. Permits and Licenses. The Company, Infocrossing and the
other Subsidiaries have obtained all governmental permits, licenses, franchises
and authorizations required for the Company, Infocrossing and the other
Subsidiaries to conduct their respective businesses as currently conducted
(collectively, "Governmental Licenses"), except for those of which the failure
to obtain would not have a Material Adverse Effect or prevent or materially
delay the consummation of the Transactions; the Company, Infocrossing and the
other Subsidiaries, except where the failure to so comply would not, singly or
in the aggregate, reasonably be expected to (i) have a Material Adverse Effect
or (ii) prevent or materially delay the consummation of the Transactions, are in
compliance with the terms and conditions of all such Governmental Licenses; all
of the Governmental Licenses are valid and in full force and effect, except when
the invalidity of such Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect would not reasonably be expected to (i)
have a Material Adverse Effect, or (ii) prevent or materially delay the
consummation of the Transactions; and neither the Company, Infocrossing nor any
of the other Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would reasonably be expected to (i) have a Material Adverse Effect or (ii)
prevent or materially delay the consummation of the Transactions. There exists
no reason or cause that could justify the variation, suspension, cancellation or
termination of any such Governmental Licenses held by the Company, Infocrossing
or any of the other Subsidiaries with respect to the current or contemplated
operation of their respective businesses, which variation, suspension,
cancellation or termination could reasonably be expected to (i) have a Material
Adverse Effect or (ii) prevent or materially delay the consummation of the
Transactions.
SECTION 3.11. Intellectual Property, etc. In the operation of its
business the Company, Infocrossing any the other Subsidiaries have used, and
currently use, domestic and foreign patents, patent applications, patent
licenses, software licenses, know-how licenses, trade names, trademarks,
copyrights, unpatented inventions, service marks, trademark registrations and
applications, service mark registrations and applications, copyright
registrations and applications, uniform resource locators ("URLs"), Internet
domain names, trade secrets and other confidential and proprietary information
(collectively the "Intellectual Property"). Schedule 3.11 of the Company
Disclosure Schedule contains an accurate and complete list of all Intellectual
Property which is of material importance to the operation of the business of the
Company, Infocrossing or any of the other Subsidiaries. Unless otherwise
indicated in the Commission Filings or on Schedule 3.11 of the Company
Disclosure Schedule, the Company (or the Subsidiary indicated) owns the entire
right, title and interest in and to the Intellectual Property listed on such
Schedule 3.11 of the Company Disclosure Schedule (including, without limitation,
the exclusive right to sue and license the same) free and clear of any Liens
(and without obligation to pay any royalty or other fee with respect thereto)
and each item constituting part of the Intellectual Property which is owned by
the Company, Infocrossing or any other Subsidiary and listed on Schedule 3.11 of
the Company Disclosure Schedule has been, to the extent indicated in Schedule
3.11 of the Company Disclosure Schedule, duly registered with, filed in or
issued by, as the case may be, the United States Patent and Trademark Office or
such other government entities, domestic or foreign, or a duly accredited and
appropriate domain name registrar, as are indicated in Schedule 3.11 of the
Company Disclosure Schedule and such registrations, filings and issuances remain
in full force and effect. Neither the Company's, Infocrossing's or any of the
other Subsidiaries' use or practice of the Intellectual Property infringes any
other Person's rights thereto. No Intellectual Property set forth on Schedule
3.11 of the Company Disclosure Schedule has been canceled, abandoned, or
otherwise terminated and all renewal fees (if applicable) in respect thereof
have been duly paid. Except as stated in Schedule 3.11 of the Company Disclosure
Schedule, there are no pending or to the best knowledge of the Company,
threatened proceedings or litigation or other adverse claims affecting or with
respect to the Intellectual Property listed on Schedule 3.11 of the Company
Disclosure Schedule. Schedule 3.11 of the Company Disclosure Schedule lists all
notices or claims currently pending or received by the Company, Infocrossing or
any of its other Subsidiaries during the past two years which claim, as
applicable, infringement, contributory infringement, inducement to infringe,
misappropriation, misuse or breach by the Company, Infocrossing or any of its
other Subsidiaries with respect to any Intellectual Property or license thereof
and, except as set forth on Schedule 3.11 of the Company Disclosure Schedule,
there is, to the knowledge of the Company, no reasonable basis upon which any
such claim may be asserted. To the best knowledge of the Company, except as
indicated on Schedule 3.11 of the Company Disclosure Schedule, no Person is
infringing, misappropriating or misusing any of the Intellectual Property.
SECTION 3.12. Employee Benefit Plans and Employment Matters. (a)
Schedule 3.12 of the Company Disclosure Schedule sets forth as of the date
hereof a true and complete list of each "employee benefit plan" (as defined in
Section 3(3) of ERISA) of the Company, Infocrossing and its other Subsidiaries
in which current or former employees, agents, directors, or independent
contractors of the Company, Infocrossing or its other Subsidiaries ("Employees")
participate or pursuant to which the Company or any of its Subsidiaries may have
a liability with respect to Employees (each, an "Employee Plan"). Except as
disclosed in the Commission Filings or on Schedule 3.12 of the Company
Disclosure Schedule, neither the Company, Infocrossing nor any of its other
Subsidiaries has any commitment to establish any additional Employee Plans or to
modify or change materially any existing Employee Plan. The Company has made
available to Purchaser with respect to each Employee Plan: (i) a true and
complete copy of all written documents comprising such Employee Plan (including
amendments and individual agreements relating thereto) or, if there is no such
written document, an accurate and complete description of such Employee Plan;
and (ii) the most recent financial statements, if any.
(b) Each Employee Plan has been established and maintained in
substantial compliance with its terms and the requirements of all Applicable
Law, and all contributions required to be made to the Employee Plans have been
made in a timely fashion.
(c) Each Employee Plan which is intended to be "qualified" within the
meaning of Section 401(a) of the Code has received a favorable determination
letter or opinion letter from the Internal Revenue Service and, to the Company's
knowledge, no event has occurred and no condition exists which could reasonably
be expected to result in the revocation of any such determination letter or
opinion letter
(d) Neither the Company, Infocrossing nor any other Subsidiary
currently maintains or contributes to, or has at any time maintained or
contributed to or been obligated to contribute to, any plan, program or
arrangement covered by Title IV of ERISA or subject to Section 412 of the Code
or Section 302 of ERISA.
(e) Neither the Company, Infocrossing nor any other Subsidiary, nor,
to the Company's knowledge, any other "disqualified person" or "party in
interest" (as defined in Section 4975(e)(2) of the Code and Section 3(14) of
ERISA, respectively) has engaged in any transactions in connection with any
Employee Plan that could reasonably be expected to result in the imposition of a
material penalty pursuant to Section 502 of ERISA, material damages pursuant to
Section 409 of ERISA or a material tax pursuant to Section 4975 of the Code.
(f) Except as set forth in the Commission Filings or on Schedule 3.12
of the Company Disclosure Schedule, none of the execution or delivery of the
Equity Documents or the consummation of the transactions contemplated hereby or
thereby (either alone or together with any additional or subsequent events),
constitutes an event under any Employee Plan, loan to, or individual agreement
or contract with, an Employee that may result in any material payment (whether
of severance pay or otherwise), restriction or limitation upon the assets of any
Employee Plan, acceleration of payment or vesting, increase in benefits or
compensation, or required funding, with respect to any Employee, or the
forgiveness of any loan or other commitment of any Employees.
(g) There are no actions, suits, arbitrations, inquiries,
investigations or other proceedings (other than routine claims for benefits)
pending or, to the Company's knowledge, threatened, with respect to any Employee
Plan, except for any of the foregoing that do not and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(h) No amounts paid or payable by the Company, Infocrossing or any
other Subsidiary to or with respect to any Employee (including any such amounts
that may be payable as a result of the execution and delivery of the Equity
Documents or the consummation of the transactions contemplated hereby or
thereby) will fail to be deductible for United States federal income tax
purposes by reason of Section 280G of the Code, except as would not reasonably
be expected, individually or in the aggregate to have a Material Adverse Effect.
(i) the Company, Infocrossing and the other Subsidiaries are in
compliance in all material respects with the terms and provisions of the
Immigration Reform and Control Act of 1986, as amended, and all related
regulations promulgated thereunder (the "Immigration Laws"). With respect to
each employee of the Company, Infocrossing and the other Subsidiaries, for whom
compliance with the Immigration Laws is required, the Company has supplied, or
shall supply prior to the Closing Date, to Purchaser such employee's Form I-9
(Employment Eligibility Verification Form) and all other records, documents or
other papers which are retained with the Form I-9 by the employer pursuant to
the Immigration Laws. The Company, Infocrossing and the other Subsidiaries have
never been the subject of any inspection or investigation relating to its
compliance with or violation of the Immigration Laws, nor have they been warned,
fined or otherwise penalized by reason of any such failure to comply with the
Immigration Laws, nor is any such proceeding pending or to the Company's
knowledge, threatened.
(j) Except as set forth in the Commission Filings or on Schedule 3.12
of the Company Disclosure Schedule, the Company, Infocrossing and the other
Subsidiaries are in compliance in all material respects with all Applicable Laws
respecting employment and employment practices, terms and conditions and wages
and hours.
SECTION 3.13. Taxes. Except as set forth on Schedule 3.13 of the
Company Disclosure Schedule:
(a) The Company, Infocrossing and the other Subsidiaries have timely
filed or caused to be timely filed all income Tax Returns and all material other
United States federal, state, county, local and foreign Tax Returns required to
be filed by or with respect to them. Such Tax Returns have accurately reflected
all liability for Taxes of the Company, Infocrossing and the other Subsidiaries
for the periods covered thereby. All Taxes have been paid in full on a timely
basis other than (1) Taxes which individually or, together with all other unpaid
Taxes, are immaterial, or (2) Taxes which are being contested in good faith by
appropriate proceedings, diligently pursued, and which have been fully reserved
on the balance sheet of the Company. The amount of the liability of the Company,
Infocrossing and the other Subsidiaries for unpaid Taxes for all periods ending
on or before October 31, 1999, does not, in the aggregate, exceed the amount of
the current liability accrual for Taxes (including reserves for deferred Taxes)
reflected on the Company's October 31, 1999 balance sheet; and all Taxes
liabilities of the Company, Infocrossing and the other Subsidiaries since such
time have been incurred in the ordinary course of business of the Company,
Infocrossing or the other Subsidiaries, as the case may be; and all material Tax
liabilities since such time have been set forth on the books and records of the
Company, Infocrossing or another Subsidiary, as the case may be, and disclosed
to Purchaser prior to the date hereof.
(b) There are no material Tax assessments or adjustments that have
been asserted against the Company, Infocrossing or the other Subsidiaries for
any period.
(c) There are no audits, examinations, actions, suits, proceedings,
investigations, claims or assessments pending or, to the knowledge of the
Company, threatened, against the Company, Infocrossing or any of the other
Subsidiaries for any alleged deficiency in any Tax (a "Tax Controversy") and the
Company has not been notified of any proposed Tax Controversy against the
Company, Infocrossing or any of the other Subsidiaries (other than a Tax
Controversy set forth on Schedule 3.13 of the Company Disclosure Schedule which
is being contested in good faith). There are no "deferred intercompany
transactions" or "intercompany transactions" the gain or loss in which has not
yet been taken into account under the consolidated return Treasury Regulations
currently or previously in effect. Neither the Company, Infocrossing nor any of
the other Subsidiaries have been included in any "consolidated," "unitary" or
"combined" Tax Return provided for under the law of the United States, any
foreign jurisdiction or any state or locality with respect to Taxes for any
taxable period for which the statute of limitations has not expired. The Company
has delivered to Purchaser correct and complete copies of all United States
federal, state, and foreign income Tax Returns (to the extent filed as of the
date hereof or, if not filed, correct and complete copies of extensions
thereof), examination reports, statements of deficiencies assessed against or
agreed to by the Company and any of its Subsidiaries, or any other similar
correspondence from a taxing authority, relating to taxable years 1997, 1998 and
1999.
(d) There are no liens for Taxes on the assets of the Company,
Infocrossing or any of the other Subsidiaries, except for statutory liens for
current Taxes not yet due and payable.
(e) (i) Neither the Company, Infocrossing nor any of the other
Subsidiaries has entered into an agreement or waiver or been requested to enter
into an agreement or waiver extending any statute of limitations relating to the
payment or collection of Taxes of the Company, Infocrossing or any of the other
Subsidiaries.
(ii) All Taxes which the Company, Infocrossing or any of the other
Subsidiaries is (or was) required by law to withhold or collect (other than
immaterial amounts) have been duly withheld or collected, and have been timely
paid over to the proper authorities to the extent due and payable.
(iii) No claim has ever been made by any taxing authority in a
jurisdiction where the Company, Infocrossing or any of the other Subsidiaries
does not file Tax Returns that the Company, Infocrossing or any of the other
Subsidiaries is or may be subject to taxation by that jurisdiction.
(iv) There are no tax sharing, allocation, indemnification or similar
agreements in effect as between the Company, Infocrossing or the other
Subsidiaries or any predecessor or affiliate thereof and any other party under
which the Company, Infocrossing, any other Subsidiary, or Purchaser could be
liable for Taxes or other claims of any third party.
(v) Neither the Company, Infocrossing nor any of the other
Subsidiaries has applied for, been granted, or agreed to any accounting method
change for which it will be required to take into account any adjustment under
Section 481 of the Code or any similar provision of the Code or the
corresponding tax laws of any nation, state or locality.
(vi) No election under Section 341(f) of the Code has been made or
shall be made prior to the Closing Date to treat the Company, Infocrossing or
any of the other Subsidiaries as a consenting corporation, as defined in Section
341 of the Code.
(vii) Neither the Company, Infocrossing nor any of the other
Subsidiaries is a party to any agreement that would require the Company,
Infocrossing or any of its Subsidiaries or any affiliate thereof to make any
payment that would constitute an "excess parachute payment" for purposes of
Sections 280G and 4999 of the Code.
(viii) Neither the Company, Infocrossing nor any of the other
Subsidiaries is a "United States real property holding corporation" within the
meaning of Section 897(c)(2) of the Code.
(f) For purposes of this Agreement, the term "Tax" means any United
States federal, state, county or local, or foreign or provincial income, gross
receipts, profits, capital gains, capital stock, occupation, severance, stamp,
withholding, property, sales, use, license, excise, franchise, employment,
payroll, value added, alternative or added minimum, ad valorem or transfer tax,
or any other tax, levy, custom, duty or governmental fee or other like
assessment or charge of any kind whatsoever (whether payable directly or by
withholding and whether or not requiring the filing of a Tax Return), together
with all estimated taxes, deficiency assessments, additions to tax, interest or
penalties imposed by any Governmental Authority, and shall include any liability
for such amounts as a result either of being a member of a combined,
consolidated, unitary or affiliated group or of a contractual obligation to
indemnify any person or other entity. The term "Tax Return" means a report,
return or other information (including any attached schedules or any amendments
to such report, return or other information) required to be supplied to or filed
with any Governmental Authority with respect to any Tax, including an
information return, claim for refund, amended return or declaration or estimated
Tax.
SECTION 3.14. Title to Assets. The Company, Infocrossing and each of
the other Subsidiaries has good, valid and marketable title to (i) all of its
material tangible properties and assets (real and personal), including, without
limitation, all the properties and assets reflected in the consolidated balance
sheet as of October 31, 1999 except as indicated in the notes thereto and except
for properties and assets reflected in the consolidated balance sheet as of
October 31, 1999 which have been sold or otherwise disposed of in the ordinary
course of business after such date, and (ii) all the tangible properties and
assets purchased by the Company and any of its Subsidiaries since October 31,
1999 except for such properties and assets which have been sold or otherwise
disposed of in the ordinary course of business; in each case subject to no Lien,
except for Permitted Liens. "Permitted Liens" means: (i) Liens for Taxes not yet
due or payable; (ii) Liens reflected in the Commission Filings and Liens
pursuant to the Loan and Security Agreement by and among Infocrossing, the
Company, and Kennedy-Wilson, Inc., and Cahill, Warnock Strategic Partners Fund,
L.P., and Strategic Associates, L.P., dated January 26, 2000 (the
"Kennedy-Wilson Credit Facility"); (iii) Liens imposed by applicable law and
incurred in the ordinary course of business for obligations not yet due and
payable to laborers, materialmen and the like; (iv) zoning and other
restrictions, variances, covenants, rights-of-way, encumbrances, easements and
or other minor irregularities of title, none of which, individually or in the
aggregate, would reasonably be expected to have a material adverse effect on the
value of any of the real property of the Company, or would impair in any
material respect the ability of the Company or the relevant Subsidiary of the
Company to sell such property for its current use; (v) with respect to items of
personal property, unperfected purchase money security interests existing in the
ordinary course of business without the execution of a security agreement and
(vi) other Liens which, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect.
SECTION 3.15. Contracts. Schedule 3.15 of the Company Disclosure
Schedule sets forth the following oral or written contracts and other agreements
to which the Company, Infocrossing or any of the other Subsidiaries is a party:
(a) any agreement (or group of related agreements, with the same
third party or any of its Affiliates) for the lease of personal property
providing for lease payments in excess of One Hundred Thousand Dollars
($100,000) per annum;
(b) any agreement (or group of related agreements) for the
purchase or sale of supplies, products or other personal property, or for
the furnishing or receipt of services, the performance of which involve
consideration in excess of Fifty Thousand Dollars ($50,000) for any one
such agreement (or Two Hundred Fifty Thousand Dollars ($250,000) for any
group of related agreements) per annum; provided, however, that this clause
(b) shall not include any employment agreement included pursuant to clause
(e) below or excluded from clause (e) below by virtue of the monetary
threshold set forth therein;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements, with the same
third party or any of its Affiliates) under which the Company, Infocrossing
or any of the other Subsidiaries has created, incurred, assumed, or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, in excess of Fifty Thousand Dollars ($50,000) per annum or
under which it has imposed a Lien on any of its material assets, tangible
or intangible;
(e) any agreement with an employee of the Company, Infocrossing
or any of the other Subsidiaries, providing for a base salary per annum in
excess of One Hundred Thousand Dollars ($100,000);
(f) any other agreement (or group of related agreements with the
same third party) the performance of which involves consideration or
obligations valued in excess of Fifty Thousand Dollars ($50,000) per annum;
provided, however, that this clause (f) shall not include any employment
agreement excluded from clause (e) above by virtue of the monetary
threshold set forth therein;
(g) any agreement (or group of related agreements with the same
third party or any of its Affiliates) in respect of any loan or advance to,
or investment in, any other Person, or any commitment to make any of the
foregoing, by the Company, Infocrossing, or any of the Subsidiaries, in an
amount in excess of Fifty Thousand Dollars ($50,000) excluding loans among
the Company and its wholly owned Subsidiaries;
(h) any agreement, indenture or other instrument which contains
restrictions on the Company's, Infocrossing's or the other Subsidiaries'
ability to pay dividends or otherwise make distributions with respect to
their Capital Stock;
(i) any agreement, contract or commitment limiting the ability of
the Company, Infocrossing or any other Subsidiary to compete with any
Person or engage in any line of business;
(j) any agreement, contract or commitment with any Affiliate
(other than a wholly owned Subsidiary) of the Company; and
(k) any other material agreement, contract or commitment not
entered into in the ordinary course of business.
The foregoing are referred to hereafter as the "Material Contracts".
With respect to the Material Contracts, except as set forth in Schedule 3.15 of
the Company Disclosure Schedule: (i) all are in full force and effect; (ii)
neither the Company, Infocrossing nor any of the other Subsidiaries and, to the
Company's knowledge, no other party thereto, is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under any such
Material Contract; (iii) neither the Company, Infocrossing nor any of the other
Subsidiaries has assigned any of its rights or obligations under any of the
Material Contracts; and (iv) neither the Company, Infocrossing nor any of the
other Subsidiaries has received any outstanding notice of cancellation or
termination in connection with any of them.
SECTION 3.16. Insurance. The Company, Infocrossing and the other
Subsidiaries have obtained and maintained in full force and effect insurance
(including director's and officer's insurance) with insurance companies or
associations in such amounts, on such terms and covering such risks as disclosed
in Schedule 3.16 of the Company Disclosure Schedule.
SECTION 3.17. Investment Company. None of the Company, Infocrossing or
the other Subsidiaries will be an "investment company" or "promoter" or
"principal underwriter" for an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
SECTION 3.18. Environmental Laws and Regulations. Except as set forth
in the Commission Filings or on Schedule 3.18 of the Company Disclosure
Schedule, (a) Hazardous Materials have not at any time been generated, use,
treated or stored on, or transported to or from, any Company Property or, to the
knowledge of the Company, any property adjoining or adjacent to any Company
Property, (b) Hazardous Materials have not at any time been released or disposed
of on any Company Property or, to the knowledge of the Company, any property
adjoining or adjacent to any Company Property, (c) the Company, Infocrossing and
each of the other Subsidiaries are in compliance in all material respects with
all Environmental Laws and the requirements of any permits issued under such
Environmental Laws with respect to any Company Property, (d) there are no past,
pending or threatened material Environmental Claims against the Company,
Infocrossing or any of the other Subsidiaries or any Company Property, (e) there
are no facts or circumstances, conditions or occurrences regarding any Company
Property or, to the knowledge of the Company, any property adjoining or adjacent
to any Company Property, that could reasonably be anticipated (A) to form the
basis of a material Environmental Claim against the Company, Infocrossing or any
of the other Subsidiaries or any Company Property or (B) to cause such Company
Property to be subject to any material restrictions on its ownership, occupancy,
use or transferability under any Environmental Law, and (f) there are not now
and never have been any underground storage tanks located on any Company
Property or, to the knowledge of the Company, on any property adjoining or
adjacent to any Company Property.
For purposes of this Agreement, the following terms shall have the
following meanings: (A) "Company Property" means any real property and
improvements owned or leased by the Company, Infocrossing or any of the other
Subsidiaries; (B) "Hazardous Materials" means (i) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; (ii) any chemicals, materials or substances defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," or words of similar import, under any
applicable Environmental Law; and (iii) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
governmental authority; (C) "Environmental Law" means any federal, state or
local statute, law, rule, regulation, ordinance, code or rule of common law in
effect and in each case as amended as of the date hereof and Closing Date, and
any judicial or administrative interpretation thereof applicable to the Company
or its operations or property as of the date hereof and Closing Date, including
any judicial or administrative order, consent decree or judgment, relating to
the environment, health, safety or Hazardous Materials, including without
limitation the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, 42 U.S.C.ss. 9601 et -- seq.; the Resource Conservation
and Recovery Act, as amended, 42 U.S.C.ss. 6901 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C.ss. 1251 et seq.; the Toxic
Substances Control Act, 15 U.S.C.ss. 2601 et seq.; the Clean Air Act, 42
U.S.C.ss. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.ss. 3808 et seq.;
and (D) "Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings under any
Environmental Law or any permit issued under any such Environmental Law (for
purposes of this subclause (D), "Claims"), including without limitation (i) any
and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment; and (E)
"Release" means disposing, discharging, injecting, spilling, leaking, leaching,
dumping, emitting, escaping, emptying or seeping into or upon any land or water
or air, or otherwise entering into the environment.
SECTION 3.19. State Takeover Statutes. The Board of Directors of the
Company has approved the Transactions and the Equity Documents and such approval
is sufficient to render inapplicable to the Transactions and the Equity
Documents the provisions of Section 203 of the DGCL.
SECTION 3.20. Brokers and Finders. No agent, broker, Person or firm
acting on behalf of the Company is, or will be, entitled to any fee, commission
or broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by, or under common control with any of the parties
hereto, in connection with this Agreement or any of the transactions
contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF EACH PURCHASER
Each Purchaser hereby severally, and not jointly, represents and
warrants to the Company, as to itself and as to no other person, as of the date
hereof and as of the Closing Date as follows:
SECTION 4.1. Organization; Authorization; Enforceability. Such
Purchaser is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has all requisite power and
authority to own its properties and assets and to carry on its business as it is
now being conducted and as currently proposed to be conducted. Such Purchaser
has the power to execute, deliver and perform its obligations under each of the
Equity Documents to which it is a party and has taken all action necessary to
authorize the execution, delivery and performance by it of such Equity Documents
and to consummate the transactions contemplated hereby and thereby. No other
proceedings on the part of such Purchaser are necessary for such authorization,
execution, delivery and consummation. Such Purchaser has duly executed and
delivered this Agreement and, at the Closing, such Purchaser will have duly
executed and delivered each of the other Equity Documents to be executed and
delivered at or prior to Closing. This Agreement constitutes, and each of the
other Equity Documents to which such Purchaser is a party, when executed and
delivered by such Purchaser, will constitute, a legal, valid and binding
obligation of such Purchaser.
SECTION 4.2. Private Placement. (a) Such Purchaser understands that
(i) the offering and sale of the Securities in the Issuance by the Company is
intended to be exempt from registration under the Securities Act pursuant to
Section 4(2) thereof and (ii) there is no existing public or other market for
the Securities.
(b) Such Purchaser (either alone or together with its advisors) has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investment in the
Securities and is capable of bearing the economic risks of such investment.
(c) Such Purchaser is acquiring the Securities to be acquired
hereunder (and will acquire the Conversion Shares and the Warrants Shares) for
its own account, for investment and not with a view to the public resale or
distribution thereof, in violation of any securities law.
(d) Such Purchaser understands that the Securities will be issued in a
transaction exempt from the registration or qualification requirements of the
Securities Act and applicable state securities laws, and that such securities
must be held indefinitely unless a subsequent disposition thereof is registered
or qualified under the Securities Act and such laws or is exempt from such
registration or qualification.
(e) Such Purchaser (A) has been furnished with or has had full access
to all of the information that it considers necessary or appropriate to make an
informed investment decision with respect to the Securities and that it has
requested from the Company, (B) has had an opportunity to discuss with
management of the Company the intended business and financial affairs of the
Company and to obtain information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to it or to which it had access
and (C) can bear the economic risk of (x) an investment in the Securities
indefinitely and (y) a total loss in respect of such investment, has such
knowledge and experience in business and financial matters so as to enable it to
understand and evaluate the risks of and form an investment decision with
respect to its investment in the Securities and to protect its own interest in
connection with such investment; it being understood that nothing set forth in
this Section 4.2(e) shall affect the representations, warranties or other
obligations of the Company, or the rights and remedies of such Purchaser, under
this Agreement in any way whatsoever.
SECTION 4.3. No Violation; Consents. (a) The execution, delivery and
performance by such Purchaser of each of the Equity Documents to which it is a
party and the consummation of the Transactions do not and will not contravene
any Applicable Law. The execution, delivery and performance by such Purchaser of
each of the Equity Documents to which it is a party and the consummation of the
Transactions contemplated therein (i) will not violate, result in a breach of or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under any
Contract to which such Purchaser is party or by which such Purchaser is bound or
to which any of its assets is subject, except for any such violations, breaches
or defaults that would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such Purchaser to
perform its obligations under this Agreement, and (ii) will not conflict with or
violate any provision of the certificate of incorporation or by-laws or other
governing documents of such Purchaser.
(b) Except for (i) the filings by such Purchaser, if any, required by
the HSR Act, and (ii) applicable filings, if any, with the Commission pursuant
to the Exchange Act, in each case, which shall be made (to the extent required)
on or prior to the Closing Date, no consent, authorization or order of, or
filing or registration with, any Governmental Authority or other Person is
required to be obtained or made by such Purchaser for the execution, delivery
and performance of any of the Equity Documents to which it is a party or the
consummation of any of the transactions contemplated therein, except where the
failure to obtain such consents, authorizations or orders, or make such filings
or registrations, would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such Purchaser to
perform its obligations under this Agreement.
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.1. Operation of Business. The Company agrees that, except as
permitted, required or specifically contemplated by, or otherwise described in,
this Agreement or the other Equity Documents or otherwise consented to or
approved in writing by Purchasers during the period commencing on the date
hereof and ending on the Closing Date:
(a) The Company, Infocrossing and each of the other Subsidiaries
will conduct their respective operations only according to their ordinary
and usual course of business consistent with past practice and will use
their reasonable best efforts to preserve intact their respective business
organization, keep available the services of their officers and employees
and maintain satisfactory relationships with licensors, suppliers,
distributors, clients, joint venture partners, and others having
significant business relationships with them;
(b) Each of the Company, Infocrossing and the other Subsidiaries
shall:
(i) operate its business in all material respects in the ordinary
course and in compliance with Applicable Laws;
(ii) not adopt any amendment (other than the Certificate of
Designation) to its Certificate of Incorporation or by-laws or
comparable organizational documents, except as contemplated in the
proposed Certificate of Amendment attached hereto as Exhibit E;
(iii) not split, combine or reclassify any shares of the
Company's Capital Stock;
(iv) not declare or pay any dividend or distribution (whether in
cash, stock or property) in respect of its Capital Stock or increase
the number of shares subject to any stock incentive or option plan
with respect to the Capital Stock of the Company, Infocrossing or any
Subsidiary;
(v) not take any action, or knowingly omit to take any action,
that would, or that would reasonably be expected to, result in (A) any
of the representations and warranties of the Company set forth in
Article III becoming untrue or (B) any of the conditions to the
obligations of Purchasers set forth in Section 7.2 not being satisfied
or (C) the triggering of any of the anti-dilution adjustments
contained in the Certificate of Designation (had such Certificate of
Designation been in effect);
(vi) not issue or sell any shares of its Capital Stock (other
than in connection with the exercise of options or warrants
outstanding on the date hereof) or any of its other securities, or
issue any securities convertible into, or options, warrants or rights
to purchase or subscribe to, or enter into any arrangement or contract
with respect to the issuance or sale of, any shares of its Capital
Stock or any of its other securities, or make any other changes in its
capital structure;
(vii) not acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business or
division thereof;
(viii) not, except to the extent required under existing employee
and director benefit plans, agreements or arrangements as in effect on
the date of this Agreement, increase the compensation or fringe
benefits of any of its directors, officers or employees, except for
increases in salary or wages of employees of the Company, Infocrossing
or the other Subsidiaries who are not officers of the Company in the
ordinary course of business in accordance with past practice, or grant
any severance or termination pay not currently required to be paid
under existing severance plans or enter into any employment,
consulting or severance agreement or arrangement with any present or
former director, officer or other employee of the Company or any of
its Subsidiaries, or establish, adopt, enter into or amend or
terminate any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of
any directors, officers or employees;
(ix) not adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company, Infocrossing or any of the other
Subsidiaries;
(x) incur any material liability for Taxes other than in the
ordinary course of business; or enter into any settlement or closing
agreement with a taxing authority that materially affects or may
materially affect the tax liability of the Company, Infocrossing or
any of the other Subsidiaries; or
(xi) not enter into any agreement or commitment to do any of the
foregoing.
SECTION 5.2. Access to Books and Records. (a) The Company
shall afford to Purchasers and Purchasers' accountants, counsel and
representatives full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement pursuant
to Section 8.4) to all its properties, books, Contracts, commitments and records
(including, but not limited to, tax returns) and, during such period, shall,
upon request, furnish promptly to Purchasers (i) a copy of each report, schedule
and other document filed or received by any of them pursuant to the requirements
of Federal or state securities laws and (ii) all other information concerning
its business, properties and personnel as Purchasers may reasonably request,
provided that no investigation or receipt of information pursuant to this
Section 5.2 shall affect any representation, warranty or other obligation of the
Company or the rights and remedies and conditions to the obligations of
Purchasers.
(b) The Company shall supplement the Information and the Projections
from time to time until the Closing Date so that the representations and
warranties in Section 3.8 shall remain correct, but no such supplement shall be
given effect for purposes of determining whether the Company has breached any
representations or warranties for purposes of Section 7.2 and Section 8.1.
SECTION 5.3. Agreement to Take Necessary and Desirable Actions. The
Company shall (a) subject to the satisfaction of the conditions set forth in
Section 7.1, execute and deliver the Equity Documents and such other documents,
certificates, agreements and other writings and (b) take such other actions, in
each case, as may be necessary or reasonably requested by any Purchaser in order
to consummate or implement the Issuance in accordance with the terms of this
Agreement.
SECTION 5.4. Compliance with Conditions. The Company shall use its
reasonable best efforts to cause all conditions precedent to the obligations of
the Company and Purchasers to be satisfied. Upon the terms and subject to the
conditions of this Agreement, the Company will use its reasonable best efforts
to take, or cause to be taken, all action, and do, or cause to be done, all
things necessary, proper or advisable consistent with Applicable Law to
consummate and make effective in the most expeditious manner practicable the
Issuance in accordance with the terms of this Agreement.
SECTION 5.5. HSR Act Notification. To the extent required by the HSR
Act, the Company shall, to the extent it has not already done so, (a) file or
cause to be filed, as promptly as practicable after the execution and delivery
of this Agreement, with the United States Federal Trade Commission and the
Antitrust Division of the United States Department of Justice, all reports and
other documents required to be filed by it under the HSR Act concerning the
transactions contemplated hereby and (b) promptly comply with or cause to be
complied with any requests by the United States Federal Trade Commission or the
Antitrust Division of the United States Department of Justice for additional
information concerning such transactions, in each case so that the waiting
period applicable to this Agreement and the transactions contemplated hereby
under the HSR Act shall expire as soon as practicable after the execution and
delivery of this Agreement. The Company agrees to request, and to cooperate with
Purchasers in requesting, early termination of any applicable waiting period
under the HSR Act.
SECTION 5.6. Consents and Approvals. The Company (a) shall use its
reasonable best efforts to obtain all necessary consents, waivers,
authorizations and approvals of all Governmental Authorities and of all other
Persons required in connection with the execution, delivery and performance of
the Equity Documents or the consummation of the Issuance and (b) shall
diligently assist and cooperate with Purchaser in preparing and filing all
documents required to be submitted by Purchasers to any Governmental Authority
in connection with the Issuance (which assistance and cooperation shall include,
without limitation, timely furnishing to Purchasers all information concerning
the Company, Infocrossing and the other Subsidiaries that counsel to Purchasers
determines is required to be included in such documents or would be helpful in
obtaining any such required consent, waiver, authorization or approval).
SECTION 5.7. Reservation of Shares. The Company shall:
(i) cause to be authorized and reserve and keep available at all
times during which any of the Shares and Warrants remain outstanding, free
from preemptive rights, out of its treasury stock or authorized but
unissued shares of Capital Stock, or both, solely for the purpose of
effecting the conversion of the Shares and/or exercise of the Warrants
pursuant to the terms of the Certificate of Designation or the Warrant
Agreement, as the case may be, sufficient shares of Common Stock to provide
for the issuance of the maximum number of shares issuable upon conversion
of outstanding Shares and Warrants;
(ii) issue and cause the transfer agent to deliver such shares of
Common Stock as required upon conversion of the Shares and/or the exercise
of the Warrants, and take all actions necessary to ensure that all such
shares will, when issued and paid for pursuant to the conversion of the
Shares and/or exercise of the Warrants, be duly and validly issued, fully
paid and nonassessable; and
(iii) if any shares of Common Stock reserved for the purpose of
issuance upon conversion of the Shares and/or exercise of the Warrants
require registration with or approval of any Governmental Authority under
any Applicable Law before such shares may be validly issued or delivered,
secure such registration or approval, as the case may be, and maintain such
registration or approval in effect so long as so required.
SECTION 5.8. Use of Proceeds. The Company shall use the proceeds from
the Issuance to finance the execution of the Infocrossing, Inc. business plan
and to repay the indebtedness under the Kennedy-Wilson Credit Facility.
SECTION 5.9. Filing of Certificate of Designation. Prior to the
Issuance, the Company shall file the Certificate of Designation with the
Secretary of State of the State of Delaware pursuant to Section 151(g) of the
DGCL.
SECTION 5.10. Listing of Shares. The Company shall cause the
Conversion Shares and the Warrant Shares to be listed or otherwise eligible for
trading on the NASDAQ National Market System or such other national securities
exchange on which constitutes the principal trading U.S. market for the Common
Stock.
SECTION 5.11. Periodic Information. For so long as the Shares or any
Conversion Shares or Warrant Shares are outstanding the Company shall file all
reports required to be filed by the Company under Section 13 or 15(d) of the
Exchange Act and shall provide the holders of the Securities, the Conversion
Shares and the Warrant Shares and prospective purchasers of such shares with the
information specified in Rule 144A(d) under the Securities Act.
SECTION 5.12. Legends. So long as applicable, each certificate
representing any portion of the Shares, the Conversion Shares or the Warrant
Shares shall be stamped or otherwise imprinted with a legend in the following
form (in addition to any legend required under applicable state securities
laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AGAINST TRANSFER SET FORTH IN A STOCKHOLDERS AGREEMENT
DATED AS OF MAY __, 2000, AS MAY BE AMENDED FROM TIME TO TIME. A COPY
OF SUCH STOCKHOLDERS AGREEMENT HAS BEEN FILED IN THE OFFICE OF THE
COMPANY LOCATED AT 2 CHRISTIE HEIGHTS STREET, LEONIA, NEW JERSEY
07605, WHERE THE SAME MAY BE INSPECTED DAILY DURING BUSINESS HOURS.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. SUCH SHARES MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OTHER THAN PURSUANT TO
AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS."
After the above requirement for a legend is no longer applicable because the
Shares are freely transferable under the Securities Act, the Company shall
remove such legend upon request from a holder of such Shares, if outside counsel
for such holder reasonably determines that the transfer of such Shares is no
longer restricted by the Securities Act and outside counsel for the Company
reasonably concurs in such determination.
SECTION 5.13. Directors and Officers Insurance; Indemnification. For
so long as Purchaser holds any Shares, the Company shall maintain directors' and
officers' insurance with policy limits and deductibles at least as favorable to
the beneficiaries of such insurance as are currently maintained and otherwise on
terms reasonably comparable to the coverage maintained by the Company on the
date hereof, such insurance to be maintained with an insurer with an A.M. Best
financial strength rating of "A" or better. For so long as Purchaser holds any
Shares, the Company shall indemnify the Company's directors and officers to the
fullest extent permitted under the DGCL and shall enter into all such agreements
and use its best efforts to obtain any necessary amendments to its Certificate
of Incorporation or by-laws to give effect to this Section 5.13.
SECTION 5.14. Stockholders' Approval; Proxy Statement. (a) The
Company, acting through its Board of Directors, shall, in accordance with
Applicable Law, take all such action as is necessary or appropriate to submit to
the stockholders of the Company at the Company Stockholders' Meeting a
resolution approving the issuance of the Securities and the other Transactions.
The Company agrees that it shall use its reasonable best efforts to solicit from
its stockholders proxies, and shall take all other action necessary and
advisable, to secure the vote of its stockholders required by Applicable Law to
obtain the approval of this Agreement and will include in the Proxy Statement
supplement described below the recommendation of its Board of Directors that
holders of Common Stock approve and adopt the resolutions authorizing the
issuance of the Securities and the Transactions.
(b) (i) As promptly as practicable, the Company will prepare and file
a supplement (the "Supplement") to the Proxy Statement with the Commission and
will use its best efforts to respond to any comments of the Commission in
connection therewith and to furnish all information required to prepare the
Supplement. The Company will cause the Supplement to be mailed to the
stockholders of the Company and, if necessary, after the Supplement shall have
been so mailed, promptly circulate amended, supplemental or supplemented proxy
material and, if required in connection therewith, resolicit proxies.
(ii) To the extent necessary to distribute the Supplement and solicit
proxies in favor of the resolutions described therein or to otherwise give
effect to this Section 5.14, the Company will postpone the Company Stockholders'
Meeting.
ARTICLE VI
COVENANTS OF EACH PURCHASER
SECTION 6.1. Agreement to Take Necessary and Desirable Actions. Each
Purchaser shall (a) subject to the satisfaction of the conditions set forth in
Section 7.2, execute and deliver each of the Equity Documents to which it is a
party and such other documents, certificates, agreements and other writings and
(b) take such other actions as may be reasonably necessary, desirable or
requested by the Company in order to consummate or implement the Issuance to
such Purchaser in accordance with the terms of this Agreement.
SECTION 6.2. Compliance with Conditions; Best Efforts. Each Purchaser
will use its reasonable best efforts to cause all of the obligations imposed
upon it in this Agreement to be duly complied with, and to cause all conditions
precedent to the obligations of the Company and such Purchaser to be satisfied.
Upon the terms and subject to the conditions of this Agreement, each Purchaser
will use its reasonable best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or advisable
consistent with applicable law to consummate and make effective in the most
expeditious manner practicable the Issuance to such Purchaser in accordance with
the terms of this Agreement.
SECTION 6.3. HSR Act Notification. To the extent required by the HSR
Act, each Purchaser shall, if it has not already done so, (a) use commercially
reasonable efforts to file or cause to be filed, as promptly as practicable
after the execution and delivery of this Agreement, with the United States
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice, all reports and other documents required to be filed by
it under the HSR Act concerning the transactions contemplated hereby and (b) use
commercially reasonable efforts to promptly comply with or cause to be complied
with any requests by the United States Federal Trade Commission or the Antitrust
Division of the United States Department of Justice for additional information
concerning such transactions in each case so that the waiting period applicable
to this Agreement and the transactions contemplated hereby under the HSR Act
shall expire as soon as practicable after the execution and delivery of this
Agreement. Each Purchaser agrees to request, and to cooperate with the Company
in requesting, early termination of any applicable waiting period under the HSR
Act.
SECTION 6.4. Consents and Approvals. Each Purchaser (a) shall use its
reasonable best efforts to obtain all necessary consents, waivers,
authorizations and approvals of all Governmental Authorities other than as
expressly set forth in Section 6.3 regarding the HSR Act, and of all other
Persons required in connection with the execution, delivery and performance of
this Agreement or the consummation of the Issuance to such Purchaser and (b)
shall assist and cooperate with the Company in preparing and filing all
documents required to be submitted by the Company to any Governmental Authority
in connection with such Transactions (which assistance and cooperation shall
include, without limitation, timely furnishing to the Company all information
concerning such Purchaser that counsel to the Company reasonably determines is
required to be included in such documents or would be helpful in obtaining any
such required consent, waiver, authorization or approval).
SECTION 6.5. Restrictions on Transfer. Each Purchaser shall not sell,
assign, transfer, pledge, hypothecate, deposit in a voting trust or otherwise
dispose of any portion of the Securities, the Conversion Shares or the Warrant
Shares (any such disposition, a "Share Transfer"), other than (a) to a Permitted
Transferee of such Purchaser that has agreed in writing (each, a "Permitted
Transferee Agreement") to be bound by the terms and provisions of this Section
6.5 to the same extent that such Purchaser would be bound if it beneficially
owned the Securities transferred to such Permitted Transferee or (b) (i) in any
transaction in compliance with Rule 144 under the Securities Act or any
successor rule or regulation, (ii) in a transaction exempt from the registration
requirements of the Securities Act or (iii) pursuant to a registration
statement. Such Purchaser shall promptly notify the Company of any Share
Transfer to a Permitted Transferee of such Purchaser, which notification shall
include a Permitted Transferee Agreement executed by each Permitted Transferee
of such Purchaser to whom any Securities have been transferred.
ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING
SECTION 7.1. Conditions to the Company's Obligations. The obligations
of the Company with respect to Purchasers required to be performed on the
Closing Date shall be subject to the satisfaction or waiver in writing, at or
prior to the Closing, of the following conditions:
(a) The representations and warranties of each Purchaser
contained in this Agreement which are qualified by any "materiality",
"material adverse effect" or any similar qualifier shall be true and
correct in all respects and the representations and warranties of such
Purchaser which are not so qualified shall be true and correct in all
material respect, in each case on and as of the date hereof and on and as
of the Closing Date, as if made on and as of the Closing Date.
(b) Each Purchaser shall have performed in all material respects
all obligations and agreements, and complied in all material respects with
all covenants contained in this Agreement to be performed and complied with
by such Purchaser at or prior to the Closing Date.
(c) No provision of any Applicable Law, injunction, order or
decree of any Governmental Entity shall be in effect which has the effect
of making the Transactions illegal or shall otherwise restrain or prohibit
the consummation of the Transactions.
(d) Any applicable waiting period under the HSR Act with respect
to the purchase by such Purchaser shall have expired or been terminated.
SECTION 7.2. Conditions to Purchaser's Obligations. The obligations of
Purchaser required to be performed on the Closing Date shall be subject to the
satisfaction or waiver in writing, at or prior to the Closing, of the following
conditions:
(a) The representations and warranties of the Company contained
in this Agreement which are qualified by any "materiality", "material
adverse effect" or any similar qualifier shall be true and correct in all
respects and the representations and warranties of the Company which are
not so qualified shall be true and correct in all material respects, in
each case on and as of the date hereof and on and as of the Closing Date,
as if made on and as of the Closing Date.
(b) The Company shall have performed in all material respects all
of its obligations, agreements and covenants contained in this Agreement to
be performed and complied with at or prior to the Closing Date.
(c) No provision of any Applicable Law, injunction, order or
decree of any Governmental Entity shall be in effect which has the effect
of making the Transactions illegal or shall otherwise restrain or prohibit
the consummation of the Transactions.
(d) The Company shall have filed the Certificate of Designation
with the Secretary of State of the State of Delaware and the Certificate of
Designation shall have been accepted for filing.
(e) Any applicable waiting period under the HSR Act with respect
to the purchase by Purchaser shall have expired or been terminated.
(f) The Company shall have delivered to Purchaser a certificate
executed by it or on its behalf by duly authorized representative, dated
the Closing Date, to the effect that each of the conditions specified in
paragraph (a) through (e) and (l)(i) of this Section 7.2 has been
satisfied.
(g) The Company and Zach Lonstein shall have executed and
delivered the Registration Rights Agreement.
(h) The Company shall have executed and delivered the Warrant
Agreement.
(i) The Company and the Management Stockholders shall have
executed and delivered the Stockholders Agreement.
(j) Purchasers shall have received an opinion of counsel to the
Company, dated the Closing Date, and addressed to Purchasers, in form and
substance reasonably acceptable to Purchasers.
(k) Each Purchaser shall have received certificates representing
the Shares and the Warrants purchased by such Purchaser concurrently with
the Company's receipt of the purchase price payable in respect of such
Securities.
(l) there shall not have occurred (i) any event, circumstance,
condition, fact, effect or other matter which has had or could reasonably
be expected to have a material adverse effect (x) on the condition
(financial or otherwise), business, properties, assets, liabilities,
operations, results of operations or prospects of the Company and the
Subsidiaries, taken as a whole or (y) on the ability of the Company and the
Subsidiaries to perform on a timely basis any material obligation under
this Agreement or to consummate the Issuance contemplated hereby; or (ii)
any material disruption of or material adverse change in financial, banking
or equity or debt capital market conditions.
(m) The stockholders of the Company shall have approved the
issuance of the Securities and the other transactions contemplated by this
Agreement.
(n) The indebtedness of the Company under the Kennedy-Wilson
Credit Facility shall have been either (x) exchanged for the KW Securities
pursuant to Section 2.1(b) or (y) repaid in full, and any options or
warrants on securities of the Company or Infocrossing issued in connection
therewith shall have been surrendered, unexercised, for cancellation.
(o) All outstanding options and warrants (other than options or
warrants issued in relation to the Kennedy Wilson Credit Facility) on
securities of Infocrossing, Inc. shall have been converted into options or
warrants on Common Stock on terms reasonably satisfactory to Purchasers.
(p) At the Closing, the Company shall have issued and sold
Securities with a purchase price not less than $60,000,000 pursuant to the
terms of this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Survival; Indemnification. (a) All representations,
warranties and covenants contained in this Agreement or in any certificate
delivered in connection with the Closing shall survive the Closing for 18 months
(except (i) covenants that are required to be performed after the Closing Date
and the representations contained in Sections 3.1, 3.2, 3.3 and 3.4, which shall
survive indefinitely and (ii) representations and warranties contained in
Section 3.13, which shall survive for the applicable statute of limitation).
Notwithstanding the foregoing, with respect to claims asserted pursuant to this
Section 8.1 before the expiration of the applicable representation or warranty,
such claims shall survive until the date they are finally adjudicated or
otherwise resolved.
(b) The Company agrees to indemnify and hold harmless Purchaser, each
Purchaser Affiliate and each of their respective representatives, heirs,
successors and assigns (each an "indemnified person") on an after-tax basis,
from and against (and to reimburse each indemnified person as the same are
incurred) any and all losses (including, but not limited to, impairment of the
value of the Securities as of the date such loss first becomes known) claims,
damages, liabilities, costs and expenses (collectively, "Losses") to which any
indemnified person may become subject or which any indemnified person may incur
based upon, arising out of, or in connection with (i) a breach of any
representation or warranty of this Agreement by the Company, (ii) any breach of
any covenant or agreement contained herein by the Company or (iii) any claim,
litigation, investigation or proceeding brought by or on behalf of any Person
other than the Company relating to the Issuance, and to reimburse each
indemnified person upon demand for any reasonable legal or other reasonable out
of pocket expenses incurred in connection with investigating or defending any of
the foregoing, provided (A) the Company shall have no obligation to indemnify
any indemnified person for any Loss resulting from any breach of any
representation or warranty hereunder (other than representations and warranties
contained in Sections 3.1, 3.2, 3.3, 3.4 or 3.13, which shall be indemnified
from the first dollar of Loss) unless and until the aggregate amount of all such
Losses exceeds $1,000,000 (and then only to the extent of such excess) and (B)
the maximum amount indemnifiable to indemnified persons for breaches of the
representations or warranties contained in this Agreement shall not exceed
$60,000,000.
(c) If a Person entitled to indemnity hereunder (an "Indemnified
Party") asserts that the Company (the "Indemnifying Party") has become obligated
to the Indemnified Party pursuant to Section 8.1(b), or if any suit, action,
investigation, claim or proceeding is begun, made or instituted as a result of
which the Indemnifying Party may become obligated to the Indemnified Party
hereunder, the Indemnified Party shall notify the Indemnifying Party promptly
and shall cooperate with the Indemnifying Party, at the Indemnifying Party's
expense, to the extent reasonably necessary for the resolution of such claim or
in the defense of such suit, action or proceedings, including making available
any information, documents and things in the possession of the Indemnified
Party. Notwithstanding the foregoing notice requirement, the right to
indemnification hereunder shall not be affected by any failure to give, or delay
in giving, notice unless, and only to the extent that, the rights and remedies
of the Indemnifying Party shall have been actually and materially prejudiced as
a result of such failure or delay.
(d) In fulfilling its obligations under this Section 8.1, after the
Indemnifying Party has provided each Indemnified Party with a written notice of
its acceptance of liability under this Section 8.1, as between such Indemnified
Party and the Indemnifying Party, the Indemnifying Party shall have the right to
investigate, defend, settle or otherwise handle, with the aforesaid cooperation,
any claim, suit, action or proceeding brought by a third party in such manner as
the Indemnifying Party may in its sole discretion reasonably deem appropriate;
provided, that (i) counsel retained by the Indemnifying Party is satisfactory to
the Indemnified Party and (ii) the Indemnifying Party will not consent to any
settlement or entry of judgment imposing any obligations on any other party
hereto other than financial obligations for which such party will be indemnified
hereunder, unless such party has consented in writing to such settlement or
judgment (which consent may be given or withheld in its sole discretion) and
(iii) the Indemnifying Party will not consent to any settlement or entry of
judgment unless, in connection therewith, the Indemnifying Party obtains a full
and unconditional release of the Indemnified Party from all liability with
respect to such suit, action, investigation claim or proceeding. Notwithstanding
the Indemnifying Party's election to assume the defense or investigation of such
claim, action or proceeding, the Indemnified Party shall have the right to
employ separate counsel and to participate in the defense or investigation of
such claim, action or proceeding, which participation shall be at the expense of
the Indemnifying Party, if (i) on the advice of counsel to the Indemnified Party
use of counsel of the Indemnifying Party's choice could be expected to give rise
to a material conflict of interest, (ii) the Indemnifying Party shall not have
employed counsel reasonably satisfactory to the Indemnified Party to represent
the Indemnified Party within a reasonable time after notice of the assertion of
any such claim or institution of any such action or proceeding, (iii) if the
Indemnifying Party shall authorize the Indemnified Party to employ separate
counsel at the Indemnifying Party's expense or (iv) such action shall seek
relief other than monetary damages against the Indemnified Party.
(e) The Company and the Purchasers agree that any payment of Losses
made hereunder will be treated by the parties on their tax returns as an
adjustment to the Purchase Price. If, notwithstanding such treatment by the
parties, a final determination with respect to the Indemnified Party or any of
its affiliates causes any such payment not to be treated as an adjustment to
Purchase Price, then the Indemnifying Party shall indemnify the Indemnified
Party for any taxes payable by the Indemnified Party or any subsidiary by reason
of the receipt of such payment (including any payments under this 8.1(e)),
determined at an assumed marginal tax rate equal to the highest marginal tax
rate then in effect for corporate taxpayers in the relevant jurisdiction.
(f) The obligations of the Indemnifying Party under this Section 8.1
shall survive the transfer, redemption or conversion of the Securities, the
Warrant Shares and the Common Stock issued upon the conversion or exercise
thereof, or the closing or termination of any Equity Document. The agreements
contained in this Section 8.1 shall be in addition to any other rights of the
Indemnified Party against the Indemnifying Party or others. The Indemnifying
Party consents to personal jurisdiction, service and venue in any court in the
continental United States in which any claim subject to this Agreement is
brought by any Indemnified Party.
(g) All obligations of the Purchasers hereunder shall be several and
not joint. If any Purchaser fails to purchase Securities hereunder or otherwise
defaults on any liability or obligation under this Agreement, no other Purchaser
will have any obligation to purchase any such Securities or take or refrain from
taking any action on account of such defaulting Purchaser.
SECTION 8.2. Notices. All notices, demands, requests, consents,
approvals or other communications (collectively, "Notices") required or
permitted to be given hereunder or which are given with respect to this
Agreement shall be in writing and shall be personally served, delivered by
reputable air courier service with charges prepaid, or transmitted by hand
delivery, telegram, telex or facsimile, addressed as set forth below, or to such
other address as such party shall have specified most recently by written
notice. Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the next business day
following delivery of such notice to a reputable air courier service. Notices
shall be delivered as follows:
If to the Company:
Computer Outsourcing Services, Inc.
2 Christie Heights Street
Leonia, New Jersey 07605
Attn: Nicholas J. Letizia,
Chief Financial Officer
Telephone: (201) 840-8717
Fax: (201) 840-7126
with a copy to:
Robinson & Cole LLP
695 E. Main St.
Stamford, CT 06904
Attn: Richard Krantz, Esq.
Telephone: (203) 462-7505
Fax: (203) 462-7599
if to any Purchaser, to such Purchaser at its address as set
forth on Schedule A:
with a copy to:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attn: S. Ward Atterbury, Esq.
Telephone: (212) 819-8389
Fax: (212) 354-8113
SECTION 8.3. Governing Law. This Agreement shall be governed by,
interpreted under, and construed in accordance with the laws of the State of New
York, regardless of the laws that might otherwise govern under applicable
principles of conflicts of law thereof.
SECTION 8.4. Termination. (a) This Agreement may be terminated as
between the Company and Purchaser (i) at any time prior to the Closing Date by
mutual written agreement of the Company and Purchaser, (ii) if the Closing shall
not have occurred on or prior to May 31, 2000, by either the Company or
Purchaser, at any time after May 31, 2000, provided that the right to terminate
this Agreement under this Section 8.4(a)(ii) shall not be available to any party
whose failure to fulfill any obligation under this Agreement was the cause of or
resulted in the failure of the Closing to occur on or before such date, (iii) if
any Governmental Authority shall have issued a nonappealable final order, decree
or ruling or taken any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement, by either the Company or Purchaser, (iv) if either the Company
or Purchaser shall have breached any of its material obligations under this
Agreement, by the non-breaching party, or (v) if an event described in Section
7.2(l) shall have occurred, by Purchaser. Any party desiring to terminate this
Agreement pursuant to clauses 8.4(a)(ii), (iii), (iv) or (v) shall promptly give
notice of such termination to the other party.
(b) If this Agreement is terminated as between the Company and
Purchaser, as permitted by Section 8.4(a), such termination shall be without
liability of any party (or any stockholder, director, officer, partner,
employee, agent, consultant or representative of such party) to any other party
to this Agreement; provided, that if such termination shall result from the
willful (a) failure of any party to fulfill a condition to the performance of
the obligations of the other party, (b) failure to perform a covenant of this
Agreement or (c) breach by any party hereto of any representation or warranty
contained herein, such failing or breaching party shall be fully liable for any
and all losses incurred or suffered by the other party as a result of such
failure or breach. The provisions of Sections 8.2, 8.3, this Section 8.4,
Sections 8.5, 8.8, 8.10, 8.11, 8.12, 8.13, 8.14, 8.16, 8.18 and 8.19 and shall
survive any termination hereof pursuant to Section 8.4(a).
(c) If (x) the stockholders of the Company do not, by May 31, 2000,
ratify the issuance of the Securities, this Agreement and the Transactions and
(y) this Agreement is hereafter terminated, the Company shall pay to the
Purchaser an amount equal to all documented out-of-pocket expenses paid to third
parties in connection with this Agreement and the Transactions.
SECTION 8.5. Entire Agreement. As between the Company and Purchaser
this Agreement and the Equity Documents (including all agreements entered into
pursuant hereto and thereto and all certificates and instruments delivered
pursuant hereto and thereto) constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements, representations, understandings, negotiations and discussions
between the parties, whether oral or written, with respect to the subject matter
hereof.
SECTION 8.6. Modifications and Amendments. No amendment, modification
or termination of this Agreement as between the Company and Purchaser shall be
binding unless executed in writing by the Company and Purchaser intending to be
bound thereby.
SECTION 8.7. Waivers and Extensions. Any party to this Agreement may
waive any condition, right, breach or default that such party has the right to
waive, provided that such waiver will not be effective against the waiving party
unless it is in writing, is signed by such party, and specifically refers to
this Agreement. Waivers may be made in advance or after the right waived has
arisen or the breach or default waived has occurred. Any waiver may be
conditional. No waiver of any breach of any agreement or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach thereof
nor of any other agreement or provision herein contained. No waiver or extension
of time for performance of any obligations or acts shall be deemed a waiver or
extension of the time for performance of any other obligations or acts.
SECTION 8.8. Titles and Headings. Titles and headings of sections of
this Agreement are for convenience only and shall not affect the construction of
any provision of this Agreement.
SECTION 8.9. Exhibits and Schedules. Each of the exhibits and
schedules referred to herein and attached hereto is an integral part of this
Agreement and is incorporated herein by reference.
SECTION 8.10. Expenses. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense;
provided, however, that (a) the Company shall pay the filing fee payable in
respect of any HSR filing, and (b) the Company shall reimburse the Purchasers
for all expenses of Purchasers (including the expenses of White & Case LLP,
counsel to the Purchasers, and such other consultants and advisors) incurred in
connection with the Transactions; provided, that the Company shall not be
required to reimburse the Purchasers for more than $225,000 in expenses.
SECTION 8.11. Press Releases and Public Announcements. All public
announcements or disclosures relating to the Issuance or this Agreement shall be
made only if mutually agreed upon by the Company and Purchasers, except to the
extent such disclosure is, in the opinion of counsel, required by Applicable
Law, provided that (a) any such required disclosure shall only be made, to the
extent consistent with Applicable Law and (b) no such announcement or disclosure
(except as required by Applicable Law) shall identify Purchaser without
Purchaser's prior consent.
SECTION 8.12. Assignment; No Third Party Beneficiaries. This Agreement
and the rights, duties and obligations hereunder may not be assigned or
delegated by the Company without the prior written consent of Purchaser, and may
not assigned or delegated by Purchaser without the Company's prior written
consent except that Purchaser may assign any or all of its rights and
obligations under this Agreement to any one or more of its Affiliates. Any
assignment or delegation of rights, duties or obligations hereunder made by the
Company without the prior written consent of Purchaser, shall be void and of no
effect. This Agreement and the provisions hereof shall be binding upon and shall
inure to the benefit of each of the parties and their respective successors and
permitted assigns. This Agreement is not intended to confer any rights or
benefits on any Persons other than the parties hereto, except as expressly set
forth in Section 5.2, Section 8.1, this Section 8.12 or Section 8.18.
SECTION 8.13. Severability. This Agreement shall be deemed severable,
and the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.
SECTION 8.14. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
SECTION 8.15. Further Assurances. As between the Company and
Purchaser, each party hereto, upon the request of any other party hereto, shall
do all such further acts and execute, acknowledge and deliver all such further
instruments and documents as may be necessary or desirable to carry out the
transactions contemplated by this Agreement, including, in the case of the
Company, such acts, instruments and documents as may be necessary or desirable
to convey and transfer to Purchaser the Shares to be purchased by it hereunder.
SECTION 8.16. Remedies Cumulative. The remedies provided herein shall
be cumulative and shall not preclude the assertion by any party hereto of any
other rights or the seeking of any remedies against the other party hereto.
SECTION 8.17. Specific Performance. The parties hereto agree that the
remedy at law for any breach of this Agreement may be inadequate, and that as
between the Company and Purchaser any party by whom this Agreement is
enforceable shall be entitled to specific performance in addition to any other
appropriate relief or remedy. Such party may, in its sole discretion, apply to a
court of competent jurisdiction for specific performance or injunctive or such
other relief as such court may deem just and proper in order to enforce this
Agreement as between the Company and Purchaser, or prevent any violation hereof,
and, to the extent permitted by applicable as between the Company and Purchaser
law, each party waives any objection to the imposition of such relief.
SECTION 8.18. No Purchaser Affiliate Liability. No Purchaser Affiliate
shall have any liability or obligation of any nature whatsoever in connection
with or under this Agreement or the transactions contemplated hereby, and the
Company hereby waives and releases all claims of any such liability and
obligation, it being understood that no such Person or entity (other than
Purchaser) shall be liable for or in respect of this Agreement with the
transactions contemplated hereby.
SECTION 8.19. Confidentiality. (a) Each of the parties hereto agrees
that it will not (i) use, disseminate, or in any way disclose any Confidential
Information disclosed to it by the other party hereto, to any person, firm or
business, except to the extent necessary (x) in the case of Purchaser, to manage
its investment (including any sale of all or any portion thereof), to discharge
its fiduciary or regulatory obligations or for any other purpose which the
Company may hereafter authorize in writing and (y) in the case of the Company,
in order to discharge any fiduciary or regulatory obligation or for any other
purpose which the Purchaser may hereafter authorize in writing, or (ii) use any
Confidential Information of the other party for its own benefit or the benefit
of any third party. Each of the parties, agrees that such it shall treat all
Confidential Information received from the other party, with the same degree of
care as the receiving party accords to its own Confidential Information, but in
no case less than reasonable care.
(b) Notwithstanding anything to the contrary contained in the
immediately preceding paragraph (a) the disclosure by any party hereto of any
Confidential Information of the other party (i) to any Affiliate of such party,
or to any officer, director, employee, agent, representative, attorney or other
advisor of such party or any Affiliate of such party, who agrees to be bound by
the provisions of this Section 8.19, (ii) to any foreign or domestic
governmental or quasi-governmental regulatory authority including with out
limitation, the Federal Reserve Bank of New York or any stock exchange or other
self-regulatory organization having jurisdiction over such party, (iii) in
response to an order by a court or other governmental body, (iv) which is
otherwise required by applicable law or regulation (including any rule or
regulation of any stock exchange or automated quotation system on which such
party is listed or traded or (v) which is necessary or advisable to establish
the rights of either party under this Agreement, shall not be considered to be a
breach of this Agreement by the party making such disclosure; provided, however,
such the party required to make such disclosure pursuant to clause (iii), (iv)
or (v) hereof shall provide written notice thereof to the party which owns such
Confidential Information to enable such party to seek a protective order or
otherwise prevent such disclosure of its Confidential Information.
SECTION 8.20. Tax Matters. Except as required by applicable law, the
Company and Purchaser agree to treat the Shares as stock other than preferred
stock for all relevant income tax purposes.
<PAGE>
[SIGNATURE PAGES TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPUTER OUTSOURCING SERVICES, INC.
By /s/Zach Lonstein
--------------------
Name: Zach Lonstein
Title: Chief Executive Officer
DB CAPITAL INVESTORS, L.P.,
By: DB CAPITAL PARTNERS, L.P.,
its General Partner
By: DB CAPITAL PARTNERS, INC.,
its General Partner
By /s/Frank Schiff
---------------------
Name: Frank Schiff
Title: Managing Director
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/David C. Lee
---------------------
Name: David C. Lee
Title: Attorney-in-Fact
SANDLER CAPITAL PARTNERS IV FTE, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/David C. Lee
------------------------
Name: David C. Lee
Title: Attorney-in-Fact
SANDLER INTERNET PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/David C. Lee
---------------------------
Name: David C. Lee
Title: Attorney-in-Fact
<PAGE>
SANDLER CO-INVESTMENT PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/David C. Lee
-------------------------------
Name: David C. Lee
Title: Attorney-in-Fact
<PAGE>
Schedule A
<TABLE>
PURCHASERS
<CAPTION>
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
Purchaser Address Series A Warrants Purchase Price
Preferred Stock
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
<S> <C> <C> <C> <C>
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
DB Capital Investors, L.P. 130 Liberty Street, 25th Fl. 78,688.5 1,265,963 $30,000,000
New York, NY 10006
Attn.: Tyler T. Zachem,
Managing Director
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
Sandler Capital Partners IV, 767 Fifth Avenue, 45th Fl. 48,605.9 781,985 $18,531,000
L.P. New York, NY 10153
Attn.: David C. Lee,
Managing Director
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
Sandler Capital Partners IV 767 Fifth Avenue, 45th Fl. 19,853.1 319,402 $ 7,569,000
FTE, L.P. New York, NY 10153
Attn.: David C. Lee,
Managing Director
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
Sandler Internet Partners, L.P. 767 Fifth Avenue, 45th Fl. 5,245.9 84,398 $ 2,000,000
New York, NY 10153
Attn.: David C. Lee,
Managing Director
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
Sandler Co-Investment 767 Fifth Avenue, 45th Fl. 4,983.6 80,178 $ 1,900,000
Partners, L.P. New York, NY 10153 ------- --------- -----------
Attn.: David C. Lee,
Managing Director
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
Total 157,377 2,531,926 $60,000,000
======= ========= ===========
- -------------------------------- --------------------------------- ---------------- -------------- -------------------
</TABLE>
EXHIBIT 4
This REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is made as of
May 10, 2000, by and among Computer Outsourcing Services, Inc., a Delaware
corporation, (the "Company"), DB Capital Investors, L.P. (the "Initial DB
Holder"), Sandler Capital Partners V, L.P., Sandler Internet Partners, L.P.,
Sandler Co-Investment Partners, L.P., Price Family Limited Partners and Benake,
L.P. (each an "Initial Sandler Holder" and, collectively, the "Initial Sandler
Holders") and Zach Lonstein, a resident of the State of New York ("Lonstein").
W I T N E S S E T H:
WHEREAS, the Company and the Initial Holders have entered into, or
have been assigned an interest in, a Securities Purchase Agreement dated April
7, 2000 (the "Securities Purchase Agreement"); and
WHEREAS, pursuant to the terms of the Securities Purchase Agreement,
the Initial Holders have purchased, or have been assigned an interest in, (x)
157,377 shares (the "Shares") of the 8% Series A Cumulative Convertible
Participating Preferred Stock of the Company (the "Series A Preferred Stock"),
which such Shares are initially convertible into 1,573,770 shares of the Common
Stock, par value $.01 per share, of the Company ("Common Stock"), subject to
adjustment in accordance with the terms of the Series A Preferred Stock, and (y)
Series A Common Stock Warrants (the "Warrants") to purchase, initially 2,531,926
shares of Common Stock, subject to adjustment in accordance with the terms of
the Warrants; and
WHEREAS, Lonstein is the holder of 1,673,349 shares of Common Stock
(the "Lonstein Shares"); and
WHEREAS, Lonstein has granted the Initial Holders an option (the
"Option") to purchase up to 750,000 shares of Common Stock currently owned by
Lonstein; and
WHEREAS, it is a condition precedent to the closing of the
transactions contemplated in the Securities Purchase Agreement that the parties
hereto execute and deliver this Agreement.
NOW THEREFORE, in consideration of the premises, mutual promises and
covenants contained in this Agreement and intending to be legally bound, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. Terms defined in the Securities Purchase
Agreement are used herein as therein defined. In addition, the following terms,
as used herein, have the following meanings:
"Agreement" has the meaning set forth in the preamble.
"Commission" means the Securities and Exchange Commission.
"Common Stock" has the meaning set forth in the second recital
"Company" has the meaning set forth in the preamble.
"Conversion Shares" means all shares of Common Stock or other
securities issued upon the conversion of the Series A Preferred Stock in
accordance with its terms.
"Demand Registration" means a registration under the Securities Act
requested in accordance with Section 2.01.
"DB Holders" means the Initial DB Holder, its direct and indirect
successors and assigns and any direct or indirect transferee of any Registrable
Securities initially held by the Initial DB Holder.
"Excluded Holders" has the meaning set forth in Section 2.01(f).
"Holders" shall mean the Lonstein Holders, the DB Holders and the
Sandler Holders.
"Indemnified Party" has the meaning set forth in Section 4.03.
"Indemnifying Party" has the meaning set forth in Section 4.03.
"Initial DB Holder" has the meaning set forth in the preamble.
"Initial Sandler Holder" and "Initial Sandler Holders" have the
meaning set forth in the preamble.
"Initial Holders" means the Initial DB Holder and the Initial Sandler
Holders.
"Lonstein" has the meaning set forth in the preamble.
"Lonstein Holders" means Lonstein, his direct and indirect heirs,
successors and assigns and any direct or indirect transferee of any Registrable
Securities initially held by Lonstein.
"Lonstein Shares" has the meaning set forth in the third recital.
"Losses" has the meaning set forth in Section 4.01.
"Material Adverse Effect" has the meaning set forth in Section
2.01(f).
"Option" has the meaning set forth in the fourth recital.
"Option Shares" means any shares of Common Stock or other securities
issued upon the exercise of the Option.
"Piggyback Registration" has the meaning set forth in Section 2.02.
"Registrable Common Stock" means the Conversion Shares, the Warrant
Shares and the Option Shares, in each case, together with any additional shares
of Common Stock or other securities issued in respect thereof in connection with
any stock split, stock dividend, merger, consolidation, reclassification,
recapitalization or similar event with respect to such shares of Common Stock.
"Registrable DB Securities" means (a) any Registrable Series A
Preferred Stock purchased by any DB Holder on the Closing Date or thereafter
acquired, (b) any Registrable Common Stock acquired by any DB Holder upon the
conversion of any Registrable Series A Preferred Stock, the exercise of any
Registrable Warrants or the exercise of the Option, (c) any Registrable Warrants
purchased by any DB Holder on the Closing Date or thereafter acquired, and (d)
any securities of the Company or any successor entity into which Registrable
Common Stock, Registrable Warrants or Registrable Series A Preferred Stock may
hereafter be reclassified, converted or changed. As to any particular
Registrable DB Securities, such securities shall cease to be Registrable DB
Securities upon the earlier to occur of (i) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of under such
registration statement in accordance with the plan of distribution set forth
therein; (ii) such securities shall have been transferred pursuant to Rule 144;
(iii) such securities shall have been otherwise transferred or disposed of, and
new certificates therefor not bearing a legend restricting further transfer
shall have been delivered by the Company, and subsequent transfer of such
securities shall not require registration or qualification under the Securities
Act or any similar state law then in force, or (iv) such securities shall have
ceased to be outstanding.
"Registrable Lonstein Securities" means the Lonstein Shares (other
than any Lonstein Shares subject to the Option), together with any additional
shares of Common Stock or other securities issued in respect thereof in
connection with any stock split, stock dividend, merger, consolidation,
reclassification, recapitalization or similar event with respect to such shares
of Common Stock. As to any particular Registrable Lonstein Securities, such
securities shall cease to be Registrable Lonstein Securities upon the earlier to
occur of (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of under such registration statement in
accordance with the plan of distribution set forth therein; (ii) such securities
shall have been transferred pursuant to Rule 144; (iii) such securities shall
have been otherwise transferred or disposed of, and new certificates therefor
not bearing a legend restricting further transfer shall have been delivered by
the Company, and subsequent transfer of such securities shall not require
registration or qualification under the Securities Act or any similar state law
then in force, or (iv) such securities shall have ceased to be outstanding.
"Registrable Sandler Securities" means (a) any Registrable Series A
Preferred Stock purchased by any Sandler Holder on the Closing Date or
thereafter acquired, (b) any Registrable Common Stock acquired by any Sandler
Holders upon the conversion of any Registrable Series A Preferred Stock, the
exercise of any Registrable Warrants or the exercise of the Option, (c) any
Registrable Warrants purchased by any Sandler Holder on the Closing Date or
thereafter acquired, and (d) any securities of the Company or any successor
entity into which Registrable Common Stock, Registrable Warrants or Registrable
Series A Preferred Stock may hereafter be reclassified, converted or changed. As
to any particular Registrable Sandler Securities, such securities shall cease to
be Registrable Sandler Securities upon the earlier to occur of (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of under such registration statement in accordance with the plan of
distribution set forth therein; (ii) such securities shall have been transferred
pursuant to Rule 144; (iii) such securities shall have been otherwise
transferred or disposed of, and new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company, and
subsequent transfer of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in force,
or (iv) such securities shall have ceased to be outstanding.
"Registrable Series A Preferred Stock" means the Shares, together with
any additional shares of Series A Preferred Stock or other securities issued in
respect thereof (other than any Conversion Shares) in connection with any stock
split, stock dividend, merger, consolidation, reclassification, recapitalization
or similar event with respect to such Shares.
"Registrable Securities" means the Registrable DB Securities, the
Registrable Sandler Securities and the Registrable Lonstein Securities.
"Registrable Warrants" means the Warrants, together with any Warrants
or other securities issued in respect thereof (other than any Warrant Shares) in
connection with any stock split, stock dividend, merger, consolidation,
reclassification, recapitalization or similar event with respect to such
Warrants.
"Requesting Holders" means the Holders requesting a Demand
Registration, and shall include parties deemed "Requesting Holders" pursuant to
Sections 2.01(a)(v), (vi) and (vii).
"Rule 144" means Rule 144 (or any successor rule of similar effect)
promulgated under the Securities Act.
"Sandler Holders" means the Initial Sandler Holders, their direct and
indirect successors and assigns and any direct or indirect transferee of any
Registrable Securities initially held by any Initial Sandler Holder.
"Securities Purchase Agreement" has the meaning set forth in the first
recital.
"Selling Holder" means any Holder who is selling Registrable
Securities pursuant to a public offering registered hereunder.
"Series A Preferred Stock" has the meaning set forth in the second
recital.
"Shares" has the meaning set forth in the second recital.
"Shelf Registration" means a Demand Registration which is effected
pursuant to Rule 415 under the Securities Act.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in connection with a Demand Registration or a Piggyback
Registration and not as part of such dealer's market-making activities.
"Warrants" has the meaning set forth in the second recital.
"Warrant Shares" means all shares of Common Stock or other securities
issued upon the exercise of the Warrants.
Section 1.02 Internal References. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement, and
references to the parties shall mean the parties to the Securities Purchase
Agreement.
ARTICLE II
REGISTRATION RIGHTS
Section 2.01 Demand Registration. (a) (i) Holders of not less than a
majority of the Registrable DB Securities may make up to two written requests
for a Demand Registration (of which such Demand Registrations, one may be a
Shelf Registration) of all or any part of the Registrable DB Securities held by
such DB Holders; provided that (A) no such Demand Registration may be requested
by the DB Holders prior to the first anniversary of the Closing Date, and (B)
the DB Holders shall not be entitled to a Demand Registration if, during the 6
months preceding such request, the Holders have requested a Demand Registration
(unless such Demand Registration was preempted pursuant to Section 2.01(e)).
(ii) Holders of not less than a majority of the Registrable Sandler
Securities may make up to two written requests for a Demand Registration (of
which such Demand Registrations, one may be a Shelf Registration) of all or any
part of the Registrable Sandler Securities held by such Sandler Holders;
provided that (A) no such Demand Registration may be requested by the Sandler
Holders prior to the first anniversary of the Closing Date, and (B) the Sandler
Holders shall not be entitled to a Demand Registration if, during the 6 months
preceding such request, the Holders have requested a Demand Registration (unless
such Demand Registration was preempted pursuant to Section 2.01(e)).
(iii) Holders of not less than a majority of the Registrable Lonstein
Securities may make up to two written requests for a Demand Registration of all
or any part of the Registrable Lonstein Securities held by such Lonstein
Holders; provided that (A) no such Demand Registration may be requested by the
Lonstein Holders prior to the second anniversary of the Closing Date, and (B)
the DB Holders shall not be entitled to a Demand Registration if, during the 6
months preceding such request, the Holders have requested a Demand Registration
(unless such Demand Registration was preempted pursuant to Section 2.01(e)).
(iv) Any request for a Demand Registration will specify the aggregate
number of shares of Registrable Securities proposed to be sold by the Requesting
Holders and will also specify the intended method of disposition thereof. Any
such request for a Demand Registration shall specify whether such registration
will be a Shelf Registration. For so long as the Initial DB Holder holds
Registrable DB Securities, no Demand Registration made by any DB Holder shall be
a Shelf Registration without the consent of the Initial DB Holder. For so long
as the Initial Sandler Holders hold Registrable Sandler Securities, no Demand
Registration made by any Sandler Holder shall be a Shelf Registration without
the consent of a majority in interest of the Initial Sandler Holders. A
registration will not count as a Demand Registration until it has become
effective. If the Requesting Holders withdraw or do not pursue the request for
the Demand Registration (in each of the foregoing cases, provided that at such
time the Company is in compliance in all material respects with its obligations
under this Agreement), then such Demand Registration shall be deemed to have
been effected, provided that (i) if, the Demand Registration does not become
effective because a material adverse change has occurred, or is reasonably
likely to occur, in the condition (financial or otherwise), business,
properties, assets, liabilities, operations or prospects of the Company and its
subsidiaries taken as a whole subsequent to the date of the written request made
by the Requesting Holders or (ii) if, after the Demand Registration has become
effective, an offering of Registrable Securities pursuant to a registration is
interfered with by any stop order, injunction, or other order or requirement of
the Commission or other governmental agency or court then the Demand
Registration shall not be deemed to have been effected and will not count as a
Demand Registration.
(v) Upon receipt of any request for a Demand Registration by Holders
of not less than a majority of the Registrable DB Securities held by the DB
Holders, the Company shall promptly (but in any event within ten (10) days) give
written notice of such proposed Demand Registration to all other Holders, and
subject to Section 2.01(f), all such Holders shall have the right, exercisable
by written notice to the Company within twenty (20) days of their receipt of the
Company's notice, to elect to include in such Demand Registration such portion
of their Registrable Securities as they may request. All such Holders requesting
to have their Registrable Securities included in a Demand Registration in
accordance with the preceding sentence shall be deemed to be "Requesting
Holders" for purposes of this Section 2.01; provided that any Sandler Holders
and any Lonstein Holders shall not be deemed to be "Requesting Holders" for
purposes of Section 2.01(c).
(vi) Upon receipt of any request for a Demand Registration by Holders
of not less than a majority of the Registrable Sandler Securities held by the
Sandler Holders, the Company shall promptly (but in any event within ten (10)
days) give written notice of such proposed Demand Registration to all other
Holders, and subject to Section 2.01(f), all such Holders shall have the right,
exercisable by written notice to the Company within twenty (20) days of their
receipt of the Company's notice, to elect to include in such Demand Registration
such portion of their Registrable Securities as they may request. All such
Holders requesting to have their Registrable Securities included in a Demand
Registration in accordance with the preceding sentence shall be deemed to be
"Requesting Holders" for purposes of this Section 2.01; provided that any DB
Holders and any Lonstein Holders shall not be deemed to be "Requesting Holders"
for purposes of Section 2.01(c).
(vii) Upon receipt of any request for a Demand Registration by Holders
of a majority of the Registrable Lonstein Securities held by the Lonstein
Holders, the Company shall promptly (but in any event within ten (10) days) give
written notice of such proposed Demand Registration to all other Holders, and
subject to Section 2.01(f), all such Holders shall have the right, exercisable
by written notice to the Company within twenty (20) days of their receipt of the
Company's notice, to elect to include in such Demand Registration such portion
of their Registrable Securities as they may request. All such Holders requesting
to have their Registrable Securities included in a Demand Registration in
accordance with the preceding sentence shall be deemed to be "Requesting
Holders" for purposes of this Section 2.01; provided that any DB Holders and any
Sandler Holders shall not be deemed to be "Requesting Holders" for purposes of
Section 2.01(c).
(b) In the event that the Requesting Holders withdraw or do not pursue
a request for a Demand Registration and, pursuant to Section 2.01(a) hereof,
such Demand Registration is deemed to have been effected, the Holders may
reacquire such Demand Registration (such that the withdrawal or failure to
pursue a request will not count as a Demand Registration hereunder) if the
Selling Holders reimburse the Company for any and all Registration Expenses
actually incurred by the Company in connection with such request for a Demand
Registration.
(c) If the Requesting Holders so elect, the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the form
of a "firm commitment" underwritten offering. A majority in interest of the
Requesting Holders shall have the right to select the managing Underwriters and
any additional investment bankers and managers to be used in connection with any
offering under this Section 2.01, subject to the Company's approval, which
approval shall not be unreasonably withheld.
(d) The Requesting Holders will inform the Company of the time and
manner of any disposition of Registrable Securities (which may be pursuant to a
Shelf Registration), and agree to take reasonable action to cooperate with the
Company in effecting the disposition of the Registrable Securities in a manner
that does not unreasonably disrupt the public trading market for the Common
Stock.
(e) The Company shall have the right for up to 180 days in any
consecutive 360 day period to delay or suspend any Demand Registration in the
event that the Board determines, in good faith, that it is in the best interest
of the Company for the Company to proceed with its own offering of equity
securities. The Company may so proceed by delivering written notice (within five
business days after the Company has received a request for such Demand
Registration) of such intention to the Selling Holder indicating that the
Company has identified a specific business need and use for the proceeds of the
sale of such securities and the Company shall use its best efforts to effect a
primary registration within 60 days of such notice. In the ensuing primary
registration, the Holders will have such piggyback registration rights as are
set forth in Section 2.02 hereof. Upon the Company's preemption of a requested
Demand Registration, such requested registration will not count as the Holders'
Demand Registration. The Company may exercise the right to preempt only once in
any 360-day period. Notwithstanding anything to the contrary contained herein,
during any 360-day period the Company shall not exercise its right to preempt,
delay or postpone the filing or effectiveness of any registration statement,
pre- or post-effective amendment or supplement or prospectus supplement pursuant
to this Section 2.01(e), the first proviso to Section 3.01(a), or Section
3.01(b) for more than 180 days in the aggregate for all such provisions during
any period of 360 consecutive days.
(f) Priority on Demand Registrations. No securities to be sold for the
account of any Person (including the Company) other than a Requesting Holder
shall be included in a Demand Registration unless the managing Underwriter or
Underwriters shall advise the Company and the Requesting Holders in writing that
the inclusion of such securities will not materially and adversely affect the
price, distribution or timing of the offering (a "Material Adverse Effect"). Any
additional securities to be included in a Demand Registration pursuant to this
Section 2.01(f) shall be included in such Demand Registration in accordance with
their relative rights. Furthermore, in the event the managing Underwriter or
Underwriters shall advise the Company or the Requesting Holders that even after
exclusion of all securities of other Persons (including the Company) pursuant to
the immediately preceding sentence, the amount of Registrable Securities
proposed to be included in such Demand Registration by Requesting Holders is
sufficiently large to cause a Material Adverse Effect, the Registrable
Securities of the Requesting Holders to be included in such Demand Registration
shall equal the number of shares which the Company and the Requesting Holders
are so advised can be sold in such offering without a Material Adverse Effect
and such shares shall be allocated pro rata among the Requesting Holders on the
basis of the number of Registrable Securities requested to be included in such
registration by each such Requesting Holder; provided, however, that if any
Registrable Securities requested to be registered pursuant to a Demand
Registration under Section 2.01 are excluded from registration hereunder, then
the Holder(s) having shares excluded ("Excluded Holders") shall have the right
to withdraw all, or any part, of their shares from such registration; provided,
further, that if less than 80% of the Registrable Securities requested to be
included in such Demand Registration are actually included therein, such
registration will not count as a Demand Registration for purposes of this
Section 2.01.
Section 2.02 Piggyback Registration. (a) If the Company at any time
proposes to file a registration statement under the Securities Act with respect
to an offering of securities for its own account or for the account of another
Person (other than a registration statement on Form S-4 or S-8 (or any
substitute form that may be adopted by the Commission) and other than a Demand
Registration hereunder), the Company shall give written notice of such proposed
filing to the Holders at the address set forth in the share register of the
Company as soon as reasonably practicable (but in no event less than 15 days
before the anticipated date on which such registration will be first filed with
the Commission), undertaking to provide each Holder the opportunity to register
on the same terms and conditions such number and type of Registrable Securities
as such Holder may request (a "Piggyback Registration"). Each Holder will have
ten business days after receipt of any such notice to notify the Company as to
whether it wishes to participate in a Piggyback Registration (which notice shall
not be deemed to be a request for a Demand Registration); provided that should a
Holder fail to provide timely notice to the Company, such Holder will forfeit
any rights to participate in the Piggyback Registration with respect to such
proposed offering. In the event that the registration statement is filed on
behalf of a Person other than the Company, the Company will use its best efforts
to have the shares of Registrable Securities that the Holders wish to sell
included in the registration statement. If the Company shall determine in its
sole discretion not to register or to delay the proposed offering, the Company
shall provide written notice of such determination to the Holders and (i) in the
case of a determination not to effect the proposed offering, shall thereupon be
relieved of the obligation to register such Registrable Securities in connection
therewith, and (ii) in the case of a determination to delay a proposed offering,
shall thereupon be permitted to delay registering such Registrable Securities
for the same period as the delay in respect of the proposed offering. As between
the Company and the Selling Holders, the Company shall be entitled to select the
Underwriters in connection with any Piggyback Registration.
(b) Priority on Piggyback Registrations. If the Registrable Securities
requested to be included in the Piggyback Registration by any Holder differ from
the type of securities proposed to be registered by the Company and the managing
Underwriter advises the Company that due solely to such differences the
inclusion of such Registrable Securities would cause a Material Adverse Effect,
then (i) the number of such Holders' Registrable Securities to be included in
the Piggyback Registration shall be reduced to an amount which, in the opinion
of the managing Underwriter, would eliminate such Material Adverse Effect or
(ii) if no such reduction would, in the opinion of the managing Underwriter,
eliminate such Material Adverse Effect, then the Company shall have the right to
exclude all such Registrable Securities from such Piggyback Registration,
provided that no other securities of such type are included and offered for the
account of any other Person in such Piggyback Registration. Any partial
reduction in number of Registrable Securities of any Holder to be included in
the Piggyback Registration pursuant to clause (i) of the immediately preceding
sentence shall be effected pro rata based on the ratio which such Holder's
requested shares bears to the total number of shares requested to be included in
such Piggyback Registration by all Persons other than the Company who have the
contractual right to request that their shares be included in such registration
statement and who have requested that their shares be included. If the
Registrable Securities requested to be included in the registration statement
are of the same type as the securities being registered by the Company and the
managing Underwriter advises the Company that the inclusion of such Registrable
Securities would cause a Material Adverse Effect, the Company will be obligated
to include in such registration statement, as to each Holder only a portion of
the shares such Holder has requested be registered equal to the ratio which such
Holder's requested shares bears to the total number of shares requested to be
included in such registration statement by all Persons who have the contractual
right to request that their shares be included in such registration statement
and who have requested their shares be included; provided, however, that the
provisions of this sentence shall not be applicable to the Person or Persons
initiating such registration statement. If the Company initiated the
registration, then the Company may include all of its securities in such
registration statement before any such Holder's requested shares are included.
If another security holder initiated the registration, then the Company may not
include any of its securities in such registration statement unless all
Registrable Securities requested to be included in the registration statement by
all Holders are included in such registration statement. If as a result of the
provisions of this Section 2.02(b) any Holder shall not be entitled to include
all Registrable Securities in a registration that such Holder has requested to
be so included, such Holder may withdraw such Holder's request to include
Registrable Securities in such registration statement prior to its
effectiveness.
ARTICLE III
REGISTRATION PROCEDURES
Section 3.01 Filings; Information. In connection with the registration
of Registrable Securities pursuant to Section 2.01 and Section 2.02 hereof, the
Company will use its best efforts to effect the registration of such Registrable
Securities as promptly as is reasonably practicable, and in connection with any
such request:
(a) The Company will expeditiously prepare and file as soon as
practicable (but in any event within 60 days) with the Commission a
registration statement on any form for which the Company then qualifies and
which counsel for the Company shall deem appropriate and available for the
sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use its
reasonable best efforts to cause such filed registration statement to
become and remain effective (i) with respect to any Demand Registration
(other than a Shelf Registration) or Piggyback Registration, for such
period, not to exceed 120 days, as may be reasonably necessary to effect
the sale of such securities and (ii) with respect to a Shelf Registration,
until the earlier of the sale of all Registrable Securities thereunder and
the end of the 36th calendar month from the time the second Shelf
Registration becomes effective; provided that if the Company shall furnish
to the Selling Holder a certificate signed by the Company's Chairman or
President stating that the Company's Board of Directors has determined in
good faith that it would be detrimental or otherwise disadvantageous to the
Company or its shareholders for such a registration statement to be filed
as expeditiously as possible because the sale of Registrable Securities
covered by such registration statement or the disclosure of information in
any related prospectus or prospectus supplement would materially interfere
with any acquisition, financing or other material event or transaction
which is then intended or the public disclosure of which at the time would
be materially prejudicial to the Company, the Company may postpone the
filing or effectiveness of a registration statement for a period of not
more than 180 days; provided, further, that the Company shall not exercise
its right to preempt, delay or postpone any registration pursuant to
Section 2.01(e), the first proviso to this Section 3.01(a), or Section
3.01(b) for more than 180 days in the aggregate for all such provisions
during any period of 360 consecutive days; provided, further, that the
Company may exercise its rights under Section 3.01(a) only once with
respect to any particular registration statement; and provided further that
if (i) the effective date of any registration statement filed pursuant to a
Demand Registration would otherwise be at least 45 calendar days, but fewer
than 90 calendar days, after the end of the Company's fiscal year, and (ii)
the Securities Act requires the Company to include audited financial
statements of the Company as of the end of such fiscal year, the Company
may delay the effectiveness of such registration statement for such period
as is reasonably necessary to include therein its audited financial
statements for such fiscal year.
(b) Anything in this Agreement to the contrary notwithstanding,
it is understood and agreed that the Company shall not be required to keep
any Shelf Registration effective or useable for offers and sales of the
Registrable Securities, file a post effective amendment to a Shelf
Registration statement or prospectus supplement or to supplement or amend
any registration statement, if the Company is then involved in discussions
concerning, or otherwise engaged in, any material financing or investment,
acquisition or divestiture transaction or other material business purpose,
if the Company determines in good faith that the making of such a filing,
supplement or amendment at such time would interfere with such transaction
or purpose. The Company shall promptly give the Holders of Registrable
Securities written notice of such postponement containing a general
statement of the reasons for such postponement and an approximation of the
anticipated delay. Upon receipt by a Holder of Registrable Securities of
notice of an event of the kind described in this Section 3.01(b), such
Holder shall forthwith discontinue such Holder's disposition of Registrable
Securities until such Holder's receipt of notice from the Company that such
disposition may continue and of any supplemented or amended prospectus
indicated in such notice. Notwithstanding anything to the contrary
contained herein, the Company shall not be entitled to preempt, delay or
postpone the filing or effectiveness of any registration statement, pre- or
post-effective amendment or supplement to any registration statement or
prospectus supplement pursuant to Section 2.01(e), the first proviso of
Section 3.01(a), or this Section 3.01(b) for more than 180 days in the
aggregate for all such provisions during any period of 360 consecutive
days.
(c) Before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish to any Selling
Holder and to the applicable managing Underwriters, if any, draft copies of
all such documents proposed to be filed at least ten (10) business days
prior thereto, which documents will be subject to the reasonable review of
such Selling Holders, the applicable managing Underwriters, if any, and
their respective counsel, agents and representatives, and the Company will
not file any registration statement or amendment thereto or any prospectus
or any supplement thereto (including such documents incorporated by
reference) to which any Selling Holder or Underwriter shall reasonably
object;
(d) Notify the Selling Holders requesting such registration and
(if requested) confirm such advice in writing, as soon as practicable after
notice thereof is received by the Company (i) when the registration
statement or any amendment thereto has been filed or becomes effective, the
prospectus or any amendment or supplement to the prospectus has been filed,
(ii) of any request by the Commission for amendments or supplements to the
registration statement or the prospectus or for additional information,
(iii) if at any time the representations and warranties of the Company
contemplated by Section 5.01 cease to be true and correct and (iv) of the
receipt by the Company of any notification with respect to the suspension
of the qualification of the Registrable Securities for offering or sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose;
(e) After the filing of the registration statement, the Company
will promptly notify the Selling Holders of any stop order issued, or, to
the Company's knowledge, threatened to be issued, by the Commission and use
its best efforts to prevent the entry of such stop order or to remove it if
entered.
(f) prepare and file with the Commission such amendments,
post-effective amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period of not less than 120
days (or such shorter period which will terminate when all Registrable
Securities covered by such registration statement have been sold or
withdrawn, but not prior to the expiration of the applicable period
referred to in Section 4(3) of the Securities Act and Rule 174 thereunder,
if applicable), cause the prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the Securities Act, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the
intended methods of disposition by the Selling Holders set forth in such
registration statement;
(g) furnish to each Selling Holder requesting such registration
and the managing Underwriter, if any, without charge, one signed copy and
such number of conformed copies of such registration statement, each
amendment and supplement thereto, the prospectus included in such
registration statement (including each preliminary prospectus) and any
amendments or supplements thereto, any documents incorporated by reference
therein and such other documents as any such Selling Holder or such
managing Underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities (it being understood that the
Company consents to the use of the prospectus (including the preliminary
prospectus) and any amendment or supplement thereto by the Selling Holder
requesting such registration and the managing Underwriter, if any, in
connection with the offering and sale of the Registrable Securities covered
by the prospectus or any amendment or supplement thereto);
(h) The Company will use its best efforts to qualify the
Registrable Securities for offer and sale under such other securities or
blue sky laws of such jurisdictions in the United States as the Selling
Holders reasonably request; keep each such registration or qualification
(or exemption therefrom) effective during the period in which such
registration statement is required to be kept effective; and do any and all
other acts and things which may be reasonably necessary or advisable to
enable each Selling Holder to consummate the disposition of the Registrable
Securities owned by such Selling Holder in such jurisdictions; provided
that the Company will not be required to qualify generally to do business
in any jurisdiction where it would not otherwise be required to qualify but
for this paragraph 3.01(h), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction.
(i) The Company will as promptly as is practicable notify the
Selling Holders, at any time when a prospectus relating to the sale of the
Registrable Securities is required by law to be delivered under the
Securities Act, of the occurrence of any event requiring the preparation 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 material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and promptly make available to the Selling Holders and
to the Underwriters any such supplement or amendment. Upon receipt of any
notice of the occurrence of any event of the kind described in the
preceding sentence, Selling Holders will forthwith discontinue the offer
and sale of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until receipt by the Selling Holders
and the Underwriters of the copies of such supplemented or amended
prospectus and, if so directed by the Company, the Selling Holders will
deliver to the Company all copies, other than permanent file copies then in
the possession of Selling Holders, of the most recent prospectus covering
such Registrable Securities at the time of receipt of such notice. In the
event the Company shall give such notice, the Company shall extend the
period during which such registration statement shall be maintained
effective as provided in Section 3.01(a) hereof by the number of days
during the period from and including the date of the giving of such notice
to the date when the Company shall make available to the Selling Holders
such supplemented or amended prospectus.
(j) The Company will enter into customary agreements (including
an underwriting agreement in customary form, including customary
representations, warranties, covenants, conditions and indemnities) and
take such other actions as are required or reasonably requested by the
Selling Holders or the managing Underwriter in order to expedite or
facilitate the sale of such Registrable Securities.
(k) At the request of any Underwriter in connection with an
underwritten offering the Company will furnish an opinion of counsel,
addressed to the Underwriters, covering such customary matters as the
managing Underwriter may reasonably request and (ii) a comfort letter or
comfort letters (and updates thereof) from the Company's independent public
accountants covering such customary matters as the managing Underwriter may
reasonably request.
(l) If requested by the managing Underwriter or any Selling
Holder, the Company shall promptly incorporate in a prospectus supplement
or post effective amendment such information as the managing Underwriter or
any Selling Holder reasonably requests to be included therein, including
without limitation, with respect to the Registrable Securities being sold
by such Selling Holder, the purchase price being paid therefor by the
Underwriters and with respect to any other terms of the underwritten
offering of the Registrable Securities to be sold in such offering, and
promptly make all required filings of such prospectus supplement or post
effective amendment.
(m) The Company shall promptly make available for inspection by
any Selling Holder or Underwriter participating in any disposition pursuant
to any registration statement, and any attorney, accountant or other agent
or representative retained by any such Selling Holder or Underwriter, all
financial and other records, pertinent corporate documents and properties
of the Company, as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information requested by any such
Selling Holder or Underwriter in connection with such registration
statement.
(n) The Company shall cause the Registrable Securities included
in any registration statement to be (A) listed on each securities exchange,
if any, on which similar securities issued by the Company are then listed,
or (B) authorized to be quoted and/or listed (to the extent applicable) on
the Nasdaq National Market if the Registrable Securities so qualify.
(o) The Company shall provide a CUSIP number, registrar and
transfer agent for the Registrable Securities included in any registration
statement not later than the effective date of such registration statement.
(p) The Company shall cooperate with each Selling Holder and each
Underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be
made with the National Association of Securities Dealers, Inc.
(q) The Company shall during the period when the prospectus is
required to be delivered under the Securities Act, promptly file all
documents required to be filed with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act.
(r) The Company will make generally available to its security
holders, as soon as reasonably practicable, an earnings statement covering
a period of 12 months, beginning within three months after the effective
date of the registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(s) The Company will use its best efforts to cause all such
Registrable Securities and, in the event of a public offering of Series A
Preferred Stock, the Series A Preferred Stock (subject to applicable
listing requirements), to be listed on each securities exchange or quoted
on each inter-dealer quotation system on which the Common Stock is then
listed or quoted.
The Company may require Selling Holders promptly to furnish in writing
to the Company such information regarding such Selling Holders, the plan of
distribution of the Registrable Securities and other information as may be
legally required in connection with such registration.
Section 3.02 Registration Expenses. The Company will pay all
registration expenses of the Selling Holders in connection with any Demand
and/or Piggyback Registrations including but not limited to (i) registration and
filing fees with the Commission and the National Association of Securities
Dealers, Inc., (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities), (iii) printing expenses,
(iv) fees and expenses incurred in connection with the listing or quotation of
the Registrable Securities, (v) fees and expenses of counsel to the Company and
the reasonable fees and expenses of independent certified public accountants for
the Company (including fees and expenses associated with the special audits or
the delivery of comfort letters), (vi) the reasonable fees and expenses of any
additional experts retained by the Company in connection with such registration,
(vii) all roadshow costs and expenses not paid by the Underwriters, (viii)
rating agency fees and (ix) fees and expenses of counsel to the holders of
Registrable Securities.
The Company will not be required to pay for any underwriting discounts
and commissions attributable to the sale of Registrable Securities.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
Section 4.01 Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by applicable law,
each Selling Holder and its Affiliates and their respective officers, directors,
partners, stockholders, members, employees, agents and representatives and each
Person (if any) which controls a Selling Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities, costs and expenses
(including attorneys, fees) (collectively, "Losses") caused by, arising out of,
resulting from or related to any untrue statement or alleged untrue statement of
a material fact contained in any registration statement, preliminary prospectus
or prospectus relating to the Registrable Securities (as amended or supplemented
from time to time), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such Losses are caused by
or contained in or based upon any information furnished in writing to the
Company by or on behalf of such Selling Holder or any Underwriter expressly for
use therein (which was not subsequently corrected in writing prior to or
concurrently with the sale of Registrable Securities to the Person asserting the
Loss) or by the Selling Holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished the Selling Holder with copies of the same. The Company
also agrees to indemnify any Underwriters of the Registrable Securities, their
officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Selling
Holders provided in this Section 4.01. Notwithstanding the foregoing, the
Company shall have no obligation to indemnify under this Section 4.01 to the
extent any such Losses have been finally and non-appealably determined by a
court of competent jurisdiction to have resulted from a Selling Holder's or
Underwriter's willful misconduct or gross negligence.
Section 4.02 Indemnification by Selling Holders. The Selling Holders
agree to indemnify and hold harmless, to the fullest extent permitted by
applicable law, the Company and its Affiliates and their respective officers,
directors, partners, stockholders, members, employees, agents and
representatives and each Person (if any) which controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any and all Losses caused by, arising out of, resulting
from or related to any untrue statement or alleged untrue statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus relating to the Registrable Securities (supplemented from time to
time) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only insofar as
such Losses are caused by or contained in or based upon any information
furnished in writing to the Company by or on behalf of such Selling Holder or
any Underwriter expressly for use therein (which was not subsequently corrected
in writing prior to or concurrently with the sale of Registrable Securities to
the Person asserting the Loss). Notwithstanding the foregoing, the Selling
Holder shall have no obligation to indemnify under this Section 4.02 to the
extent that any such Losses have been finally and non-appealably determined by a
court of competent jurisdiction to have resulted from the Company's willful
misconduct or gross negligence.
Section 4.03 Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted or
threatened involving any Person in respect of which indemnity may be sought
pursuant to Section 4.01 or Section 4.02, such Person (the "Indemnified Party")
shall promptly notify the Person against whom such indemnity may be sought (the
"Indemnifying Party") in writing (it being understood that the failure to give
such notice shall not relieve any Indemnifying Party from any liability which it
may have hereunder except to the extent the Indemnifying Party is actually and
materially prejudiced by such failure) and the Indemnifying Party, upon the
request of the Indemnified Party, shall retain counsel reasonably satisfactory
to such Indemnified Party to represent such Indemnified Party and any other
Persons the Indemnifying Party may designate in such proceeding and shall pay
the fees and disbursements of such counsel related to such proceeding. If the
Indemnifying Party does not elect within 15 days after receipt of the notice
required hereby to assume the defense of any proceeding, the Indemnified Party
may assume such defense with counsel of its choice at the cost and expense of
the Indemnifying Party. In any such proceeding where the Indemnifying Party has
assumed the defense, any Indemnified Party shall have the right to retain its
own counsel and participate in the defense, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnified Party and the
Indemnifying Party and, in the opinion of counsel for the Indemnified Party,
representation of both parties by the same counsel would be inappropriate due to
actual or potential conflicting interests between them or there exist defenses
available to the Indemnified Party which are not available to the Indemnifying
Party. It is understood that the Indemnifying Party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel for each such jurisdiction) at any time for all
such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties. The Indemnifying Party shall not settle any claim or proceeding without
the written consent of the Indemnified Party, unless such settlement (x)
requires no relief or penalty other than the payment of money damages, (y) does
not require any Indemnified Party to admit culpability or fault in any respect
and (z) contains a full and complete release of the Indemnified Party with
respect to all matters arising from the facts giving rise to the underlying
claim or proceeding. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent (not to be unreasonably withheld), or if there be a
final judgment for the plaintiff, the Indemnifying Party shall indemnify and
hold harmless such Indemnified Parties from and against any loss or liability
(to the extent stated above) by reason of such settlement or judgment.
Section 4.04 Contribution. If the indemnification provided for in this
Article IV is unavailable to an Indemnified Party in respect of any Losses in
respect of which indemnity is to be provided hereunder, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall to the
fullest extent permitted by law contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses in such proportion as is
appropriate to reflect the relative fault of such party in connection with the
statements or omissions that resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault of the Company, each
Selling Holder and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and each Selling Holder agrees that it would not be just
and equitable if contribution pursuant to this Section 4.04 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the Losses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Article IV, no Selling Holder shall be required to indemnify for or contribute
any amount in excess of the amount by which the net proceeds of the offering
received by such Selling Holder exceeds the amount of any damages which such
Selling Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS
Section 5.01 Participation in Underwritten Registrations. No Person
may participate in any underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements, (b) completes and executes all questionnaires, powers
of attorney, custody arrangements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and this Agreement and (c) furnishes in writing to the Company such
information regarding such Person, the plan of distribution of the Registrable
Securities and other information as the Company may from time to time request or
as may be legally required in connection with such registration; provided,
however, that no such Person shall be required to make any representations or
warranties in connection with any such registration other than representations
and warranties as to (i) such Person's ownership of his or its Registrable
Securities to be sold or transferred free and clear of all liens, claims and
encumbrances, (ii) such Person's power and authority to effect such transfer and
(iii) such matters pertaining to compliance with securities laws as may be
reasonably requested; provided further, however, that the obligation of such
Person to indemnify pursuant to any such underwriting agreements shall be
several, not joint and several, among such Persons selling Registrable
Securities, and the liability of each such Person will be in proportion to, and
limited to, the net amount received by such Person from the sale of such
Person's Registrable Securities pursuant to such registration.
Section 5.02 Rule 144. The Company covenants that it will file any
reports required to be filed by it under the Securities Act and the Exchange Act
and that it will take such further action as the Holders may reasonably request
to the extent required from time to time to enable the Holders to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Holder, the Company
will deliver to such Holder a written statement as to whether it has complied
with such reporting requirements.
Section 5.03 Holdback Agreements. Each Holder agrees, in the event of
an underwritten offering for the account of the Company not to offer, sell,
contract to sell or otherwise dispose of any Registrable Securities, or any
securities convertible into or exchangeable or exercisable for such securities,
including any sale pursuant to Rule 144 under the Securities Act (except as part
of such underwritten offering), during the 14 days prior to, and during the 120
day period (or such lesser period as the lead or managing underwriters may
require) beginning on, the effective date of the registration statement for such
underwritten offering (or, in the case of an offering pursuant to an effective
shelf registration statement pursuant to Rule 415, the pricing date for such
underwritten offering).
Section 5.04 Termination. The registration rights granted under this
Agreement will terminate at such time as there shall no longer be any
Registrable Securities.
Section 5.05 Amendments, Waivers, Etc. This Agreement may not be
amended, waived or otherwise modified or terminated except by an instrument in
writing signed by the Company and Holders of at least 66-2/3% of the Registrable
Securities then held by all Holders, if the amendment is to be effective against
the Holders.
Section 5.06 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement.
Each party need not sign the same counterpart.
Section 5.07 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof.
Section 5.08 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law thereof.
Section 5.09 Assignment of Registration Rights. Each Holder of the
Registrable Securities may assign all or any part of its rights under this
Agreement to any person to whom such Holder sells, transfers or assigns such
Registrable Securities. In the event that the Holder shall assign its rights
pursuant to this Agreement in connection with the transfer of less than all its
Registrable Securities, the Holder shall also retain his rights with respect to
its remaining Registrable Securities.
Section 5.10 Specific Performance. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by the Holders
by reason of any breach by it of the provisions of this Agreement and hereby
agrees that the Holders, in addition to any remedies which they may have at law,
including monetary damages, will be entitled to the remedy of specific
performance.
Section 5.11 No Superior Registration Rights. The Company will not
grant registration rights superior to those of the Holders pursuant to this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company and The Holders have caused this
Agreement to be signed on its behalf by its officer thereunto duly authorized as
of the date first written above.
COMPUTER OUTSOURCING SERVICES, INC.
By /s/Zach Lonstein
-----------------------------------
Name: Zach Lonstein
Title: Chief Executive Officer
DB CAPITAL INVESTORS, L.P.
By: DB Capital Partners, L.P.,
its General Partner
By: DB Capital Partners, Inc.,
its General Partner
By /s/Frank Schiff
-----------------------------------
Name: Frank Schiff
Title: Managing Director
SANDLER CAPITAL PARTNERS V, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General Partner
By /s/Ed Grinacoff
-----------------------------------
Name: Ed Grinacoff
Title: Managing Director
<PAGE>
SANDLER INTERNET PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General Partner
By /s/Ed Grinacoff
------------------------------------
Name: Ed Grinacoff
Title: Managing Director
SANDLER CO-INVESTMENT PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General Partner
By /s/Ed Grinacoff
-------------------------------------
Name: Ed Grinacoff
Title: Managing Director
PRICE FAMILY LIMITED PARTNERS
By /s/Michael Price
--------------------------------------
Name: Michael Price
Title: General Partner
<PAGE>
BENAKE, L.P.
By /s/ Lynn Forester
--------------------------------------
Name: Lynn Forester
Title: General Partner
EXHIBIT 5
STOCKHOLDERS AGREEMENT
Dated as of May 10, 2000
By and Among
COMPUTER OUTSOURCING SERVICES, INC.,
DB CAPITAL INVESTORS, L.P.,
SANDLER CAPITAL PARTNERS V, L.P.,
SANDLER INTERNET PARTNERS, L.P.,
SANDLER CO-INVESTMENT PARTNERS, L.P.
THE MANAGEMENT STOCKHOLDERS
LISTED ON SCHEDULE A HERETO
and
THE NON-MANAGEMENT STOCKHOLDERS
LISTED ON SCHEDULE B HERETO
===============================================================================
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of May 10, 2000,
by and among Computer Outsourcing Services, Inc., a Delaware corporation (the
"Company"), DB Capital Investors, L.P. ("DB Capital"), Sandler Capital Partners
V, L.P., Sandler Internet Partners, L.P., Sandler Co-Investment Partners, L.P.
(each individually, a "Sandler Entity," collectively the "Sandler Entities"),
the individuals listed on Schedule A hereto (each individually, a "Management
Stockholder" and, collectively, the "Management Stockholders") and each of the
Persons listed on Schedule B hereto (each, individually a "Non-Management
Stockholder" and, collectively, the "Non-Management Stockholders") (each of DB
Capital, each Sandler Entity, the Management Stockholders and the Non-Management
Stockholders is hereinafter referred to as a "Stockholder").
W I T N E S S E T H :
WHEREAS, the Management Stockholders own shares of Common Stock, $0.01
par value of the Company (the "Common Stock");
WHEREAS, pursuant to the terms of that certain Securities Purchase
Agreement dated as of April 7, 2000 (the "Securities Purchase Agreement") by and
between the Company, DB Capital and the Sandler Entities will acquire shares of
8% Series A Cumulative Convertible Participating Preferred Stock, par value
$0.01 per share (the "Series A Preferred Stock"), together with Warrants (the
"Warrants") to purchase (the "Warrant Shares") Common Stock (the Series A
Preferred Stock, the Warrants, the Warrant Shares and the Common Stock are
referred to herein collectively as the "Securities");
WHEREAS, the Company and the Stockholders each desire to grant to the
others certain rights in connection with the Securities now or hereafter owned
by them as set forth herein and to assume certain obligations; and
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the consummation of the transaction contemplated by the Securities
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.1 Certain Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, or controlled, by or under
direct or indirect common control with, such Person. For purposes of this
definition, "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
(b) "Applicable Law" means (a) any United States federal, state,
local or foreign law, statute, rule, regulation, order, writ, injunction,
judgment, decree or permit of any Governmental Authority and (b) any rule
or listing requirement of any applicable national stock exchange or listing
requirement of any national stock exchange or Commission recognized trading
market on which securities issued by the Company or any of the Subsidiaries
are listed or quoted.
(c) "Board of Directors" or "Board" means the Board of Directors
of the Company or any committee thereof duly authorized to act on behalf of
such Board.
(d) "Capital Stock" means, with respect to any Person, any and
all shares, interests, participations, rights in, or other equivalents
(however designated and whether voting and/or non-voting) of such Person's
capital stock, whether outstanding on the Closing Date or issued after the
Closing Date, and any and all rights (other than any evidence of
indebtedness), warrants or options exchangeable for or convertible into
such capital stock.
(e) "Change of Control" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Capital Stock of the
Company or (b) the Company consolidates with, or merges with or into,
another Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any
Person consolidates with, or merges with or into the Company, in any such
event pursuant to a transaction in which the holders of the outstanding
Voting Capital Stock of the Company immediately prior to such transaction
hold less than 50% of the outstanding Voting Capital Stock of the surviving
or transferee company or its parent company immediately after the
transaction or immediately after such transaction any "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total Voting Capital
Stock of the surviving or transferee company or its parent company
immediately after the transaction as applicable or (c) during any
consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination for election
by the stockholders of the Company was approved by a vote of a majority of
the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the Board of Directors then in office or (d) any transaction subject to
Rule 13e-3 under the Exchange Act if following such Rule 13e-3 transaction
a Person owns more than 50% of the total Voting Capital Stock of the
Company.
(f) "Closing Date" means May 10, 2000.
(g) "Commission" means the United States Securities and Exchange
Commission.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Governmental Authority" means (i) any foreign, Federal,
state or local court or governmental or regulatory agency or authority,
(ii) any arbitration board, tribunal or mediator and (iii) any national
stock exchange or Commission recognized trading market on which securities
issued by the Company or any of the Subsidiaries are listed or quoted.
(j) "Holder" means the Person in whose name any of the Securities
are registered.
(k) "Option Agreements" means each of those certain Option
Agreements dated as of the Closing Date between each of DB Capital and each
of the Sandler Entities, on the one hand, and Lonstein, on the other hand.
(l) "Person" means any individual, partnership, corporation,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof, or other entity.
(m) "Registration Rights Agreement" means the Registration Rights
Agreement, to be dated as of the Closing Date to be entered into by and
between the Company, DB Capital Investors, L.P. and Zach Lonstein.
(n) "Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which more than 50% of
the total voting power of shares of Capital Stock or other equity interests
entitled (without regard to the occurrence of any contingency) to vote in
the election of directors or other managing authority thereof is at the
time owned or controlled, directly or indirectly, by such Person and its
Subsidiaries.
(o) "Voting Capital Stock" means with respect to any Person,
securities of any class or classes of Capital Stock in such Person
ordinarily entitling the holders thereof (whether at all times or at the
times that such class of Capital Stock has voting power by reason of the
happening of any contingency) to vote in the election of members of the
board of directors or comparable governing body of such Person.
ARTICLE II
TRANSFER OF SHARES
SECTION. 2.1 Restrictions. (a) No Stockholder shall sell, assign,
pledge, hypothecate, deposit in any voting trust, or in any manner, transfer or
dispose of any of the Securities or any right or interest therein, to any Person
(each such action, a "Transfer") except as permitted by this Agreement.
(b) From and after the date hereof, all share certificates
representing Securities held by any of the Stockholders shall bear a legend
which shall state as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AGAINST TRANSFER SET FORTH IN A STOCKHOLDERS AGREEMENT
DATED AS OF MAY 10, 2000, AS MAY BE AMENDED FROM TIME TO TIME. A COPY
OF SUCH STOCKHOLDERS AGREEMENT HAS BEEN FILED IN THE OFFICE OF THE
COMPANY LOCATED AT 2 CHRISTIE HEIGHTS STREET, LEONIA, NEW JERSEY 07605,
WHERE THE SAME MAY BE INSPECTED DAILY DURING BUSINESS HOURS.
(c) In addition to the legend required by Section 2.1(b) above, all
share certificates representing Securities held by any of the Stockholders shall
bear a legend which shall state as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OTHER THAN PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS."
(d) Promptly upon execution and delivery of this Agreement, each
Stockholder shall deliver to the Secretary of the Company all certificates then
held by such Stockholder representing Securities which do not have such legends
affixed thereto as are required by Section 2.1 above. The Company shall cause
such legends to be affixed promptly to each of such certificates and such
certificates to be returned promptly to the registered Holder thereof. The
Company agrees that it will not cause or permit the Transfer of any Securities
to be made on its books unless the Transfer is permitted by this Agreement and
has been made in accordance with the terms hereof.
SECTION 2.2 Permitted Transfers. (a) Notwithstanding anything to the
contrary contained herein, a Stockholder may at any time effect any of the
following Transfers (each a "Permitted Transfer" and each transferee, a
"Permitted Transferee"):
(i) A Stockholder's Transfer of any or all Securities owned by
such Stockholder following such Stockholder's death by will or intestacy to
such Stockholder's legal representative, heir or legatee.
(ii) A Stockholder's Transfer of any or all Securities owned by
such Stockholder as a gift or gifts during such Stockholder's lifetime to
such Stockholder's spouse, children, grandchildren or a trust or other
legal entity for the benefit of any Stockholder or any of the foregoing,
provided that such Stockholder retains voting control of the Securities so
transferred.
(iii) With respect to the Management Stockholders prior to the
second anniversary of the date of this Agreement, any Transfer approved in
advance by the Board of Directors.
(iv) With respect to any Management Stockholder, a Transfer of
any or all Securities owned by such Management Stockholder (a) which occurs
after the second anniversary of the date of this Agreement and (b) is (i)
in any transaction in compliance with Rule 144 under the Securities Act or
any successor rule or regulation; provided, however, that, without the
consent of the Board of Directors of the Company, no Management Stockholder
shall Transfer an amount of Securities in any twelve month period which
exceeds the number of such Securities which such Management Stockholder
could permissibly sell under Rule 144(e)(1) under the Securities Act
(whether or not such Management Stockholder is then subject to Rule
144(e)(1)), (ii) in any transaction exempt from the registration
requirements of the Securities Act or (iii) pursuant to a registration
statement.
(v) With respect to any of DB Capital, any Sandler Entity or any
Non-Management Stockholder, a Transfer of any or all Securities owned by it
(a) to an Affiliate that has agreed in writing to be bound by the terms and
provisions of Section 2.1 and 2.2 to the same extent that such party would
be bound if it beneficially owned the Securities transferred to such
Affiliate or (b) (i) in any transaction in compliance with Rule 144 under
the Securities Act or any successor rule or regulation, (ii) in a
transaction exempt from the registration requirements of the Securities Act
or (iii) pursuant to a registration statement.
(vi) With respect to any Management Stockholder, any transfer to
any Person at any time after the date on which (x) the Company has
terminated the employment of such Management Stockholder other than for
cause or (y) such Management Stockholder has terminated his employment with
the Company for "good reason" as defined in such Management Stockholder's
employment agreement or consulting agreement with the Company (or if such
Management Stockholder does not have an employment or consulting agreement
with the Company or such employment agreement or consulting agreement does
not define "good reason", as "good reason" is defined in Zach Lonstein's
("Lonstein") employment agreement with the Company).
(vii) A Transfer pursuant to a registered offering of securities
which is effected pursuant to rights granted to the transferring
Stockholder pursuant to the Registration Rights Agreement.
(viii) A Transfer by a Stockholder to the Company.
(ix) A Transfer by Lonstein to DB Capital or any Sandler Entity
pursuant to any Option Agreement.
(b) In any such Transfer referred to above in Section 2.2(a)(i), (ii)
or (ix), the Permitted Transferee shall receive and hold such Securities subject
to the provisions of this Agreement as if such Permitted Transferee were an
original signatory hereto and such Permitted Transferee shall be deemed to be a
party to this Agreement.
(c) Not later than ten (10) days before effecting any Transfer of
Securities, the Holder proposing to make such Transfer shall give notice to the
Company (with a copy to DB Capital and the Sandler Entities) of such proposed
Transfer, specifying the method of disposition and the amount of shares to be so
Transferred.
ARTICLE III
BOARD OF DIRECTORS OF THE COMPANY
SECTION 3.1 Board of Directors. (a) Each Stockholder agrees to vote
all of the Securities held by such Stockholder (to the extent all such
securities are entitled to vote) so as to elect and maintain a Board composed of
the following: (i) two people designated by Lonstein; provided that so long as
Lonstein is the Chief Executive Officer of the Company one such designee shall
be Lonstein, (ii) two people designated by DB Capital (the "DB Capital
Directors"), (iii) two people designated by the Sandler Entities (the "Sandler
Directors") and (iv) three additional directors, each of whom shall be
unaffiliated with the Company, designated by mutual consent of Lonstein, DB
Capital and Sandler; provided that, notwithstanding anything to the contrary
herein, if the Chief Executive Officer of the Company has not been designated as
a director of the Company pursuant to clause (i), (ii) or (iii) of this Section
3.1(a), then one of the persons designated as a director pursuant to this clause
(iv) shall be the Chief Executive Officer of the Company.
(b) In the event that any director designated by any Stockholder for
any reason ceases to serve as a director during his term of office, the
resulting vacancy on the Board shall be filled by a director designated by such
Stockholder.
SECTION 3.2 Election. Promptly upon the execution and delivery of this
Agreement, the Stockholders shall take all such action as may be necessary
(including, but not limited to, the removal of directors).
ARTICLE IV
CERTAIN DECISIONS
SECTION 4.1 Series A Preferred Stock Directors Approval. The following
acts, expenditures, decisions and obligations made or incurred by the Company
shall require the prior written approval of (x) the DB Capital Directors and (y)
the Sandler Directors:
(i) the hiring or termination of any senior officers of the
Company or any Subsidiary including, without limitation, with respect to
the Company and Infocrossing, Inc., the Chief Executive Officer, Chief
Financial Officer, Chief Operating Officer, President or any officer
reporting directly to the President, or Chief Executive Officer and, with
respect to any other Subsidiary, the Chief Executive Officer, Chief
Operating Officer or President;
(ii) approval of the Company's annual business plan, operating
budget and capital budget;
(iii) any capital expenditure or series of related capital
expenditures by the Company or any Subsidiary to the extent (x) not
otherwise included in the approved annual capital budget or (y) such
expenditure or series of expenditures would cause, together with all other
capital expenditures to such time, the Company's capital budget to be
exceeded by $250,000 in the aggregate;
(iv) in a single transaction or series of related transactions,
the consolidation or merger with or into, or sale, assignment, transfer,
lease, conveyance or disposal of all or substantially all of the Company's
assets to, any Person; the agreement to any plan of recapitalization;
consent to, approval or recommendation of any tender offer for any class or
series of the Company's Capital Stock or consent to, approval or
recommendation of any Change of Control of, or action which is expected to
result in a Change of Control of, the Company; or adoption of a plan of
liquidation or the making of any payments in liquidation or with respect to
the winding up of the Company;
(v) the authorization or creation of, modification of the terms
of or, increase in the authorized amount of any class or series of equity
securities of the Company or the issuance or sale of any equity securities
or any equity securities which are convertible or exchangeable into or
exercisable for any equity securities of the Company, other than (i)
compensatory or incentive stock options (or any shares of Common Stock
issued upon the exercise thereof) issued pursuant to employee stock option
plans of the Company which have been approved by the Board of Directors of
the Company, (B) issuances of Common Stock to employees, officers,
directors and consultants of the Company, pursuant to employee benefit
plans approved by the Board of Directors of the Company, or (C) shares of
Common Stock issued upon (x) the conversion of the Series A Preferred Stock
or (y) the exercise of the Warrants.
(vi) the making, or permitting of any of the Subsidiaries to
make, any acquisition or divestiture in which the total consideration
exceeds $5,000,000;
(vii) incurring, guaranteeing or otherwise incurring or assuming
any obligations or any indebtedness for borrowed money or capitalized
leases (other than indebtedness of the Company to any of its wholly owned
Subsidiaries or of any Subsidiary of the Company to the Company or any
wholly owned Subsidiary of the Company) (other than trade payables in the
ordinary course of business) in excess of $2,500,000 in the aggregate;
(viii) entering into any transaction with (including, without
limitation, the purchase, lease or sale of any property of the rendering of
or contracting for any services) with any Affiliate (other than a wholly
owned Subsidiary) of the Company; provided, that the Company may issue
options or shares of Common Stock to Affiliates (other than wholly owned
Subsidiaries) of the Company to the extent such options or shares are
issued pursuant to the terms of employee benefit plans approved by the
Board of Directors of the Company; and
(ix) increasing the number of options, shares of Common Stock, or
other securities which may be granted under, or which are subject to or
underlie any employee benefits plan of the Company or any Subsidiary,
including, without limitation, any stock option plan, stock incentive plan,
restricted stock plan, stock appreciation rights plan, phantom stock plan
or other similar plan.
SECTION 4.2 Certain Actions. Each Stockholder hereby agrees to take
all such action as may be required to give effect to Section 4.1, including, but
not limited to, the adoption by the Board of Directors of the Company of
resolutions giving effect to such Section, and shall take all such action as may
be necessary (including the removal of directors) to cause any Person designated
by such Stockholder as a director pursuant to Article III hereof and cause such
resolutions to be adopted.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior arrangements or understandings (whether written or
oral) with respect thereto.
SECTION 5.2 Captions. The Article and Section captions used herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
SECTION 5.3 Counterparts. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto
and each such executed counterpart shall be deemed to be an original instrument.
SECTION 5.4 Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein and all legal process in
regard hereto shall be validly given, made or served, if in writing and
delivered by personal delivery, overnight courier, telecopier or registered or
certified mail, return-receipt requested and postage prepaid addressed as
follows:
If to the Company, to:
Computer Outsourcing Services, Inc.
2 Christie Heights Street
Leonia, New Jersey 07605
Attention: Nicholas J. Letizia, Chief Financial Officer
Tel.: (201) 840-8717
Fax: (201) 840-7216
With a copy to:
Robinson & Cole LLP
695 E. Main St.
Stamford, CT 06904
Attention: Richard A. Krantz, Esq.
Tel.: (203) 462-7505
Fax: (203) 462-7599
if to DB Capital, to:
c/o DB Capital Partners, L.P.
130 Liberty Street
25th Floor
New York, New York 10006
Attention: Tyler T. Zachem, Managing Director
Tel.: (212) 250-8199
Fax: (212) 250-7651
With a copy to:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: S. Ward Atterbury, Esq.
Tel.: (212) 819-8331
Fax: (212) 354-8113
if to the Sandler Entities, to:
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: David C. Lee, Managing Director
Tel: (212) 754-8100
Fax: (212) 826-0280
if to any of the Management Stockholders or Non-Management
Stockholders, to the addresses set forth on the books and records
of the Company.
or to such other address as any such party hereto may, from time to time,
designate in writing to all other parties hereto, and any such communication
shall be deemed to be given, made or served as of the date so delivered or, in
the case of any communication delivered by mail, as of the date so received.
SECTION 5.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Company, the Stockholders and their
respective heirs, devisees, legal representatives, successors, permitted assigns
and other permitted transferees. The rights of a Stockholder under this
Agreement may not be assigned or otherwise conveyed by any Stockholder except in
connection with a Transfer of Shares which is in compliance with this Agreement.
SECTION 5.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO SUCH STATE'S CHOICE OF LAW PROVISIONS.
SECTION 5.7 Submission to Jurisdiction. (a) Each of the parties hereto
hereby irrevocablY acknowledges and consents that any legal action or proceeding
brought with respect to any of the obligations arising under or relating to this
Agreement may be brought in the courts of the State of New York or in the United
States District Court for the Southern District of New York, as the party
bringing such action or proceeding may elect, and each of the parties hereto
hereby irrevocably submits to and accepts with regard to any such action or
proceeding, for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Subject to Section
5.7(b), the foregoing shall not limit the rights of any party to serve process
in any other manner permitted by law. The foregoing consents to jurisdiction
shall not constitute general consents to service of process in the State of New
York for any purpose except as provided above and shall not be deemed to confer
rights on any Person other than the respective parties to this Agreement.
(b) Each of the parties hereto hereby waives any right it may have
under the laws of any jurisdiction to commence by publication any legal action
or proceeding with respect to this Agreement. To the fullest extent permitted by
Applicable Law, each of the parties hereto hereby irrevocably waives the
objection which it may now or hereafter have to the laying of the venue of any
suit, action or proceeding arising out of or relating to this Agreement in any
of the courts referred to in Section 5.7(a) and hereby further irrevocably
waives any claim that any such court is not a convenient forum for any such
suit, action or proceeding.
(c) The parties hereto agree that any judgment obtained by any party
hereto or its successors or assigns in any action, suit or proceeding referred
to above may, in the discretion of such party (or its successors or assigns), be
enforced in any jurisdiction, to the extent permitted by Applicable Law.
(d) The parties hereto agree that the remedy at law for any breach of
this Agreement may be inadequate and that should any dispute arise concerning
the sale or disposition of any Shares or the voting thereof or any other similar
matter hereunder, this Agreement shall be enforceable in a court of equity by an
injunction or a decree of specific performance. Such remedies shall, however, be
cumulative and nonexclusive, and shall be in addition to any other remedies
which the parties hereto may have.
(e) The parties hereto agree that the prevailing party or parties, as
the case may be, in any action, suit, arbitration or other proceeding arising
out of or with respect to this Agreement or the transactions contemplated hereby
shall be entitled to reimbursement of all costs of litigation, including
reasonable attorneys' fees, from the non-prevailing party. For purposes of this
Section 5.7(e), each of the "prevailing party" and the "non-prevailing party" in
any action, suit, arbitration or other proceeding shall be the party designated
as such by the court, arbitrator or other appropriate official presiding over
such action, suit, arbitration or other proceeding, such determination to be
made as a part of the judgment rendered thereby.
SECTION 5.8 Benefits Only to Parties. Nothing expressed by or
mentioned in this Agreement iS intended or shall be construed to give any
Person, other than the parties hereto and their respective successors or
permitted assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained, this Agreement and
all conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of the parties hereto and their respective successors and
permitted assigns, and for the benefit of no other Person.
SECTION 5.9 Termination. This Agreement shall terminate upon the
happening of any one of the following events:
(a) the voluntary or involuntary dissolution of the Company;
(b) Each of DB Capital and the Sandler Entities ceasing to hold
at least 25% of the shares of Common Stock (calculated assuming the
conversion of the Series A Preferred Stock and the exercise of the
Warrants) held by DB Capital or the Sandler Entities, as the case may be,
on the date hereof.
SECTION 5.10 Sunset Provisions. (a) On the date on which Lonstein
ceases to hold at least 50% oF the shares of Common Stock (calculated assuming
the exercise of all vested in-the-money stock options) held by Lonstein on the
date hereof, then the number of persons whom Lonstein shall have the right to
designate to serve as directors of the Company under Section 3.1(a)(i) shall be
reduced to one. On the date on which Lonstein ceases to hold at least 25% of the
shares of Common Stock (calculated assuming the exercise of all vested
in-the-money stock options) held by Lonstein on the date hereof, Lonstein's
right to designate Persons to serve as directors of the Company under Section
3.1(a)(i) and 3.1(a)(iv) shall terminate as of such date.
(b) Upon the date on which DB Capital ceases to hold at least 25% of
the shares of Common Stock (calculated assuming the conversion of the Series A
Preferred Stock and the exercise of the Warrants) held by DB Capital on the date
hereof, then DB Capital's right to designate Persons to serve as directors of
the Company under Section 3.1(a)(ii) and 3.1(a)(iv) and DB Capital's right to
approve the actions specified under Section 4.1 shall terminate as of such date.
(c) Upon the date on which the Sandler Entities ceases to hold at
least 25% of the shares of Common Stock (calculated assuming the conversion of
the Series A Preferred Stock and the exercise of the Warrants) held by the
Sandler Entities on the date hereof, then the Sandler Entities' right to
designate Persons to serve as directors of the Company under Section 3.1(a)(iii)
and 3.1(a)(iv) and the Sandler Entities' right to approve the actions under
Section 4.1 shall terminate as of such date.
SECTION 5.11 Publicity. Except as otherwise required by Applicable
Laws, none of the parties heretO shall issue or cause to be issued any press
release or make or cause to be made any other public statement in each case
relating to or connected with or arising out of this Agreement or the matters
contained herein, without obtaining the prior approval of DB Capital, a majority
in interest of the Sandler Entities and the Company to the contents and the
manner of presentation and publication thereof.
SECTION 5.12 Amendments; Waivers. No provision of this Agreement may
be amended, modified or waiveD without approval of DB Capital, a majority in
interest of the Sandler Entities, the Company, 66-2/3% in interest of the
Management Stockholders (calculated based on ownership of Common Stock) and
66-2/3% in interest of the Non-Management Stockholders (calculated based on
ownership of Common Stock); provided that no such amendment or waiver of a
provision of this Agreement which adversely affects the rights of any
Stockholder in a manner that does not adversely affect all other Stockholders
equally may be made without such Stockholder's consent; provided that (x) the
Management Stockholders shall be considered as a group with the determination by
the holders of 66-2/3% of the outstanding shares of Common Stock held by the
Management Stockholders to be binding on all Management Stockholders and (y) the
Non-Management Stockholders shall be considered as a group with the
determination by the holders of 66-23% of the outstanding shares of Common Stock
held by the Non-Management Stockholders to be binding on all Non-Management
Stockholders; provided, further, that in no circumstances shall Article III or
Article IV be amended, modified, waived or repealed without the express written
consent of DB Capital and the Sandler Entities.
SECTION 5.13 No Inconsistent Agreements. Each Stockholder hereby
covenants and agrees that neitheR it nor any of its Affiliates shall enter into
any voting agreement or grant a proxy or power of attorney with respect to the
Securities it beneficially owns which is inconsistent with this Agreement.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
COMPUTER OUTSOURCING SERVICES, INC.
By /s/Zach Lonstein
--------------------------------
Name: Zach Lonstein
Title: Chief Executive Officer
DB CAPITAL INVESTORS, L.P.
By: DB Capital Partners, L.P.,
its general partner
By: DB Capital Partners, Inc.,
its general partner
By /s/Frank Schiff
--------------------------------
Name: Frank Schiff
Title: Managing Director
SANDLER CAPITAL PARTNERS V, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General Partner
By /s/ Ed Grinacoff
--------------------------------
Name: Ed Grinacoff
Title: Managing Director
SANDLER INTERNET PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General Partner
By /s/ Ed Grinacoff
--------------------------------
Name: Ed Grinacoff
Title: Managing Director
SANDLER CO-INVESTMENT PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General Partner
By /s/ Ed Grinacoff
--------------------------------
Name: Ed Grinacoff
Title: Managing Director
MANAGEMENT STOCKHOLDERS
/s/Zach Lonstein
--------------------------------
Name: Zach Lonstein
/s/Robert Wallach
--------------------------------
Name: Robert Wallach
/s/Warren Ousley
--------------------------------
Name: Warren Ousley
Name: Joseph Germanotta
/s/Tom Loudati
--------------------------------
Tom Loudati
/s/ Ken DiSessa
--------------------------------
Ken DiSessa
/s/Nicholas J. Letizia
--------------------------------
Nicholas J. Letizia
/s/ Gary Lazarewicz
--------------------------------
Gary Lazarewicz
/s/John C. Platt
--------------------------------
John C. Platt
/s/John Stewart
--------------------------------
John Stewart
NON-MANAGEMENT STOCKHOLDERS
PRICE FAMILY LIMITED PARTNERS
By: /s/Michael Price
--------------------------------
Name: Michael Price
Title: General Partner
BENAKE, L.P.
By: /s/Lynn Forester
--------------------------------
Name: Lynn Forester
Title: General Partner
<PAGE>
Schedule A
MANAGEMENT STOCKHOLDERS:
Zach Lonstein
Robert Wallach
Warren Ousley
Joseph Germanotta
Tom Loudati
Ken DiSessa
Nicholas J. Letizia
Garry Lazarewicz
John C. Platt
John Stewart
<PAGE>
Schedule B
NON-MANAGEMENT STOCKHOLDERS:
Price Family Limited Partners
Benake, L.P.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS................................................1
SECTION 1.1 Certain Definitions......................................1
ARTICLE II TRANSFER OF SHARES................................................4
SECTION 2.1 Restrictions..............................................4
SECTION 2.2 Permitted Transfers.......................................4
ARTICLE III BOARD OF DIRECTORS OF THE COMPANY................................6
SECTION 3.1 Board of Directors........................................6
SECTION 3.2 Election..................................................6
ARTICLE IV CERTAIN DECISIONS.................................................7
SECTION 4.1 Series A Preferred Stock Directors Approval...............7
SECTION 4.2 Certain Actions...........................................8
ARTICLE V MISCELLANEOUS......................................................8
SECTION 5.1 Entire Agreement..........................................8
SECTION 5.2 Captions..................................................8
SECTION 5.3 Counterparts..............................................8
SECTION 5.4 Notices...................................................9
SECTION 5.5 Successors and Assigns...................................10
SECTION 5.6 GOVERNING LAW............................................10
SECTION 5.7 Submission to Jurisdiction...............................10
SECTION 5.8 Benefits Only to Parties.................................11
SECTION 5.9 Termination..............................................11
SECTION 5.10 Sunset Provisions.......................................11
SECTION 5.11 Publicity...............................................12
SECTION 5.12 Amendments; Waivers.....................................13
SECTION 5.13 No Inconsistent Agreements..............................13
SCHEDULE A - Management Stockholders
SCHEDULE B - Non-Management Stockholders
EXHIBIT 6
WARRANT AGREEMENT
Dated as of
May 10, 2000
between
Computer Outsourcing Services, Inc.
as Issuer,
and
the Warrantholders Party Hereto
---------------------------------------------
Series A Common Stock Warrants
of
Computer Outsourcing Services, Inc.
---------------------------------------------
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of May 10, 2000, between, Computer
Outsourcing Services, Inc., a Delaware corporation (the "Company"), and each of
the warrantholders party hereto (collectively, with their successors and
assigns, the "Warrantholders").
W I T N E S S E T H:
WHEREAS, the Company proposes, among other things, to issue and sell
pursuant to a Securities Purchase Agreement, dated as of April 7, 2000, among
the Company and DB Capital Investors, L.P. (the "Securities Purchase
Agreement"), 157,377 shares (the "Shares") of the Company's Series A Cumulative
Convertible Participating Preferred Stock ("Series A Preferred Stock") and
2,531,926 Series A Common Stock Warrants (the "Warrants"), each representing the
right to purchase one share of Common Stock, to be issued upon exercise of the
Warrants; and
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the consummation of the transactions contemplated by the Securities
Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein, the Company hereby agrees as follows for the equal and ratable benefit
of the Warrantholders:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions.
"Affiliate" of any specified Person means (i) any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) any other Person who is a
director or executive officer (A) of such specified Person, (B) of any
Subsidiary of such specified Person or (C) of any Person described in clause (i)
above. For the purposes of this definition, "control" when used with respect to
any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreement" means this Warrant Agreement as amended or supplemented
from time to time.
"Board of Directors" or "Board" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day that is not a Saturday, Sunday or other
day on which banking institutions in New York, New York are authorized or
required by law to close.
"Cashless Exercise Ratio" means a fraction, the numerator of which is
the excess of the Current Market Value per share of Common Stock on the Exercise
Date over the Exercise Price per share as of the Exercise Date and the
denominator of which is the Current Market Value per share of the Common Stock
on the Exercise Date.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Common Stock" means the Common Stock, par value $.01 per share, of
the Company.
"Current Market Value" per share of Common Stock or any other security
at any date means (i) if the security is not registered under the Exchange Act,
the value of the security, determined in good faith by the Board of Directors
and certified in a board resolution, or (ii) if the security is registered under
the Exchange Act, the average of the daily closing bid prices (or the equivalent
in an over-the-counter market) for each Business Day during the period
commencing 15 Business Days before such date and ending on the date one day
prior to such date, or if the security has been registered under the Exchange
Act for less than 15 consecutive Business Days before such date, the average of
the daily closing bid prices (or such equivalent) for all of the Business Days
before such date for which daily closing bid prices are available; provided,
however, that if the closing bid price is not determinable for at least ten
Business Days in such period, the "Current Market Value" of the security shall
be determined as if the security were not registered under the Exchange Act.
"ETG Earnout Shares" shall mean any shares of Common Stock issued
subsequent to the date of the Securities Purchase Agreement pursuant to the
terms of the Asset Purchase Agreement dated as of December 16, 1998, by and
among the Company, COSI Acquisition Corp., Enterprise Technology Group,
Incorporated and certain stockholders of Enterprise Technology Group,
Incorporated as amended from time to time, (including, without limitation,
Sections 3.3 and 3.4 thereof).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Date" means, for a given Warrant, the day on which such
Warrant is exercised pursuant to Section 3.04.
"Holder" means the Person in whose name a Warrant is registered on the
Warrant Registrar's books.
"Issue Date" means the date on which the Warrants are initially
issued.
"Officer" means the Chairman of the Board of Directors, the Chief
Executive Officer, the Chief Financial Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over shares of Capital Stock of any other class of such Person.
"Securities" means the Warrants and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Purchase Agreement" has the meaning assigned to it in the
recitals hereto.
"Series A Preferred Stock" has the meaning assigned to it in the
recitals hereto.
"Shares" has the meaning assigned to it in the recitals hereto.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (a) such Person, (b) such Person
and one or more Subsidiaries of such Person or (c) one or more Subsidiaries of
such Person.
"Uniform Commercial Code" shall mean the New York Uniform Commercial
Code, as in effect from time to time.
"Warrant" has the meaning assigned to it in the recitals hereto.
"Warrant Certificates" mean the registered certificates issued by the
Company under this Agreement representing the Warrants.
"Warrant Shares" mean the shares of Common Stock (and any other
securities) for which the Warrants are exercisable or which have been issued
upon exercise of Warrants.
Section 1.02. Other Definitions.
Term Defined in Section
"Cashless Exercise" 3.04
"Company" Preamble
"Exercise Price" 3.01
"Exercise Rate" 4.01
"Expiration Date" 3.02(b)
"Stock Registrar" 3.07
"Stock Transfer Agent" 3.05
"Warrantholder" Preamble
"Warrant Registrar" 2.03
Section 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a defined term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
ARTICLE II
WARRANT CERTIFICATES
Section 2.01. Form and Dating. The Warrant Certificates shall each be
substantially in the form of Exhibit A hereto, which is hereby incorporated in
and expressly made a part of this Agreement. The Warrant Certificates may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject, if any, or usage (provided that any
such notation, legend or endorsement is in a form acceptable to the Company).
Each Warrant Certificate shall be dated the date that it is executed by the
Company.
Section 2.02. Execution and Countersignature. Two Officers shall sign
the Warrant Certificates for the Company by manual or facsimile signature. If an
Officer whose signature is on a Warrant Certificate no longer holds that office
at the time the Company issues the Warrant Certificate, the Warrant Certificate
shall be valid nevertheless.
Section 2.03. Warrant Registrar. The Company shall maintain an office
or agency where Warrants may be presented for registration of transfer, exchange
or exercise (the "Warrant Registrar"). The Warrant Registrar shall keep a
register of the Warrants and of their transfer, exchange or exercise. The
Company may have one or more co-registrars. The Company may act as Warrant
Registrar. The term Warrant Registrar includes any co-registrars. The Company
shall initially serve as Warrant Registrar in connection with the Warrants.
The Company shall enter into an appropriate agency agreement with any
Warrant Registrar not a party to this Agreement. The agreement shall implement
the provisions of this Agreement that relate to such agent. The Company shall
notify the Warrantholders of the name and address of any such agent. If the
Company fails to maintain a Warrant Registrar, the Company shall act as such.
The Company may remove any Warrant Registrar upon written notice to
such Warrant Registrar and to the Warrantholders; provided, however, that no
such removal shall become effective until (1) acceptance of an appointment by a
successor as evidenced by an appropriate agreement entered into by the Company
and such successor Warrant Registrar and delivered to the Warrantholders or (2)
notification to the Warrantholders that the Company shall serve as Warrant
Registrar until the appointment of a successor in accordance with clause (1)
above. The Warrant Registrar may resign at any time upon written notice. The
Company and the Warrant Registrar may deem and treat the Person in whose name a
Warrant Certificate is registered as the absolute owner of such Warrant
Certificate for all purposes whatsoever and neither the Company and the Warrant
Registrar shall be affected by notice to the contrary.
Section 2.04. Warrantholder Lists. The Company shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Warrantholders.
Section 2.05. Transfer and Exchange. The Warrants shall be issued in
registered form and shall be transferable only upon the surrender of a Warrant
Certificate for registration of transfer and in compliance with the provisions
of this Agreement. When a Warrant is presented to the Warrant Registrar with a
request to register a transfer, the Warrant Registrar shall register the
transfer as requested if the requirements of Section 8-401(a) of the Uniform
Commercial Code are met. When Warrants are presented to the Warrant Registrar
with a request to exchange them for an equal number of Warrants of other
denominations, the Warrant Registrar shall make the exchange as requested if the
requirements of Section 8-401(a)(1) and (2) of the Uniform Commercial Code are
met. To permit registration of transfers and exchanges, the Company shall
execute Warrant Certificates at the Warrant Registrar's request. The Company may
require payment of a sum sufficient to pay all taxes, assessments or other
governmental charges in connection with any transfer, exchange or exercise
pursuant to this Section 2.05.
Subject to the restrictions set forth in this Section 2.05, each
Warrantholder may at any time and from time to time freely transfer its Warrant
and the Warrant Shares in whole or in part. No Warrant has been, and the Warrant
Shares at the time of their issuance may not be, registered under the Securities
Act, and, except as provided in any separate agreement providing for
registration rights, nothing herein contained shall be deemed to require the
Company to so register any Warrant or Warrant Shares. The Warrants and the
Warrant Shares are issued or issuable subject to the provisions and conditions
contained herein, and every Holder of a Warrant or Warrant Shares by accepting
such Warrant or Warrant Shares agrees with the Company to such provisions and
conditions, and represents to the Company that such Warrant has been acquired
and the Warrant Shares will be acquired for the account of such Warrantholder
for investment and not with a view to or for sale in connection with any
distribution thereof.
Except as otherwise permitted by this Section 2.05, each Warrant
(including each Warrant issued upon the transfer of any Warrant) and all Warrant
Shares shall be stamped or otherwise imprinted with legends in substantially the
following form:
(a) "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO
THE COMPANY SUCH CERTIFICATES AND OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS" and
(b) "THIS WARRANT IS ALSO SUBJECT TO TRANSFER RESTRICTIONS SET
FORTH IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF APRIL 7, 2000,
AMONG THE COMPANY AND THE OTHER PARTIES REFERRED TO THEREIN (THE
"SECURITIES PURCHASE AGREEMENT"). THIS WARRANT MAY BE TRANSFERRED ONLY
IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN SUCH SECURITIES PURCHASE
AGREEMENT AND THE WARRANT AGREEMENT" and
(c) "ALL WARRANTS AND ALL WARRANT SHARES RECEIVED BY THE
WARRANTHOLDERS UPON EXERCISE OF THE WARRANTS WILL BE SUBJECT TO THE
TERMS AND CONDITIONS INCLUDING CERTAIN TRANSFER RESTRICTIONS OF A
STOCKHOLDERS AGREEMENT DATED AS OF MAY 10, 2000, AS AMENDED, AMONG THE
COMPANY AND THE VARIOUS STOCKHOLDERS OF THE COMPANY, AND EACH
WARRANTHOLDER AGREES TO BE BOUND BY THE TERMS AND CONDITIONS OF SUCH
STOCKHOLDERS AGREEMENTS AS SUCH STOCKHOLDERS AGREEMENTS MAY BE AMENDED
FROM TIME TO TIME"
Transfers of Warrants and Warrant Shares are subject to restrictions
as provided in (i) Section 6.5 of the Securities Purchase Agreement and (ii)
that certain Stockholders Agreement dated as of May 10, 2000 as amended among
the various stockholders of the Company. Prior to any transfer or attempted
transfer of any Warrants, the Holder of such Warrants shall give 10 days' prior
written notice (a "Transfer Notice") to the Company of such Holder's intention
to effect such transfer, describing the manner and circumstances of the proposed
transfer, and, if requested by the Company, obtain from counsel to such Holder
who shall be reasonably satisfactory to the Company, an opinion that the
proposed transfer of such Warrants may be effected without registration under
the Securities Act. After receipt of the Transfer Notice and opinion, the
Company shall, within five days thereof, so notify the Holder of such Warrants
and such Holder shall thereupon be entitled to transfer such Warrants, in
accordance with the terms of the Transfer Notice. Each Warrant issued upon such
transfer shall bear the restrictive legends set forth above, unless, with
respect to the legend in paragraph (a) above, in the opinion of such counsel
such legend is not required in order to ensure compliance with the Securities
Act. The Holder of the Warrants giving the Transfer Notice shall not be entitled
to transfer such Warrants until receipt of notice from the Company under this
Section 2.
Section 2.06. Replacement Certificate. If a mutilated Warrant is
surrendered to the Company or if a Warrantholder claims that the Warrant
Certificate has been lost, destroyed or wrongfully taken, the Company shall
execute a replacement Warrant Certificate if the requirements of Section 8-405
of the Uniform Commercial Code are met, such that the Warrantholder (i) notifies
the Company within a reasonable time after he has notice of such loss,
destruction or wrongful taking and the Company does not register a transfer
prior to receiving such notification, (ii) makes such request to the Company
prior to the Warrant being acquired by a protected purchaser as defined in
Section 8-303 of the Uniform Commercial Code (a "protected purchaser") and (iii)
satisfies any other reasonable requirements of the Company. If required by the
Company, such Warrantholder shall furnish an indemnity bond sufficient in the
reasonable judgment of the Company to protect the Company from any loss that it
may suffer if a Warrant is replaced. The Company may charge the Warrantholder
for its expenses in replacing a Warrant Certificate. Every replacement Warrant
is an additional obligation of the Company.
The provisions of this Section 2.06 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement of mutilated, lost, destroyed or wrongfully taken Securities.
Section 2.07. Outstanding Warrants. Warrants outstanding at any time
are all Warrant Certificates executed by the Company except for those canceled
by it, those delivered to it for cancellation and those described in this
Section 2.07 as not outstanding. A Warrant does not cease to be outstanding
because an Affiliate of the Company holds the Warrant. A Warrant ceases to be
outstanding if the Company holds the Warrant.
If a Warrant Certificate is replaced pursuant to Section 2.06, it
ceases to be outstanding unless the Company receives proof satisfactory to it
that the replaced Warrant Certificate is held by a protected purchaser.
Section 2.08. Cancellation. The Company at any time may cancel Warrant
Certificates which have been surrendered for registration of transfer, exchange,
exercise or cancellation. The Company and no one else shall cancel all Warrant
Certificates surrendered for registration of transfer, exchange, exercise or
cancellation. The Company may not issue new Warrant Certificates to replace
Warrants Certificates that have been exercised or Warrants which the Company has
purchased or otherwise acquired.
ARTICLE III
EXERCISE TERMS
Section 3.01. Exercise. Each Warrant shall initially entitle the
Holder thereof, subject to adjustment pursuant to the terms of this Agreement,
to purchase one (1) share of Common Stock. The exercise price (the "Exercise
Price") of each Warrant is $0.01 per share.
Section 3.02. Time of Exercise; Separability. (a) Subject to the terms
and conditions set forth herein, the Warrants shall be exercisable at any time
and from time to time on any Business Day on or after the Issue Date.
(b) No Warrant shall be exercisable after May 10, 2007 (the
"Expiration Date").
(c) The Shares and the Warrants will be separably transferrable,
subject to compliance with applicable securities laws, on the Issue Date.
Section 3.03. Expiration. A Warrant shall terminate and become void as
of the earlier of (i) the close of business on the Expiration Date or (ii) the
date such Warrant is exercised. The Company shall give notice not less than 90,
and not more than 120, days prior to the Expiration Date to the Holders of all
then outstanding Warrants to the effect that the Warrants will terminate and
become void as of the close of business on the Expiration Date; provided,
however, that if the Company fails to give notice as provided in this Section
3.03, the Warrants will nevertheless expire and become void on the Expiration
Date.
Section 3.04. Manner of Exercise. Warrants may be exercised upon (i)
surrender to the Warrant Registrar at its office of the related Warrant
Certificate, together with the form of election attached thereto to purchase
Common Stock duly filled in and signed by the Holder thereof and (ii) payment to
the Company, of the Exercise Price for each Warrant Share or other security
issuable upon the exercise of such Warrants then exercised. Such payment shall
be made (i) in cash or by certified or official bank check payable to the order
of the Company or by wire transfer of funds to an account designated by the
Company for such purpose or (ii) without the payment of cash, by reducing the
number of shares of Common Stock obtainable upon the exercise of a Warrant and
payment of the Exercise Price in cash so as to yield a number of shares of
Common Stock upon the exercise of such Warrant equal to the product of (a) the
number of shares of Common Stock issuable as of the Exercise Date upon the
exercise of such Warrant (if payment of the Exercise Price were being made in
cash) and (b) the Cashless Exercise Ratio. An exercise of a Warrant in
accordance with the immediately preceding clause (ii) is herein called a
"Cashless Exercise". Upon surrender of a Warrant Certificate representing more
than one Warrant in connection with the Holder's option to elect a Cashless
Exercise, the number of shares of Common Stock deliverable upon a Cashless
Exercise shall be equal to the number of shares of Common Stock issuable upon
the exercise of Warrants that the Holder specifies are to be exercised pursuant
to a Cashless Exercise multiplied by the Cashless Exercise Ratio. All provisions
of this Agreement shall be applicable with respect to a surrender of a Warrant
Certificate pursuant to a Cashless Exercise for less than the full number of
Warrants represented thereby. Subject to Section 3.02, the rights represented by
the Warrants shall be exercisable at the election of the Warrantholders thereof
either in full at any time or from time to time in part and in the event that a
Warrant Certificate is surrendered for exercise of less than all the Warrants
represented by such Warrant Certificate at any time prior to the Expiration
Date, a new Warrant Certificate representing the remaining Warrants shall be
issued.
Section 3.05. Issuance of Warrant Shares. Subject to Section 2.06,
upon the surrender of Warrant Certificates and payment of the per share Exercise
Price or election of a Cashless Exercise, as set forth in Section 3.04, the
Company shall issue and cause the transfer agent for the Common Stock ("Stock
Transfer Agent") to countersign and deliver to or upon the written order of the
Warrantholder and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Warrant Shares so purchased
upon the exercise of such Warrants or other securities or property to which it
is entitled, registered or otherwise, to the Person or Persons entitled to
receive the same (including any depositary institution so designated by a
Warrantholder), together with cash as provided in Section 3.06 in respect of any
fractional Warrant Shares otherwise issuable upon such exercise. Such
certificate or certificates shall be deemed to have been issued and any Person
so designated therein shall be deemed to have become a Holder of record of such
Warrant Shares as of the date of the surrender of such Warrant Certificates and
payment of the per share Exercise Price or election of a Cashless Exercise, as
aforesaid; provided, however, that if, at such date, the transfer books for the
Warrant Shares shall be closed, the certificates for the Warrant Shares in
respect of which such Warrants are then exercised shall be issuable as of the
date on which such books shall next be opened and until such date the Company
shall be under no duty to deliver any certificates for such Warrant Shares;
provided further, however, that such transfer books, unless otherwise required
by law, shall not be closed at any one time for a period longer than 90 calendar
days.
Section 3.06. Fractional Warrant Shares. The Company shall not be
required to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be exercised in full at the same time by the same
Warrantholder, the number of full Warrant Shares which shall be issuable upon
such exercise shall be computed on the basis of the aggregate number of Warrant
Shares which may be purchasable pursuant thereto. If any fraction of a Warrant
Share would, except for the provisions of this Section 3.06, be issuable upon
the exercise of any Warrant (or specified portion thereof), the Company shall
pay an amount in cash equal to the Current Market Value per Warrant Share, as
determined on the day immediately preceding the date the Warrant is presented
for exercise, multiplied by such fraction, computed to the nearest whole cent.
Section 3.07. Reservation of Warrant Shares. The Company shall at all
times keep reserved out of its authorized shares of Common Stock a number of
shares of Common Stock sufficient to provide for the exercise of all outstanding
Warrants. The registrar for the Common Stock (the "Stock Registrar") shall at
all times until the Expiration Date reserve such number of authorized shares as
shall be required for such purpose. The Company will keep a copy of this
Agreement on file with the Stock Transfer Agent. The Company will supply such
Stock Transfer Agent with duly executed stock certificates for such purpose and
will itself provide or otherwise make available any cash which may be payable as
provided in Section 3.06. The Company will furnish to such Stock Transfer Agent
a copy of all notices of adjustments (and certificates related thereto)
transmitted to each Holder.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants shall, upon issue, be fully paid, nonassessable, free of
preemptive rights, free from all taxes and free from all liens, charges and
security interests with respect to the issue thereof.
Section 3.08. Compliance with Law. Notwithstanding anything in this
Agreement to the contrary, in no event shall a Warrantholder be entitled to
exercise a Warrant unless in the opinion of counsel, the exercise of such
Warrants is exempt from the registration requirements of the Securities Act and
such securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states or other jurisdictions in which such
Holders reside.
Section 3.09 Obtaining Stock Exchange Listings. The Company will from
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the NASDAQ National Market or such other of the principal securities exchanges,
markets and automated quotation systems within the United States of America, if
any, on which other shares of Common Stock are then listed. In the event that,
at any time during the period in which the Warrants are exercisable, the Common
Stock is not listed on any principal securities or exchanges or markets within
the United States of America, the Company will use its best efforts to permit
the Warrant Shares to be designated PORTAL securities in accordance with the
rules and regulations adopted by the National Association of Securities Dealers,
Inc. relating to trading in the Private Offering, Resales and Trading through
Automated Linkages market.
Section 3.10 No Dilution or Impairment. The Company (a) will not
permit the par or nominal value of any Warrant Shares issuable upon the exercise
of Warrants to exceed the amount payable therefor upon such exercise, (b) will
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of the Warrants from time to time outstanding and (c)
will not take any action which results in any adjustment of the Exercise Rate if
the total number of shares of Common Stock (or other securities) issuable after
the action upon the exercise of all of the Warrants would exceed the total
number of shares of Common Stock (or other securities) then authorized by the
Company's Certificate of Incorporation and available for the issuance of shares
of Common Stock (or other securities) upon such exercise.
ARTICLE IV
ANTIDILUTION PROVISIONS
Section 4.01. General. The number of shares of Common Stock issuable
upon the exercise of each Warrant (the "Exercise Rate") is subject to adjustment
from time to time upon the occurrence of the events enumerated in this Article
IV. The Exercise Rate shall initially be 1.0000.
Section 4.02. Adjustment for Common Stock Dividends. If the Company
shall hereafter pay a dividend or make a distribution to holders of the
outstanding shares of Common Stock in shares of Common Stock, the Exercise Rate
in effect at the opening of business on the date following the date fixed for
the determination of shareholders entitled to receive such dividend or other
distribution shall be increased by multiplying such Exercise Rate by a fraction
of which the numerator shall be the sum of the number of shares of Common Stock
outstanding at the close of business on the Common Stock Record Date (as defined
in Section 4.07) and the total number of shares constituting such dividend or
other distribution and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on the Common Stock Record Date fixed
for such determination, such increase to become effective immediately after the
opening of business on the day following the Common Stock Record Date. If any
dividend or distribution of the type described in this Section 4.02 is declared
but not so paid or made, the Exercise Rate shall again be adjusted to the
Exercise Rate which would then be in effect if such dividend or distribution had
not been declared.
Section 4.03. Adjustment for Issuances of Common Stock, Options,
Warrants, Rights and Convertible or Exchangeable Securities. If the Company
shall issue, sell or distribute any shares of Common Stock (including, without
limitation, any ETG Earnout Shares, which such ETG Earnout Shares shall for
purposes of this Section 4.03 be deemed issued for no additional consideration)
or offer or issue, sell or distribute options, rights or warrants to any Person
entitling them to subscribe for or purchase shares of Common Stock or issue,
sell or distribute convertible or exchangeable securities which are convertible
or exchangeable for shares of Common Stock, in each case, at a price per share
less than $14.61, the Exercise Rate shall be adjusted so that the same shall
equal the rate determined by multiplying the Exercise Rate in effect at the
opening of business on the date immediately prior to such sale, issuance or
distribution of shares, options, rights, warrants or exchangeable or convertible
securities by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on such date plus the total
number of additional shares of Common Stock to be issued, sold or distributed or
subject to such options, rights, warrants or exchangeable or convertible
securities for subscription or purchase and of which the denominator shall be
the number of shares of Common Stock outstanding at the close of business on
such date plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock to be issued, sold or
distributed or subject to such options, rights, warrants or exchangeable or
convertible securities would purchase at a price of $14.61 per share. Such
adjustment shall become effective immediately after the opening of business on
the day following the issuance, sale or distribution of such shares, options,
rights, warrants or exchangeable or convertible securities. To the extent that
shares of Common Stock are not delivered pursuant to such options, rights,
warrants or exchangeable or convertible securities, upon the expiration or
termination of such options, rights, warrants or exchangeable or convertible
securities the Exercise Rate shall again be adjusted to be the Exercise Rate
which would then be in effect had the adjustments made upon the issuance, sale
or distributions of such options, rights, warrants or exchangeable or
convertible securities been made on the basis of delivery of only the number of
shares of Common Stock actually delivered. If such shares, options, rights,
warrants or exchangeable or convertible securities are not so issued, the
Exercise Rate shall again be adjusted to be the Exercise Rate which would then
be in effect if such date fixed for the determination of shareholders entitled
to receive such shares, options, rights, warrants or exchangeable or convertible
securities had not been fixed. In determining whether any shares, options,
rights, warrants or exchangeable or convertible securities entitle the Holders
to subscribe for or purchase shares of Common Stock at less than $14.61 per
share, and in determining the aggregate offering price of such shares of Common
Stock, there shall be taken into account any consideration received for such
options, rights, warrants or exchangeable or convertible securities, with the
value of such consideration, if other than cash, to be determined in good faith
by the Board of Directors and the amount of any exercise price or subscription
price required to be paid upon exercise of such options, rights, warrants or
exchangeable or convertible securities.
Section 4.04. Adjustment upon Subdivision, Reclassification or
Combination of Common Stock. If the outstanding shares of Common Stock shall be
subdivided or reclassified into a greater number of shares of Common Stock, the
Exercise Rate in effect at the opening of business on the day following the day
upon which such subdivision or reclassification becomes effective shall be
proportionately increased, and, conversely, if the outstanding shares of Common
Stock shall be combined into a smaller number of shares of Common Stock, the
Exercise Rate in effect at the opening of business on the day following the day
upon which such combination becomes effective shall be proportionately reduced,
such increase or reduction, as the case may be, to become effective immediately
after the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
Section 4.05. Adjustments for Mergers, Consolidations, etc. In case of
any consolidation of the Company with, or merger of the Company into, any other
corporation, or in case of any merger of another corporation into the Company
(other than a merger that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the Company),
or in case of any sale, conveyance or transfer of all or substantially all the
assets of the Company, the Holder of each Warrant shall have the right
thereafter, during the period such Warrant shall be exercisable in accordance
with its terms, to exercise such Warrant for the kind and amount of securities,
cash and other property receivable upon such consolidation, merger, conveyance
or transfer by a holder of the number of shares of shares of Common Stock of the
Company into which such Warrant might have been exercised immediately prior to
such consolidation, merger, conveyance or transfer, assuming such Holder of
shares of Common Stock of the Company failed to exercise his rights of election,
if any, as to the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer (provided
that, if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance or transfer is not the same for each
Common Share of the Company in respect of which such rights of election shall
not have been exercised ("nonelecting share"), then for the purpose of this
Section 4.05 the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer by each
nonelecting share shall be deemed to be the kind and amount so receivable per
share by a plurality of the nonelecting shares). Such securities shall provide
for adjustments which, for events subsequent to the effective date of the
triggering event, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article IV. The above provisions of this
Section 4.05 shall similarly apply to successive consolidations, mergers,
conveyances or transfers.
Section 4.06. Other Events. If any event occurs as to which the
foregoing provisions of this Article IV are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board of
Directors, fairly and adequately protect the purchase rights of the Warrants in
accordance with the essential intent and principles of such provisions, then
such Board of Directors shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, as shall be
reasonably necessary, in the good faith opinion of such Board of Directors, to
protect such purchase rights as aforesaid, but in no event shall any such
adjustment have the effect of decreasing the Exercise Rate or decreasing the
number of Warrant Shares issuable upon exercise of the Warrants.
Section 4.07. Certain Definitions. For purposes of this Article IV,
the following term shall have the meaning indicated:
"Common Stock Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common Stock
have the right to receive any cash, securities or other property or in which the
Common Stock (or other applicable security) is exchanged for or converted into
any combination of cash, securities or other property, the date fixed for
determination of shareholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).
Section 4.08. Deferral of Certain Adjustments. No adjustment in the
Exercise Rate shall be required unless such adjustment would require an increase
or decrease of at least 1% in such rate; provided, however, that any adjustments
which by reason of this Section 4.08 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Article IV shall be made by the Company and shall be
rounded to fourth decimal place. No adjustment need be made for a change in the
par value or no par value of the Common Stock.
Section 4.09. Officers Certificate; Notice of Adjustment. Whenever the
Exercise Rate is adjusted as herein provided, the Company shall promptly file
with the Warrant Registrar an Officers' certificate setting forth the Exercise
Rate after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. Promptly after delivery of such certificate, the
Company shall prepare a notice of such adjustment of the Exercise Rate setting
forth the adjusted Exercise Rate and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Exercise Rate to
each Warrantholder at such Warrantholder's last address appearing on the
register of Warrantholders maintained by the Warrant Registrar for that purpose
within 20 days of the effective date of such adjustment. Failure to deliver such
notice shall not affect the legality or validity of any such adjustment.
Section 4.10. Right to Delay Issuance of Incremental Common Stock. In
any case in which this Article IV provides that an adjustment shall become
effective immediately after a Common Stock Record Date for an event, the Company
may defer until the occurrence of such event issuing to any holder of Warrants
exercised after such Common Stock Record Date and before the occurrence of such
event the additional shares of Common Stock issuable upon such exercise by
reason of the adjustment required by such event over and above the shares of
Common Stock issuable upon such exercise before giving effect to such
adjustment.
Section 4.11. Treasury Shares Disregarded. For purposes of this
Article IV, the number of shares of Common Stock at any time outstanding shall
not include shares held in the treasury of the Company. The Company shall not
pay any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
Section 4.12. No Adjustment for Certain Issuances. Notwithstanding
anything to the contrary set forth herein, this Article IV shall not apply, and
no adjustment to the Exercise Rate shall be made with respect to (A)
compensatory or incentive stock options (or any shares of Common Stock issued
upon the exercise thereof) issued pursuant to employee stock option plans of the
Company which have been approved by the Board of Directors of the Company, (B)
issuances of Common Stock to employees, officers, directors and consultants of
the Company, pursuant to employee benefit plans approved by the Board of
Directors of the Company, or (C) shares of Common Stock issued upon the
conversion of the Series A Preferred Stock.
Section 4.13. Notice of Certain Adjustments. If the Company shall take
any action requiring an adjustment to the Exercise Rate pursuant to this Article
IV, then the Company shall cause to be filed with the Warrant Registrar, and
shall cause to be mailed to all Warrantholders at their last addresses as they
shall appear in the Warrant Register, at least 20 Business Days (or 10 Business
Days in any case specified in clause 4.02 or 4.03 above) prior to the applicable
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, rights or warrants,
or, if a record is not to be taken, the date as of which the holders of shares
of Common Stock of record to be entitled to such dividend, distribution, rights
or warrants are to be determined or (y) the date on which a reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is
expected to become effective, and the date as of which it is expected that
holders of shares of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up. Failure to give the notice required by this Section
4.13 or any defect therein shall not affect the legality or validity of any
dividend, distribution, right, warrant, reclassification, consolidation, merger,
sale transfer, dissolution, liquidation or winding-up, or the vote upon any such
action.
Section 4.14. Adjustment to Warrant Certificate. The form of Warrant
Certificate need not be changed because of any adjustment made pursuant to this
Article IV, and Warrant Certificates issued after such adjustment may state the
same Exercise Price and the same number of shares of Common Stock issuable upon
exercise of the Warrants as are stated in the Warrant Certificates initially
issued pursuant to this Agreement. The Company, however, may at any time in its
sole discretion make any change in the form of Warrant Certificate that it may
deem appropriate to give effect to such adjustments and that does not affect the
substance of the Warrant Certificate, and any Warrant Certificate thereafter
issued or countersigned, whether in exchange or substitution for an outstanding
Warrant Certificate or otherwise, may be in the form as so changed.
Section 4.15. Certain Tax Matters. Notwithstanding anything to the
contrary set forth herein, for federal income tax purposes (but not for any
other purpose of this Warrant Agreement), any adjustments to the Exercise Rate
made in respect of any ETG Earnout Shares shall be treated as an adjustment to
the purchase price of the Warrants.
ARTICLE V
MISCELLANEOUS
Section 5.01. Persons Benefiting. Nothing in this Agreement is
intended or shall be construed to confer upon any Person other than the Company
and the Warrantholders any right, remedy or claim under or by reason of this
Agreement or any part hereof.
Section 5.02. Rights of Warrantholders. Holders of unexercised
Warrants are not entitled to (i) receive dividends or other distributions, (ii)
receive notice of or vote at any meeting of the stockholders, (iii) consent to
any action of the stockholders, (iv) receive notice of any other proceedings of
the Company, (v) exercise any preemptive right or (vi) exercise any other rights
whatsoever as stockholders of the Company.
Section 5.03. Amendment. Any amendment or supplement to this Agreement
shall require the written consent of the Warrantholders of a majority of the
then outstanding Warrants. The consent of each Warrantholder affected shall be
required for any amendment pursuant to which the Exercise Price would be
increased, the Exercise Rate would be decreased (other than pursuant to
adjustments provided herein) or the antidilution provisions in Article IV are
altered in a manner which adversely affects the Warrantholders. In determining
whether the Warrantholders of the required number of Warrants have concurred in
any direction, waiver or consent, Warrants owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding. Also, subject to the foregoing, only Warrants outstanding at the
time shall be considered in any such determination.
Section 5.04. Notices. Any notice or communication shall be in writing
and delivered in person or mailed by first-class mail addressed as follows:
Computer Outsourcing Services, Inc.
2 Christie Heights Street
Leonia, New Jersey 07605
Attn: Nicholas J. Letizia, Chief Financial Officer
with a copy to:
Robinson & Cole LLP
695 E. Main Street
Stamford, CT 06904
Attention: Richard A. Krantz, Esq.
Tel: (203) 462-7505
Fax: (203) 462-7599
The Company by notice to the Warrantholders may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Warrantholder shall be mailed
to the Warrantholder at the Warrantholder's address as it appears on the
Company's records and shall be sufficiently given if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Warrantholder or any
defect in it shall not affect its sufficiency with respect to other
Warrantholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Section 5.05. Governing Law. THIS AGREEMENT AND THE WARRANTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE
EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
Section 5.06. Successors. All agreements of the Company in this
Agreement and the Warrant Certificates shall bind its successors.
Section 5.07. Multiple Originals. The parties may sign any number of
copies of this Agreement. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Agreement.
Section 5.08. Table of Contents The table of contents and headings of
the Articles and Sections of this Agreement have been inserted for convenience
of reference only, are not intended to be considered a part hereof and shall not
modify or restrict any of the terms or provisions hereof.
Section 5.09. Severability. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
COMPUTER OUTSOURCING SERVICES, INC.
By:/s/ Zach Lonstein
--------------------------------
Name: Zach Lonstein
Title: Chief Executive Officer
<PAGE>
WARRANTHOLDERS
DB CAPITAL INVESTORS, L.P.,
By: DB Capital Partners, L.P.,
its General Partner
By: DB Capital Partners, Inc.,
its General Partner
By: /s/Frank Schiff
--------------------------------
Name: Frank Schiff
Title: Managing Director
SANDLER CAPITAL PARTNERS V, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General Partner
By /s/ Ed Grinacoff
--------------------------------
Name: Ed Grinacoff
Title: Managing Director
SANDLER INTERNET PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General Partner
By /s/Ed Grinacoff
-----------------------------
Name: Ed Grinacoff
Title: Managing Director
SANDLER CO-INVESTMENT PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General Partner
By /s/ Ed Grinacoff
-----------------------------
Name: Ed Grinacoff
Title: Managing Director
PRICE FAMILY LIMITED PARTNERS
By: /s/ Michael Price
-------------------------------
Name: Michael Price
Title: General Partner
BENAKE, L.P.
By: /s/ Lynn Forester
-------------------------------
Name: Lynn Forester
Title: General Partner
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
COMPANY SUCH CERTIFICATES AND OTHER INFORMATION AS THE COMPANY MAY REASONABLY
REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
THIS WARRANT IS ALSO SUBJECT TO TRANSFER RESTRICTIONS SET FORTH IN A
SECURITIES PURCHASE AGREEMENT, DATED AS OF APRIL 7, 2000, AMONG THE COMPANY AND
THE OTHER PARTIES REFERRED TO THEREIN (THE "SECURITIES PURCHASE AGREEMENT").
THIS WARRANT MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED
IN SUCH SECURITIES PURCHASE AGREEMENT AND THE WARRANT AGREEMENT.
ALL WARRANTS AND ALL WARRANT SHARES RECEIVED BY THE WARRANTHOLDERS
UPON EXERCISE OF THE WARRANTS WILL BE SUBJECT TO THE TERMS AND CONDITIONS
INCLUDING CERTAIN TRANSFER RESTRICTIONS OF A STOCKHOLDERS AGREEMENT DATED AS OF
MAY 10, 2000, AS AMENDED, AMONG THE COMPANY AND THE VARIOUS STOCKHOLDERS OF THE
COMPANY (THE "STOCKHOLDERS AGREEMENT"), AND EACH WARRANTHOLDER AGREES TO BE
BOUND BY THE TERMS AND CONDITIONS OF SUCH STOCKHOLDERS AGREEMENT AS SUCH
STOCKHOLDERS AGREEMENT MAY BE AMENDED FROM TIME TO TIME.
<PAGE>
No. [ ]
SERIES A COMMON STOCK WARRANT
OF
COMPUTER OUTSOURCING SERVICES, INC.
THIS CERTIFIES THAT [ ], or its registered assigns, is the registered
holder of Series A Common Stock Warrants (the "Warrants"). Each Warrant entitles
the holder thereof (the "Holder"), at its option and subject to the provisions
contained herein and in the Warrant Agreement referred to below, to purchase
from Computer Outsourcing Services, Inc., a Delaware corporation ("the
Company"), one (1) share of Common Stock, par value of $.01 per share, of the
Company (the "Common Stock") at the per share exercise price of $0.01 (the
"Exercise Price") or by Cashless Exercise referred to below. This Warrant
Certificate shall terminate and become void as of the close of business on May
10, 2007 (the "Expiration Date") or upon the exercise hereof as to all the
shares of Common Stock subject hereto. The number of shares issuable upon
exercise of the Warrants and the Exercise Price per share shall be subject to
adjustment from time to time as set forth in the Warrant Agreement (as defined).
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of May 10, 2000 (the "Warrant Agreement"), between
the Company and various Warrantholders party thereto (the "Warrantholders"), and
is subject to the terms and provisions contained in the Warrant Agreement, to
all of which terms and provisions the Holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Warrant Agreement for a full statement of the respective rights, limitations of
rights, duties and obligations of the Company and the Warrantholders.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in the Warrant Agreement. A copy of the Warrant Agreement may be
obtained for inspection by the Holder hereof upon written request to the Company
at 2 Christie Heights Street, Leonia, New Jersey 07605, Attention: Chief
Financial Officer.
Subject to the terms of the Warrant Agreement, the Warrants may be
exercised in whole or in part (i) by presentation of this Warrant Certificate
with the Election to Purchase attached hereto duly executed and with the
simultaneous payment of the Exercise Price in cash (subject to adjustment) to
the Company for the account of the Company or (ii) by Cashless Exercise. Payment
of the Exercise Price in cash shall be made by certified or official bank check
payable to the order of the Company or by wire transfer of funds to an account
designated by the Company for such purpose. Payment by Cashless Exercise shall
be made without the payment of cash by reducing the amount of Common Stock that
would be obtainable upon the exercise of a Warrant and payment of the Exercise
Price in cash so as to yield a number of shares of Common Stock upon the
exercise of such Warrant equal to the product of (1) the number of shares of
Common Stock for which such Warrant is exercisable as of the Exercise Date (if
the Exercise Price were being paid in cash) and (2) a fraction, the numerator of
which is the excess of the Current Market Value per share of Common Stock on the
Exercise Date over the Exercise Price per share as of the Exercise Date and the
denominator of which is the Current Market Value per share of the Common Stock
on the Exercise Date.
As provided in the Warrant Agreement and subject to the terms and
conditions therein set forth, the Warrants shall be exercisable at any time and
from time to time on any Business Day after the Issue Date; provided, however,
that no Warrant shall be exercisable after May 10, 2007.
As provided in the Warrant Agreement, the Exercise Rate is subject to
adjustment upon the happening of certain events.
The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with the transfer or
exchange of the Warrant Certificates pursuant to the terms of the Warrant
Agreement, but not for any exchange or original issuance (not involving a
transfer) with respect to temporary Warrant Certificates, the exercise of the
Warrants or the Warrant Shares.
Upon any partial exercise of the Warrants, there shall be
countersigned and issued to the Warrantholder hereof a new Warrant Certificate
representing those Warrants which were not exercised. This Warrant Certificate
may be exchanged at the office of the Company by presenting this Warrant
Certificate properly endorsed with a request to exchange this Warrant
Certificate for other Warrant Certificates evidencing an equal number of
Warrants. No fractional Warrant Shares will be issued upon the exercise of the
Warrants, but the Company shall pay an amount in cash equal to the Current
Market Value per Warrant Share on the day immediately preceding the date the
Warrant is exercised, multiplied by the fraction of a Warrant Share that would
be issuable on the exercise of any Warrant.
All shares of Common Stock issuable by the Company upon the exercise
of the Warrants shall, upon such issue, be duly and validly issued and fully
paid and non-assessable.
The Warrantholder in whose name the Warrant Certificate is registered
may be deemed and treated by the Company as the absolute owner of the Warrant
Certificate for all purposes whatsoever and the Company shall not be affected by
notice to the contrary.
The Warrants do not entitle any Warrantholder hereof to any of the
rights of a stockholder of the Company.
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Company.
COMPUTER OUTSOURCING SERVICES, INC.
By:
--------------------------------
Name:
Title:
Attest:
- -------------------------------
Name:
Title:
DATED:
<PAGE>
FORM OF ELECTION TO PURCHASE WARRANT SHARES
(to be executed only upon exercise of Warrants)
COMPUTER OUTSOURCING SERVICES, INC.
The undersigned hereby irrevocably elects to exercise
__________________ Warrants to acquire shares of Common Stock, par value $.001
per share, of Computer Outsourcing Services, Inc., (i) at an exercise price per
share of Common Stock of $0.01 (subject to adjustment as provided in the Warrant
Agreement) or (ii) through Cashless Exercise and otherwise on the terms and
conditions specified in the Warrant Certificate and the Warrant Agreement,
surrenders this Warrant Certificate and all right, title and interest therein to
Computer Outsourcing Services, Inc. and directs that the shares of Common Stock
deliverable upon the exercise of such Warrants be registered or placed in the
name and at the address specified below and delivered thereto.
Check method of exercise:
Exercise at $0.01 per share of Common Stock (subject to adjustment as
provided in the Warrant Agreement): ___
Cashless Exercise: _____
Date: _______________________, ____
- ----------------------------------------------------(1)
(Signature of Owner)
(Street Address)
- -------------------------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
- -------------------------------------------------------
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
A new Warrant Certificate evidencing any unexercised Warrants evidenced by the
within Warrant Certificate is to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
- --------------------------
(1) The signature must correspond with the name as written upon the face of the
Warrant Certificate in every particular, without alteration or enlargement
or any change whatever, and must be guaranteed by a national bank or trust
company or by a member firm of any national securities exchange.
<PAGE>
ASSIGNMENT FORM
To assign this Warrant, fill in the form below:
I or we assign and transfer this Warrant to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Warrant on the books of the
Company. The agent may substitute another to act for him.
- -----------------------------------------------------------------
Date: Your Signature:
------------- -----------------------
- -----------------------------------------------------------------
The signature must correspond with the name as written upon the face of the
Warrant Certificate in every particular, without alteration or enlargement or
any change whatever, and must be guaranteed by a national bank or trust company
or by a member firm of any national securities exchange.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS........................................................1
Section 1.01. Definitions...........................................1
Section 1.02. Other Definitions.....................................3
Section 1.03. Rules of Construction.................................4
ARTICLE II WARRANT CERTIFICATES..............................................4
Section 2.01. Form and Dating.......................................4
Section 2.02. Execution and Countersignature........................4
Section 2.03. Warrant Registrar.....................................4
Section 2.04. Warrantholder Lists...................................5
Section 2.05. Transfer and Exchange.................................5
Section 2.06. Replacement Certificate...............................7
Section 2.07. Outstanding Warrants..................................7
Section 2.08. Cancellation..........................................7
ARTICLE III EXERCISE TERMS...................................................8
Section 3.01. Exercise..............................................8
Section 3.02. Time of Exercise; Separability........................8
Section 3.03. Expiration............................................8
Section 3.04. Manner of Exercise....................................8
Section 3.05. Issuance of Warrant Shares............................9
Section 3.06. Fractional Warrant Shares.............................9
Section 3.07. Reservation of Warrant Shares.........................9
Section 3.08. Compliance with Law..................................10
Section 3.09 Obtaining Stock Exchange Listings.....................10
Section 3.10 No Dilution or Impairment.............................10
ARTICLE IV ANTIDILUTION PROVISIONS..........................................11
Section 4.01. General..............................................11
Section 4.02. Adjustment for Common Stock Dividends................11
Section 4.03. Adjustment for Issuances of Common Stock, Options,
Warrants, Rights and Convertible or Exchangeable
Securities.........................................11
Section 4.04. Adjustment upon Subdivision, Reclassification
or Combination of Common Stock.......................12
Section 4.05. Adjustments for Mergers, Consolidations, etc.........12
Section 4.06. Other Events.........................................13
Section 4.07. Certain Definitions...................................13
Section 4.08. Deferral of Certain Adjustments......................13
Section 4.09. Officers Certificate; Notice of Adjustment...........13
Section 4.10. Right to Delay Issuance of Incremental Common Stock..14
Section 4.11. Treasury Shares Disregarded..........................14
Section 4.12. No Adjustment for Certain Issuances..................14
Section 4.13. Notice of Certain Adjustments........................14
Section 4.14. Adjustment to Warrant Certificate....................14
Section 4.15. Certain Tax Matters..................................15
ARTICLE V MISCELLANEOUS.....................................................15
Section 5.01. Persons Benefiting...................................15
Section 5.02. Rights of Warrantholders.............................15
Section 5.03. Amendment............................................15
Section 5.04. Notices..............................................15
Section 5.05. Governing Law........................................16
Section 5.06. Successors...........................................16
Section 5.07. Multiple Originals...................................16
Section 5.08. Table of Contents....................................16
Section 5.09. Severability.........................................16
EXHIBIT 7
OPTION AGREEMENT
OPTION AGREEMENT (this "Agreement") dated as of May 10, 2000 between
DB Capital Investors, L.P. ("Optionee"), a Delaware limited partnership, and
Zach Lonstein ("Lonstein"), an individual domiciled in the State of New York.
W I T N E S S E T H:
WHEREAS, Optionee is a purchaser under that certain Securities
Purchase Agreement (the "Purchase Agreement") dated as of April 7, 2000 by and
among Computer Outsourcing Services, Inc. (the "Company") and certain purchasers
set forth on Exhibit A attached thereto; and
WHEREAS, Lonstein owns of record and beneficially 1,673,349 shares of
the Common Stock, par value $.01 per share, of the Company ("Common Stock"); and
WHEREAS, in order to induce Optionee to consummate the transactions
contemplated by the Purchase Agreement, Lonstein has agreed to grant to Optionee
the Option (as hereinafter defined) and the other rights provided herein.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Option.
(a) Grant of Option. Lonstein hereby grants to Optionee an irrevocable
option (the "Option") to purchase up to 375,000 shares of Common Stock (the
"Option Shares") at a purchase price of $25.00 per share (as adjusted from time
to time pursuant to the next sentence, the "Purchase Price"). If at any time the
outstanding shares of the Company's capital stock are changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment or
if a stock dividend thereon is declared with a record date prior to the
termination of this Agreement, then the number of Option Shares subject to the
Option and the per share consideration to be paid by Purchaser upon exercise of
the Option shall be appropriately adjusted.
(b) Exercise of Option. The Option may be exercised in whole or in
part, at any time, or from time to time, during the period commencing on the
date hereof and ending on May 10, 2007 (the "Exercise Period"); provided, that
to the extent that the exercise of the Option requires notification to be made
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the Exercise Period shall be extended until that day which is the
first to occur of (i) the thirtieth (30th) day following the expiration or
termination of all applicable waiting periods under the HSR Act; (ii) the
issuance, on any date after May 10, 2007, of a final, non-appealable
determination by a court of competent jurisdiction prohibiting the exercise of
the Option; or (iii) the determination by Optionee, on any date after May 10,
2007, that it will withdraw its Exercise Notice (as defined below) or withdraw
or abandon any action contesting an unfavorable determination by the applicable
authority under the HSR Act.
(c) Exercise. Optionee shall exercise the Option by delivering a
notice (the "Exercise Notice") to Lonstein specifying (i) the number of Option
Shares with respect to which it intends to exercise the Option, and (ii) a date
not less than three business days nor more than ten business days after the date
on which the Exercise Notice is dated, on which the purchase and sale
contemplated thereby is to be consummated (the "Option Closing Date"); provided,
that, to the extent necessary, any Option Closing Date shall be automatically
delayed until that date which is three business days after the termination or
expiration of all applicable waiting periods under the HSR Act. No Exercise
Notice shall be delivered after May 10, 2007. On the Option Closing Date,
Lonstein will deliver to Optionee, at the offices of White & Case LLP, 1155
Avenue of the Americas, New York, New York, a certificate or certificates
representing the Option Shares being purchased. Optionee will purchase such
Option Shares from Lonstein by delivering to Lonstein an amount equal to the
then effective Purchase Price per share of Common Stock multiplied by the number
of Option Shares to be purchased on the relevant Option Closing Date. The
aggregate Purchase Price with respect to the purchased Option Shares shall be
paid by certified or bank cheque delivered in the amount of the aggregate
Purchase Price tendered to Lonstein at the Option closing; provided that upon
notice to Optionee given not less than two business days prior to the Closing
Date, Lonstein may require that the aggregate Purchase Price with respect to the
purchased Option Shares be paid by wire transfer of immediately available funds
to an account or accounts designated by Lonstein at least two business day prior
to the Option Closing Date.
(d) HSR Filing. Optionee and Lonstein agree to file with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice all required pre-merger notification and report forms and other
documents and exhibits required to be filed under the HSR Act to permit the
exercise of the Option and to cooperate with each other to obtain the early
termination of all applicable waiting periods.
2. Representations and Warranties of Lonstein. Lonstein hereby
represents and warrants to Optionee as follows:
(a) Ownership of Shares. Lonstein is the record and beneficial
owner of the Option Shares. Lonstein has sole power of disposition, sole
power of conversion and sole power to agree to all of the matters set forth
in this Agreement, in each case with respect to all Option Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) Power; Binding Agreement. Lonstein has the legal capacity,
power and authority to enter into and perform all of his obligations under
this Agreement. The execution, delivery and performance of this Agreement
by Lonstein will not violate any other agreement to which Lonstein is a
party including, without limitation, any voting agreement, stockholders
agreement or voting trust. This Agreement constitutes a valid and binding
agreement of Lonstein, enforceable against Lonstein in accordance with its
terms. There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which Lonstein is trustee whose consent is
required for the execution and delivery of this Agreement or the
consummation by Lonstein of the transactions contemplated hereby.
(c) No Conflict. No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by Lonstein and the
consummation by Lonstein of the transactions contemplated hereby and none
of the execution and delivery of this Agreement by Lonstein, the
consummation by Lonstein of the transactions contemplated hereby or
compliance by Lonstein with any of the provisions hereof shall result in a
violation or breach of, or constitute (with or without notice of lapse of
time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which Lonstein
is a party or by which such order, writ, injunction, decree, judgment,
order, statute, rule or regulation applicable to Lonstein or any of
Lonstein's properties or assets.
(d) No Finder's Fees. Except as disclosed in the Purchase
Agreement, no broker, investment banker, financial advisor or other person
is entitled to any broker's, finder's, financial advisor's or other similar
fee or commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of Lonstein.
(e) No Encumbrances. The Option Shares and the certificates
representing such shares are now, and at all times during the term hereof
will be, held by Lonstein, or by a nominee or custodian for the benefit of
Lonstein, free and clear of all liens, claims, charges, security interests,
options (other than the Option), rights, pledges, rights of first refusal
or other adverse claims (as defined in the Uniform Commercial Code of the
State of New York) or encumbrances whatsoever (collectively,
"Encumbrances"), other than Encumbrances contained in that certain
Stockholders' Agreement dated of even date herewith (the "Stockholders'
Agreement") by and among the Company, DB Capital Investors, L.P., Sandler
Capital Partners V, L.P., Sandler Internet Partners, L.P., Sandler
Co-Investment Partners, L.P., certain Management Stockholders of the
Company and certain Non-Management Stockholders of the Company.
(f) Reliance by Optionee. Lonstein understands and acknowledges
that Optionee is entering into the Purchase Agreement in reliance upon
Lonstein's execution and delivery of this Agreement.
3. Representations of Optionee. Optionee represents and warrants to
Lonstein that: (i) Optionee is a limited partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full partnership power and authority to execute and deliver
this Agreement and to perform its obligations hereunder; (ii) the execution and
delivery of this Agreement by such entity and the performance by it of its
obligations hereunder have been duly authorized by all necessary corporate
action on the part of such entity; and (iii) this Agreement constitutes the
legal, valid and binding obligation of such entity enforceable against such
entity in accordance with its terms, except as such enforcement may be limited
by bankruptcy, insolvency and other similar laws affecting creditors' rights
generally or by general principles, of equity.
4. Covenants of Lonstein. Lonstein covenants and agrees that Lonstein
shall (a) at all times during the Exercise Period hold, free and clear of all
Encumbrances (other than Encumbrances contained in the Stockholders' Agreement)
that number of shares necessary to satisfy its obligations under this Agreement
and (b) upon delivery of the Option Shares, the Option Shares will be subject to
no (i) voting trust or shareholders agreement, proxy or other voting agreement,
arrangement or understanding or (ii) Encumbrance.
5. Further Assurance and Adjustments. Lonstein shall, upon the
reasonable request of Optionee, execute and deliver any additional documents
necessary or desirable to effect any of the terms and provisions of this
Agreement. If at any time the Option Shares are changed into a different number
of shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment of
the Company's capital stock or if a stock dividend thereon is declared with a
record date prior to the termination of this Agreement, then the number of
Option Shares subject to this Agreement shall be appropriately adjusted.
6. Specific Performance. The parties hereto agree that if for any
reason Lonstein failed to perform any of Lonstein's obligations under this
Agreement, Optionee would be irreparably damaged and money damages would not
constitute an adequate remedy. Accordingly, Optionee shall be entitled to
specific performance and injunctive and other equitable relief to enforce the
performance of such obligations by Lonstein. This provision is without prejudice
to any other rights Optionee may have against Lonstein for failure to perform
any of Lonstein's obligations under this Agreement.
7. Term. This Agreement shall commence on the date hereof and the
Option shall end upon the later to occur of (x) 11:59 p.m. on May 10, 2007 or
(y) the termination of the Exercise Period.
8. Binding Agreement. All authority and rights herein conferred or
agreed to be conferred by Lonstein shall survive the death or incapacity of
Lonstein. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, personal representatives, successor
and assigns.
9. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be hand delivered, delivered by courier
with receipt acknowledged or mailed first class, certified mail, with postage
prepaid, as follows:
If to Parent or Optionee, to:
DB Capital Investors, L.P.
c/o DB Capital Partners, Inc.
130 Liberty Street
25th Floor
New York, New York 10006
Attention: Tyler T. Zachem, Managing Director
With a copy to:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: S. Ward Atterbury, Esq.
If to Lonstein, to:
c/o Computer Outsourcing Solutions, Inc.
2 Christie Heights Street
Leonia, New Jersey 07605
With a copy to:
Robinson & Cole LLP
695 E. Main Street
Stamford, Connecticut 06904
Attention: Richard Krantz, Esq.
10. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
11. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which, taken together, shall
constitute one instrument.
12. Severability. In case any provision in this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby, unless the provisions held invalid shall
substantially impair the benefits of the remaining portions of this Agreement.
13. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
other prior agreement and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
14. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the relevant
parties.
15. No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof shall not constitute a waiver by such party of
its right to exercise any such or other right, power or remedy or to demand such
compliance.
16. Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, Optionee and Lonstein have caused this Agreement
to be duly executed as of the day and year first written above.
ZACH LONSTEIN
/s/Zach Lonstein
--------------------------
DB CAPITAL INVESTORS, L.P.
By: DB Capital Partners, L.P., its
General Partner
By: DB Capital Partners, Inc., its
General Partner
By: /s/Frank Schiff
---------------------
Name: Frank Schiff
Title: Managing Director
EXHIBIT 8
ASSIGNMENT AND ASSUMPTION OF SECURITIES
---------------------------------------
ASSIGNMENT AND ASSUMPTION OF SECURITIES AGREEMENT, dated as of May 10,
2000, by and between Computer Outsourcing Services, Inc., a Delaware corporation
(the "Company"), each of the assignors party hereto (collectively, the
"Assignors"), and each of the assignees party hereto (collectively, the
"Assignees"). Capitalized terms used herein, unless otherwise defined herein,
shall have the meanings assigned to such terms in the Securities Purchase
Agreement referred to below.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, DB Capital Investors, L.P. and the Assignors
have executed a Securities Purchase Agreement, dated as of April 7, 2000 (the
"Securities Purchase Agreement");
WHEREAS, each of the Assignors desires to assign its interest in the
Securities to the Assignors;
WHEREAS, the Company desires to permit the assignment of the Assignors
interests in the Securities to the Assignors.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, the Assignors and the
Assignees agree as follows:
1. The Assignors by this instrument do hereby absolutely assign,
convey, grant, transfer and deliver unto the Assignees all of the Assignors'
right, title and interest existing at the time of this Agreement in the
Securities set forth below and all of Assignors' rights and obligations under
the Securities Purchase Agreement.
Shares of
Series A
Assignor Preferred Stock Warrants
-------- --------------- --------
Sandler Capital Partners IV, L.P. 48,605.9 781,985
Sandler Capital Partners IV FTE, L.P. 19,853.1 319,402
Sandler Internet Partners, L.P. 5,245.9 84,398
Sandler Co-Investment Partners, L.P. 4,983.6 80,178
-------- -------
Total 78,688.5 1,265,963
======== =========
2. Assignees hereby assume and agree to pay or cause to be paid or
otherwise discharge, perform and fulfill or cause to be discharged, performed
and fulfilled, as they become due and payable all obligations of Assignors
arising on or subsequent to the Closing Date which arise out of or are related
to the Securities Purchase Agreement.
Shares of
Assignee Series A
Preferred Stock Warrants
--------------- --------
Sandler Capital Partners V, L.P. 71,606.5 1,152,026.3
Sandler Internet Partners, L.P. 5,245.9 84,397.5
Sandler Co-Investment Partners, L.P. 1311.5 21,099.4
Price Family Limited Partners 262.3 4,219.9
Benake, L.P. 262.3 4,219.9
-------- -----------
Total 78,688.5 1,265,963
======== ===========
3. By its execution and delivery hereof the Company consents to the
assignments and assumptions contemplated hereby and releases Assignors in full
from any obligation or liability of any nature whatsoever which Assignors may
have had under the Securities Purchase Agreement.
4. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK REGARDLESS OF THE LAWS THAT MIGHT
OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
5. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement. Each party need not sign
the same counterpart.
<PAGE>
IN WITNESS WHEREOF, the Company, the Assignors and the Assignees have
caused this Agreement to be signed on its behalf by its officer thereunto duly
authorized as of the date first written above.
COMPUTER OUTSOURCING SERVICES, INC.
By:/s/ Zach Lonstein
--------------------------------
Name: Zach Lonstein
Title: CEO
ASSIGNORS:
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/ Ed Grinacoff
-----------------------------
Name: Ed Grinacoff
Title: Managing Director
SANDLER CAPITAL PARTNERS IV FTE, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/ Ed Grinacoff
-----------------------------
Name: Ed Grinacoff
Title: Managing Director
SANDLER INTERNET PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/ Ed Grinacoff
-----------------------------
Name: Ed Grinacoff
Title: Managing Director
SANDLER CO-INVESTMENT PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/ Ed Grinacoff
-----------------------------
Name: Ed Grinacoff
Title: Managing Director
<PAGE>
ASSIGNEES:
SANDLER CAPITAL PARTNERS V, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/ Ed Grinacoff
-----------------------------
Name: Ed Grinacoff
Title: Managing Director
SANDLER INTERNET PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/ Ed Grinacoff
-----------------------------
Name: Ed Grinacoff
Title: Managing Director
SANDLER CO-INVESTMENT PARTNERS, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By /s/ Ed Grinacoff
-----------------------------
Name: Ed Grinacoff
Title: Managing Director
PRICE FAMILY LIMITED PARTNERS
By /s/ Michael Price
------------------------------
Name: Michael Price,
General Partner
BENAKE, L.P.
By /s/ Lynn Forester
------------------------------
Name: Lynn Forester,
General Partner
