FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
October 8, 1999 (October 4, 1999)
SECURE COMPUTING CORPORATION
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
-----------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-27074 52-1637226
- -------------------------------- ----------------------------------------
(Commission File Number) (IRS Employer Identification No.)
One Almaden Blvd., Suite 400, San Jose, California 95113
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 918-6100
Item 5.--OTHER EVENTS.
On October 4, 1999, Secure Computing Corporation (the
"Company") entered into a common stock investment agreement (the "Agreement")
which provides for the sale from time to time over the next two years of up to
$25 million in common stock to Manchester Securities Corp. ("Manchester"). The
Company must file and have
<PAGE>
declared effective a registration statement covering the resale of the shares by
Manchester, and the Company must satisfy a number of other conditions, before
selling any shares under the Agreement. A copy of the press release dated
October 5, 1999 announcing the financing is attached to this Current Report as
Exhibit 99.1 and is incorporated herein.
The Company also issued a warrant to Manchester to acquire
shares of Common Stock (the "Warrant"). The number of shares issuable upon
exercise of the Warrant is equal to $1,875,000 divided by 120% of the average of
the trading price of the common stock calculated during either of two time
periods as further set forth in the Warrant.
The foregoing description is only a summary and is qualified
in its entirety by the Agreement, the Warrant and the Registration Rights
Agreement dated as of October 4, 1999 between the Company and Manchester, each
of which are attached to this Current Report as Exhibits 10.1, 10.2, and 10.3,
respectively, and each of which are incorporated herein by this reference.
Item 7.--EXHIBITS.
Exhibit No. Description
----------- -----------
10.1 Common Stock Investment Agreement dated as of October 4,
1999 between the Company and Manchester Securities Corp.
10.2 Form of Warrant to purchase shares of Common Stock, dated
as of October 5, 1999, issued by the Company to Manchester
Securities Corp.
10.3 Registration Rights Agreement dated as of October 4, 1999
between the Company and Manchester Securities Corp.
99.1 Press Release dated October 5, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this Current Report to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of San Jose, State of
California, on October 8, 1999
SECURE COMPUTING CORPORATION
By: /s/ TIMOTHY MCGURRAN
-----------------------
Timothy McGurran,
Senior Vice President, Operations and
Chief Financial Officer
Exhibit 10.1
COMMON STOCK
INVESTMENT AGREEMENT
between
Manchester Securities Corp.
and
Secure Computing Corporation
Dated as of October 4, 1999
<PAGE>
COMMON STOCK INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of
October 4, 1999, by and among Secure Computing Corporation, a Delaware
corporation with headquarters located at One Almaden Boulevard, Suite 400, San
Jose, California 95113 (the "COMPANY"), and Manchester Securities Corp., a
corporation organized and existing under the laws of the State of New York
(together with its successors in interest and assigns or its designees, the
"INVESTOR").
WHEREAS:
A. The Company and the Investor are executing and delivering this
Agreement in anticipation of an effective registration statement of the Company
on Form S-1 (such registration statement, as amended and supplemented, the
"REGISTRATION STATEMENT");
B. The parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $25,000,000 in
shares (the "SHARES") of the Company's common stock, par value $0.01 per share
(the "COMMON STOCK"); and
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act, and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Investor hereby agree as follows:
1. PURCHASE AND SALE OF COMMON STOCK
a. Purchase and Sale of Common Stock. Upon the terms and conditions set
forth herein, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price (as defined in Section 1(g)) of up to $25,000,000.
b. Delivery of Draw Notices. Subject to the satisfaction of the
conditions set forth in this Section 1, at any time and from time to time during
the period beginning on the date the Registration Statement is first declared
effective by the Securities and Exchange Commission (the "EFFECTIVE DATE") and
ending on the earlier of (i) the date which is 24 months after the date hereof
and (ii) termination of this Agreement in accordance with Section 8 (the
"COMMITMENT PERIOD"), the Company may, in its sole discretion, deliver a written
notice to the Investor (each such notice hereinafter referred to as a "DRAW
NOTICE"; the date such notice is received by the Investor being the "DRAW NOTICE
DATE"). The Draw Notice shall state a dollar amount (the "DOLLAR AMOUNT") of
Shares which the Company intends to sell to the Investor during the Investment
Period (as defined below). The first Investment Period shall begin on the later
of (i)
-1-
<PAGE>
the sixth (6th) Trading Day following the Effective Date and (ii) the tenth
(10th) Trading Day following the date of the Effectiveness Notice (the
"INVESTMENT START DATE"), and shall end on the first preceding calendar day in
the next calendar month (provided, that if the subsequent calendar month does
not contain such first preceding calendar day, the Investment Period will be
deemed to end on the last day of such subsequent calendar month) (such period,
together with the corresponding periods in successive months, each being an
"INVESTMENT PERIOD"). By way of example only, if the Investment Start Date is
October 21, the first Investment Period will start on October 21 and end on
November 20 (regardless of whether such days are Trading Days), the second
Investment Period will start on November 21 and end on December 20, and so on in
subsequent months. The Company must deliver a Draw Notice five (5) Trading Days
before the start of an Investment Period; except that if the Company has not
delivered a Draw Notice with respect to three (3) consecutive Investment Periods
then it must deliver a Draw Notice at least ten (10) Trading Days before the
next Investment Period in which it wants to sell Shares to the Investor. The
Dollar Amount designated by the Company in a Draw Notice shall be in increments
of $250,000 and shall not exceed $2,000,000. The Company shall designate in each
Draw Notice the price per Share that shall serve as the "FLOOR PRICE" for
purposes of this Agreement during that Investment Period, which price shall be
not less than $1.50. If at any time during an Investment Period the Registration
Statement or any prospectus or prospectus supplement is not available for the
issuance or sale of the Shares, then the Investor shall have the right (but not
the obligation) in its sole discretion to dishonor and disregard the Draw Notice
for such Investment Period in whole or in part, without prejudice to any of the
Investor's rights under the Transaction Documents (as defined below) or at law.
For purposes of this Agreement, "TRADING DAY" shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the City of New York are
authorized or required by law or executive order to remain closed or on which
the Principal Market (as defined in Section 1(f)) for the Common Stock is not
open for trading. Contemporaneous with the delivery of a Draw Notice, the
Company shall deliver to the Investor (i) a current prospectus or prospectus
supplement to the Registration Statement in accordance with the rules and
regulations under the 1933 Act, including disclosure of the Dollar Amount and
timing of the Investment Period, (ii) the other documents required to be
delivered pursuant to Sections 7(c), (d) and (g), and (iii) reimbursement for
all expenses as provided in Section 10(b). Purchases required as a result of a
Draw Notice shall be effected by the Investor in accordance with Section 1(h).
If the Company so specifies in a Draw Notice, the Dollar Amount for the
applicable Investment Period can be made subject to reduction on a
dollar-for-dollar basis by the Dollar Amount of additional Shares the Investor
elects pursuant to Section 1.d. (after the related Draw Notice Date) to purchase
in the Investment Period preceding the Investment Period to which such Draw
Notice applies.
c. Delivery of Effectiveness Notice. The Company shall, at least 10
Trading Days in advance of the day it anticipates will be the Effective Date,
deliver to the Investor a notice (the "EFFECTIVENESS NOTICE") identifying the
anticipated Effective Date. If the Effective Date occurs more than one month
after the date specified in such a notice, then that notice shall cease to be an
-2-
<PAGE>
Effectiveness Notice, and the Company will be required to provide a new
Effectiveness Notice with respect to the then-anticipated Effective Date, in
accordance with the preceding sentence.
d. Investor Obligation and Right to Purchase Shares. Subject to the
conditions set forth in this Agreement, following the Investor's receipt of a
validly delivered Draw Notice, the Investor shall purchase from the Company
during the related Investment Period (in accordance with Section 1(h)) a number
of Shares having an aggregate Purchase Price equal to the lesser of (i) the
Dollar Amount set forth in the Draw Notice, (ii) 8% of the Investment Period
Trading Dollar Volume (as defined below) for the immediately preceding
Investment Period, and (iii) 8% of the aggregate Daily Trading Dollar Volume (as
defined below) of the Common Stock during the Trading Days in the same
Investment Period on which the lowest completed trade price of that Trading Date
on the Principal Market equals or exceeds the Floor Price (the lesser of (i),
(ii) or (iii) above shall be referred to herein as the "REQUIRED DOLLAR
AMOUNT"). If the Dollar Amount exceeds the Required Dollar Amount, the Investor
shall have the right, but not the obligation, solely at its election to purchase
Shares having a value equal to any or all of such excess in the applicable
Investment Period. In addition, the Investor shall have the right, but not the
obligation, solely at its election to purchase during each and any such
Investment Period a number of Shares from the Company having an aggregate
Purchase Price equal to up to 50% of the Dollar Amount set forth in the Draw
Notice. The Investor shall not in any event be required to purchase in the
aggregate pursuant to this Agreement a number of Shares having an aggregate
Purchase Price which is greater than $25,000,000. For purposes of this
Agreement, "DAILY TRADING DOLLAR VOLUME" shall mean the number of shares of
Common Stock traded on such day on the Principal Market on which the Common
Stock is traded multiplied by such day's Weighted Average Price of the Common
Stock (as reported by Bloomberg Financial Markets ("BLOOMBERG"); provided that
(i) individual trades of at least 50,000 shares of Common Stock on any trading
day shall, for this purpose, be treated as a trade of 50,000 shares of Common
Stock), (ii) trades among or between related or affiliated entities will not be
counted, (iii) trades at prices more than 1/8 of a point above the lowest
pending "ask" price offered by a market maker in the Common Stock will not be
counted, and (iv) all transactions other than BONA FIDE, arm's length
transactions shall not be counted. "INVESTMENT PERIOD TRADING DOLLAR VOLUME" is
the sum of the Daily Trading Dollar Volume for each Trading Day in a particular
Investment Period "WEIGHTED AVERAGE PRICE" means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market (as reported by Bloomberg through its "Volume at Price"
function, if available) or, if the foregoing do not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no dollar volume-weighted average price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc.
-3-
<PAGE>
e. Limitations on Investor's Obligation and Right to Purchase
Shares.
(1) Notwithstanding anything to the contrary in the
Transaction Documents, in no event shall the Investor be required or permitted
to purchase, and a Required Dollar Amount shall be deemed not to include, a
number of Shares which, when added to the number of shares of Common Stock
otherwise beneficially owned within the meaning of Section 13(d) of the 1934 Act
as amended (the "1934 ACT") (other than by virtue of the ownership of Warrants
or other securities that have limitations on the Investor's right to convert,
exercise or purchase similar to the limitation set forth herein) by the Investor
or by any "affiliate" (as defined in Rule 144 of the 1934 Act) of the Investor
that would be aggregated for purposes of determining whether a group under such
Section 13(d) exists as of the date with respect to which this determination is
being made, would exceed 9.99% of the number of shares of Common Stock
outstanding on such date, as determined in accordance with such Section 13(d);
provided that the Investor shall use its good faith efforts to avoid a conflict
between this limitation and its obligations to purchase any Required Dollar
Amount.
(2) Each time (a "COVENANT TIME") the Investor makes a
Triggering Acquisition (as defined below) of shares of Common Stock pursuant to
the Transaction Documents (the "TRIGGERING SHARES"), the Investor will be deemed
to covenant that it will not, during the balance of the day on which such
Triggering Acquisition occurs, and during the 61-day period beginning
immediately after that day, acquire additional shares of Common Stock pursuant
to rights-to-acquire existing at that Covenant Time, if the aggregate amount of
such additional shares so acquired (without reducing that amount by any
dispositions) would exceed (x) 9.99% of the number of shares of Common Stock
outstanding at that Covenant Time (including the Triggering Shares) minus (y)
the number of shares of Common Stock actually owned by the Investor at that
Covenant Time (regardless of how or when acquired, and including the Triggering
Shares). "TRIGGERING ACQUISITION" means (i) the giving of a Purchase Notice (as
defined below), (ii) a Closing, (iii) an exercise of the Warrant by the
Investor, or (iv) the issuance of Warrant Shares to the Investor under the
Warrant; provided, however, that with respect to each event described in the
preceding clauses "i" and "iii", if the associated issuance of shares of Common
Stock does not occur, such event shall cease to be a Triggering Acquisition and
the related covenant under this paragraph shall terminate. At each Covenant
Time, the Investor shall be deemed to waive any right it would otherwise have to
acquire shares of Common Stock to the extent that such acquisition would violate
any covenant given by the Investor under this paragraph. Notwithstanding
anything to the contrary in the Transaction Documents, in the event of a
conflict between any covenant given under this paragraph and any obligation of
the Investor to buy shares pursuant to the Transaction Documents, the former
shall supersede the latter, and the latter shall be reduced accordingly. The
Investor shall endeavor in good faith to avoid such a conflict. For the
avoidance of doubt:
(i) The covenant to be given pursuant to this
paragraph will be given at every Covenant Time and shall be
calculated based on the circumstances then
-4-
<PAGE>
in effect. The making of a covenant at one Covenant Time shall
not terminate or modify any prior covenants.
(ii) The Investor may therefore from time to time be
subject to multiple such covenants, each one having been made
at a different Covenant Time, and some possibly being more
restrictive than others. The Investor must comply with all
such covenants then in effect.
f. Conditions to Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, unless waived by the
Investor, the Company shall not be entitled to deliver a Draw Notice and to
require the Investor to purchase any Shares at a Closing (as defined in Section
1(h)) unless each of the following conditions are satisfied: (i) a Registration
Statement shall have been declared effective and such Registration Statement,
together with the required prospectus supplement, shall remain effective and
available for issuance and sale of all the Shares at all times during the period
beginning on the date of delivery of the related Draw Notice and ending on and
including the related Closing Date (as defined in Section 1(h)); (ii) at all
times during the period beginning on the date that the Company delivers the
related Draw Notice and ending on and including the related Closing Date, the
Common Stock shall have been listed on The American Stock Exchange, Inc. or The
New York Stock Exchange, Inc. or designated on the Nasdaq National Market or The
Nasdaq SmallCap Market (each a "PRINCIPAL MARKET") and shall not have been
suspended from trading thereon; (iii) during the period beginning on the date of
this Agreement and ending on and including the applicable Closing Date, there
shall not have occurred a Major Transaction (as defined below) or the public
announcement of a pending Major Transaction which has not been abandoned or
terminated; (iv) the Company has complied with its obligations and is otherwise
not in breach of, or in default under, any Transaction Documents; and (v) a
number of shares of Common Stock equal to at least 150% of the aggregate number
of shares issuable during the Investment Period, based on the Purchase Price (as
defined below) per Share on the date of the Draw Notice and including any
additional shares of Common Stock which the Investor may elect to purchase
pursuant to Section 1(d) (regardless of any limitation on the timing or amount
of such purchases) have been duly authorized and reserved for issuance. The
Company's delivery of a Draw Notice shall constitute a representation by the
Company that the shares of Common Stock referred to in clause (v) above have
been reserved for issuance as required pursuant to this Section 1(f). If any of
the events described in clauses (i) through (v) above occurs after an effective
Draw Notice is so delivered, and if any such circumstance described above so
occurs before the entire Required Dollar Amount of Common Stock covered by such
Draw Notice shall have been purchased during the Investment Period, then the
Investor shall have no further obligation to purchase the balance of such
Required Dollar Amount of Common Stock during such Investment Period; provided,
that on any day during the balance of such Investment Period upon which such
events described in clauses (i) through (v) above do not exist, the Investor
may, in its sole discretion, but shall not be required to, give the Company one
or more Purchase Notices (as defined in Section 1(h)) covering some or all of
such balance of the Required Dollar Amount, as well as
-5-
<PAGE>
some or all of the additional amounts of Common Stock which the Investor may
elect to purchase during such Investment Period pursuant to Section 1(d) above.
For purposes of this Agreement, a "MAJOR TRANSACTION" shall be deemed
to include any of the following events: (i) the consolidation, merger or other
business combination of the Company with or into another person (other than (A)
a consolidation, merger or other business combination in which the holders of
the Company's voting power immediately prior to such transaction continue after
the transaction to hold, directly or indirectly, the voting power (on a fully
diluted basis) of the surviving entity or entities necessary to elect a majority
of the members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities, or (B) pursuant to a "migratory" merger
effected solely for the purposes of changing the jurisdiction of incorporation
of the Company); (ii) the sale or transfer of all or substantially all of the
Company's assets in one or a series of transactions; (iii) the consummation of a
purchase, tender or exchange offer made to, and accepted by, the holders of more
than 50% of the outstanding shares of Common Stock or (iv) any "going private"
transaction.
g. Purchase Price Per Share. For purposes of this Agreement, the
"PURCHASE PRICE" for each Share purchased by the Investor shall be equal to 98%
of the average of the two lowest daily stock trade prices (excluding any trades
by the Investor) ("LOW TRADE PRICES") of the Common Stock recorded on the
Principal Market during the six (6) consecutive trading days (the "PURCHASE
PRICE PERIOD") ending on the day prior to and not including the Purchase Notice
Date (as defined in Section 1(h)); provided that if on any day in a Purchase
Price Period the Common Stock at any time trades below the Floor Price, then the
Low Trade Price shall for such day be deemed to be the Floor Price. The number
of Shares so to be purchased pursuant to each Purchase Notice shall be rounded
to the nearest whole number so as to avoid the issuance of fractional shares.
h. Mechanics of Purchase of Shares by Investor. To effect a purchase of
Shares during an Investment Period, the Investor shall deliver one or more
written notices to the Company (each a "PURCHASE Notice") at any time and from
time to time (in the Investor's sole discretion) during the Investment Period.
Each Purchase Notice shall set forth (i) the aggregate Purchase Price for the
Shares being purchased (which may be all or any portion of the Dollar Amount, as
determined by the Investor in its sole discretion) by the Investor pursuant to
such Purchase Notice, (ii) the Purchase Price per Share as of the date of
delivery of such Purchase Notice and (iii) the number of Shares being purchased
pursuant to such Purchase Notice. The "PURCHASE NOTICE DATE" with respect to a
Purchase Notice shall be the date on which the Investor delivers a copy of such
Purchase Notice to the Company by facsimile transmission prior to 11:59 p.m. New
York City Time on such date. If prior to the last day of an Investment Period
the Investor shall not have delivered Purchase Notices covering the purchase of
a number of Shares with an aggregate Purchase Price equal to at least the
Required Dollar Amount with respect to such Investment Period, then the Investor
shall be deemed to have delivered a Purchase Notice on the last day of such
Investment Period covering the purchase of a number of
-6-
<PAGE>
Shares with an aggregate Purchase Price equal to the difference of (x) the
Required Dollar Amount with respect to such Investment Period minus (y) the
aggregate Purchase Price of the Shares covered by Purchase Notices delivered by
the Investor to the Company during such Investment Period. Subject to the
satisfaction of the conditions set forth in Sections 1(f), 6 and 7, the closing
of the purchase by the Investor of Shares (a "CLOSING") shall occur, on the date
which is three (3) Trading Days following the applicable Purchase Notice Date
(or such other time or later date as is mutually agreed to in writing by the
Company and the Investor) (a "CLOSING DATE"). The Investor may withdraw a
Purchase Notice in whole or in part from time to time prior to a cure if the
Company fails to timely deliver the applicable Shares at a Closing. If a Closing
is delayed for any reason (other than delays caused by the Investor) and the
Investor subsequently chooses pursuant to a subsequent Purchase Notice to
purchase the Shares which should have been delivered at such Closing, the
Investor may purchase such Shares at the lesser of the Purchase Price specified
in the related Purchase Notice or the lowest Purchase Price available during the
period of such delay. On each Closing Date, (A) the Company shall deliver to the
Investor against receipt of the Purchase Price certificates representing the
Shares to be issued and sold to the Investor on such date and registered in the
name of the Investor or its designee or deposit such Shares into the account(s)
(with the Investor receiving confirmation that the Shares are in such
account(s)) designated by the Investor for the benefit of the Investor and (B)
the Investor shall deliver to the Company the Purchase Price (net of any amounts
payable by the Company pursuant to Section 10(b)) to be paid for such Shares
(after receipt of confirmation of delivery of such Shares), determined as
aforesaid, by wire transfer in immediately available funds to such account as
shall be designated in writing by the Company. If the Investor receives
confirmation of delivery of the applicable Shares by Noon (New York City time),
it shall pay the Purchase Price on the same Trading Day, and otherwise it shall
pay the Purchase Price on the next Trading Day. In addition, each of the Company
and the Investor shall deliver all documents, instruments and writings required
to be delivered by either of them pursuant to this Agreement at or prior to each
Closing. In the alternative to physical delivery of certificates for Common
Stock, if delivery of the Shares may be effectuated by electronic book-entry
through The Depository Trust Company ("DTC"), then the Closing shall occur and
delivery of the Shares pursuant to such purchase shall, unless requested
otherwise by such Investor (or holder of such Shares), settle by book-entry
transfer through DTC by the third (3rd) Trading Day following the Investor's
delivery of a Purchase Notice to the Company. The parties agree to coordinate
with DTC to accomplish this objective.
i. Effect of Failure to Satisfy Closing Obligations. Subject to the
Investor's compliance with all of the terms and conditions of this Agreement,
with respect to each Closing, if the Company shall fail to deliver to the
Investor the Shares to be issued and sold to the Investor by the third (3rd)
Trading Day following delivery of a Purchase Notice, whether by physical
delivery of certificates or by book-entry transfer through DTC for such Shares,
the Company shall, in addition to any other remedies under this Agreement or at
law or in equity, pay as additional damages in cash to the Investor, by the
eighth (8th) Trading Day following the delivery of a Purchase Notice an amount
equal to one percent (1%) of: the dollar value of Shares
-7-
<PAGE>
the Investor should have but did not receive, valued at the Closing Bid Price of
the Common Stock on the Principal Market on such third (3rd) Trading Day (the
"DESIGNATED VALUE"), and on each succeeding fifth (5th) Trading Day thereafter
until the Shares are delivered, an amount equal to two percent (2%), of the
Designated Value. The Company acknowledges that this remedy is partial and
non-exclusive.
j. Certain Adjustments. Daily Trading Dollar Volume, Applicable Trading
Price (as defined below), Purchase Price per Share, the Floor Price and the
$1.50 amounts and all other amounts provided in Sections 1(b), 1(d), 1(f) and
1(g) hereof and the limitations imposed by Section 1.e.(2) hereof on the number
of shares of Common Stock acquirable shall be adjusted appropriately to reflect
stock splits, stock dividends, combinations and like transactions affecting the
Common Stock. Such appropriate adjustments shall be made for any period of
Trading Days used for purposes of performing calculations under this Agreement.
k. Delisting; Suspension. If at any time during an Investment Period or
within 10 Trading Days after the end of such Investment Period, (i) the
Registration Statement, after it has been declared effective, together with the
required prospectus supplement, shall (for 20 Trading Days) fail to be effective
and available for sale of all the Shares or Warrant Shares (such 20 Trading Day
period being a "GRACE PERIOD"), or (ii) the Common Stock shall not at all times
be listed on the Principal Market or shall have been suspended at any time from
trading thereon (excluding suspensions of not more than one trading day
resulting from business announcements by the Company) the Investor shall have
the right (the "REPURCHASE OPTION"), as partial relief for the damages to the
Investor by reason of the occurrence of the events listed in clauses (i) or (ii)
above (which remedy shall not be exclusive of any other remedies available at
law or equity), in its sole discretion, which right shall be exercised within 30
days of the initial delisting or suspension in the case of (ii) above or within
30 days of the end of the Grace Period (if a Grace Period is available for such
lapse in effectiveness, and otherwise upon the initial lapse in effectiveness)
in the case of (i) above (a "REPURCHASE EVENT"), to sell to the Company upon
written notice (the "REPURCHASE OPTION NOTICE"), and the Company agrees to buy
for immediately available funds within two Trading Days of the exercise of such
right by the Investor all or any part of the Shares or Warrant Shares issued to
the Investor within the 30 Trading Days preceding the commencement of the breach
or failure that created the Repurchase Option (such breach or failure being the
"NONCOMPLIANCE EVENT") and then held by the Investor at a price per Share equal
to the highest Applicable Trading Price during the period beginning on the date
of the Noncompliance Event and ending on and including the date on which the
Investor exercises its Repurchase Option (the "PAYMENT AMOUNT"). Once the
Company has availed itself of all or a portion of a Grace Period, it will not be
entitled to a subsequent Grace Period unless and until it has maintained the
effectiveness of the Registration Statement without interruption for at least 40
consecutive Trading Days. The "APPLICABLE TRADING PRICE" with respect to the
Common Stock on any Trading Day, shall mean the Closing Bid Price (as defined
below) of the Common Stock on such Trading Day. "CLOSING BID PRICE" means, for
any security as of any date, the last closing bid price for such security on the
Principal Market (as
-8-
<PAGE>
reported by Bloomberg), or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price is reported for such security
by Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as mutually determined by the Company and the Investor.
All such determinations to be appropriately adjusted for any stock dividend,
stock split or other similar transaction during such period. If the Company
fails to pay to the Investor the full aggregate Payment Amount within two
Trading Days of the Investor's exercise of the Repurchase Option hereunder, the
Company shall pay to the Investor, on the first Trading Day following such
second Trading Day, in addition to and not in lieu of the Payment Amount payable
by the Company to the Investor upon exercise of the Repurchase Option, an amount
equal to 1.25% per month (pro rated for partial months) until paid in full. The
Investor may in its sole discretion, without prejudice, withdraw such Repurchase
Option Notice in whole or part from time to time prior to the payment in full to
the Investor of the amounts specified in this Section 1(k).
l. Overall Limit on Common Stock Issuable. Notwithstanding anything
contained herein to the contrary, the number of Shares issuable by the Company
and purchasable by the Investor hereunder shall not exceed 4,190,494 shares of
Common Stock outstanding as of the date hereof, subject to appropriate
adjustment for stock splits, stock dividends, combinations or other similar
recapitalization affecting the Common Stock (the "MAXIMUM COMMON STOCK
ISSUANCE"), unless the issuance of Shares hereunder in excess of the Maximum
Common Stock Issuance shall first be approved by the Company's shareholders in
accordance with applicable law and the By-laws and Articles of Incorporation of
the Company. Without limiting the generality of the foregoing, such
shareholders' approval must duly authorize the issuance by the Company of shares
of Common Stock totaling 4,190,494 or more of the shares of Common Stock
outstanding on the date hereof. The parties understand and agree that the
Company's failure to seek or obtain such shareholder approval shall in no way
adversely affect the validity and due authorization of the issuance and sale of
Shares hereunder, and that such approval pertains only to the applicability of
the Maximum Common Stock Issuance limitation provided in this Section 1(l). If
the Maximum Common Stock Issuance limitation delays the exercise of the
Investor's right to purchase additional Shares at its election pursuant to
Section 1.d., then the Investor shall have the right but not the obligation to
exercise its Section 1.d. election pursuant to a Purchase Notice at any time and
from time to time within 30 Trading Days of the receipt of such shareholder
approval, at the lesser of (i) the Purchase Price specified in the unsatisfied
Purchase Notice and (ii) the lowest Purchase Price existing during such delay.
-9-
<PAGE>
m. Commitment Payment. In consideration for the Investor entering into
and making its commitment under this Agreement, the Company is issuing
simultaneously herewith warrants in the form of Exhibit F hereto (the
"WARRANTS") having an aggregate strike price of $1,875,000 and a strike price
per share of Common Stock of 120% of the average Closing Bid Price for the 10
Trading Day period starting four Trading Days before the date hereof.
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor represents and warrants to the Company that:
a. Accredited Investor Status; Sophisticated Investor. The
Investor is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D under the 1933 Act. The Investor has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of investment in the Shares, Warrants and stock issuable upon exercise
of the Warrants (the "WARRANT SHARES").
b. Information. The Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company which have been requested and materials relating to
the offer and sale of the Shares, Warrants and the Warrant Shares which have
been requested by the Investor. The Investor and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. The Investor has not
received any material, non-public information concerning the Company. Neither
such inquiries nor any other due diligence investigations conducted by the
Investor or its advisors, if any, or its representatives shall modify, amend or
affect the Investor's right to rely on the Company's representations and
warranties contained in Section 3 below. The Investor understands that its
investment in the Shares, Warrants and Warrant Shares involves a high degree of
risk. The Investor has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Shares, Warrants and Warrant Shares.
c. No Governmental Review. The Investor understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Shares,
Warrants and Warrant Shares or the fairness or suitability of the investment in
the Shares, Warrants and Warrant Shares nor have such authorities passed upon or
endorsed the merits of the offering of the Shares, Warrants and Warrant Shares.
d. Legends. The Company shall issue certificates for the
Shares to the Investor without any legend. The Investor covenants that, in
connection with any transfer of Shares by the Investor, it will comply with the
applicable prospectus delivery requirements of the
-10-
<PAGE>
1933 Act, provided that copies of a current prospectus relating to such
effective registration statement are or have been supplied to the Investor.
e. Authorization; Enforcement. This Agreement, the Warrant and
the Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of the Investor and is a valid and binding
agreement of the Investor enforceable against the Investor in accordance with
their terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies. The Investor has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement, the Warrant and each other
agreement entered into by the parties hereto in connection with the transactions
contemplated by this Agreement.
f. Residency. The Investor is a resident of the State of
New York.
g. No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by the Investor and the
consummation by the Investor of the transactions contemplated hereby and thereby
will not result in a violation of the certificate of incorporation, by-laws or
other documents of organization of the Investor.
h. Broker-Dealer Status. The Investor is duly licensed by the
NASD as a securities broker-dealer.
i. Financial Resources. The Investor has the financial
resources to satisfy its obligations hereunder, including purchase of the
Shares.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Investor that:
a. Organization and Qualification. Set forth in Schedule 3(a)
is a complete list of each entity in which the Company, directly or indirectly,
owns capital stock or holds an equity or similar interest. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns more than 50% of the outstanding
capital stock or holds an equity or similar interest representing at least 50%
of the outstanding equity or similar interests of such entity) (a complete list
of which is set forth in Schedule 3(a)) are corporations duly organized and
validly existing in good standing under the laws of the jurisdiction in which
they are incorporated, and have the requisite corporate power and authorization
to own their properties and to carry on their business as now being conducted.
Each of the Company and its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership of property or the
-11-
<PAGE>
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 3(b)).
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in
Section 5) the Warrants (as defined in Section 1(m)) and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "TRANSACTION
DOCUMENTS"), and to issue the Shares in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the reservation for issuance and the
issuance of the Shares pursuant to this Agreement, have been duly authorized by
the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its shareholders, except for,
if required by the Principal Market, approval by its stockholders prior to the
issuance of a number of shares of Common Stock equal to or in excess of 20% of
the number of shares of Common Stock outstanding immediately prior to the date
hereof, (iii) the Transaction Documents have been duly executed and delivered by
the Company and (iv) the Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 50,000,000 shares of Common Stock,
of which as of the date hereof, 20,962,952 shares are issued and outstanding,
8,444,131 shares are issuable and reserved for issuance pursuant to the
Company's stock option and purchase plans and 524,304 shares are issuable and
reserved for issuance pursuant to securities exercisable or exchangeable for, or
convertible into, shares of Common Stock, and (ii) 2,000,000 shares of preferred
stock, of which as of the date hereof, (A) 16,000 shares were designated as
Series C Preferred Stock (being the only designated and outstanding series of
preferred stock) and 3,600 shares of Series C Preferred Stock were issued and
outstanding. All of such outstanding shares have been, or upon issuance will be,
validly issued, fully paid and nonassessable. As of the date hereof, except as
disclosed in Schedule 3(c), (i) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company, (ii)
-12-
<PAGE>
there are no outstanding debt securities, (iii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement), (v) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries, (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Shares as described in this Agreement and (vii)
the Company does not have any stock appreciation rights or "phantom stock" plans
or agreements or any similar plan or agreement. The Company has furnished to the
Investor true and correct copies of the Company's Certificate of Incorporation,
as amended and as in effect on the date hereof (the "CERTIFICATE OF
INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Shares. Upon issuance in accordance with this
Agreement, the Shares will be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby will not (i) result in a violation of the Certificate of Incorporation,
any Certificate of Designations, Preferences and Rights of any outstanding
series of preferred stock of the Company or the By-laws; (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws and regulations and
the rules and regulations of the Principal Market or principal securities
exchange or trading market on which the Common Stock is traded or listed)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected. Except as
disclosed in Schedule 3(e), neither the Company nor its Subsidiaries is in
violation of
-13-
<PAGE>
any term of, or in default under, (x) its Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock or By-laws or their organizational charter or by-laws,
respectively, (y) any material contract, agreement, mortgage, indebtedness,
indenture, instrument, or (z) any judgment, decree or order or any statute, rule
or regulation applicable to the Company or its Subsidiaries, the non-compliance
with which (in the case of (z) only), would be material to the Company or
interfere with the performance of its obligations under the Transaction
Documents. Except as specifically contemplated by this Agreement and as required
under the 1933 Act, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency in order for it
to execute, deliver or perform any of its obligations under, or contemplated by,
the Transaction Documents in accordance with the terms hereof or thereof. Except
as disclosed in Schedule 3(e), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company complies with and is not in violation of the listing requirements of the
Principal Market as in effect on the date hereof and on each of the Closing
Dates and is not aware of any facts which would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future.
f. SEC Documents; Financial Statements. Since December 31,
1997, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC DOCUMENTS"). The Company has delivered to the Investor
or its representatives true and complete copies of any SEC Documents that were
not filed electronically via EDGAR. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
-14-
<PAGE>
Company to the Investor which is not included in the SEC Documents, including,
without limitation, information referred to in Section 2(b) of this Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries or any of their officers, directors,
employees or agents have provided the Investor with any material, nonpublic
information which was not publicly disclosed prior to the date hereof.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g) or the SEC Documents filed at least five (5) days prior to the date hereof,
since December 31, 1998 there has been no adverse change or adverse development
in the business, properties, assets, operations, financial condition, prospects,
liabilities or results of operations of the Company or its Subsidiaries which
has had or, to the knowledge of the Company or its Subsidiaries, is reasonably
likely to have a Material Adverse Effect. The Company has not taken any steps,
and does not currently expect to take any steps, to seek protection pursuant to
any bankruptcy law nor does the Company or its Subsidiaries have any knowledge
or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, (i) except as set forth in Schedule 3(h) and (ii)
except which individually and in the aggregate, respectively, would be
reasonably likely to result in liability to the Company in excess of $50,000 and
$100,000, respectively.
i. Acknowledgment Regarding Investor's Purchase of Shares. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of arm's length purchaser with respect to the Transaction Documents and
the transactions contemplated hereby and thereby. The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by the Investor or any of its respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to the Investor's purchase of the
Shares. The Company further represents to the Investor that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial
-15-
<PAGE>
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly disclosed.
k. No Inside Information. The Company has not provided and,
except as otherwise provided for in Section 3(h)(ii) of the Registration Rights
Agreement, the Company shall not provide, the Investor with any non-public
information, and if it does so in violation of such Section 3(h)(ii) the
Investor may disclose such information to the public without liability.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of Shares
to the Investor to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of the Principal
Market, nor will the Company or any of its Subsidiaries take any action or steps
that would cause the offering of the Shares to be integrated with other
offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened, the effect
of which would be reasonably likely to result in a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement. The Company and its Subsidiaries believe that relations
between the Company and its Subsidiaries and their respective employees are
good. No executive officer (as defined in Rule 501(f) of the 1933 Act) whose
departure would be adverse to the Company has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer's
employment with the Company.
n. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two (2) years from the date of this Agreement. The Company and
its Subsidiaries do not have any knowledge of any infringement by the Company or
its Subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(n), there is no claim, action or
proceeding being made or
-16-
<PAGE>
brought against, or to the Company's knowledge, being threatened against, the
Company or its Subsidiaries regarding trademarks, trade name rights, patents,
patent rights, inventions, copyrights, licenses, service names, service marks,
service mark registrations, trade secrets or other infringement. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
o. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to condut
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where such noncompliance or
failure to receive permits, licenses or approvals referred to in clauses (i),
(ii) or (iii) above could have, individually or in the aggregate, a Material
Adverse Effect.
p. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
as do not materially and adversely affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company or any of its Subsidiaries. Any real property and facilities held under
lease by the Company or any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.
q. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company and its Subsidiaries taken as a whole.
r. Regulatory Permits. The Company and its Subsidiaries
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities, necessary to
conduct their respective businesses, and neither the Company
-17-
<PAGE>
nor any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.
s. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
t. Foreign Corrupt Practices Act. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
u. Tax Status. Except as set forth on Schedule 3(u), the
Company and each of its Subsidiaries has made or filed all United States federal
and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the Company is not aware of any basis
for any such claim.
v. Certain Transactions. Except as set forth on Schedule 3(v)
and in the SEC Documents filed on EDGAR at least five (5) Trading Days prior to
the date hereof and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3(c), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any
-18-
<PAGE>
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director or any such employee has a
substantial interest or is an officer, director, trustee or partner.
w. Dilutive Effect. The Company understands and acknowledges
that the number of Shares issuable upon purchases pursuant to this Agreement
will increase in certain circumstances. The Company further acknowledges that,
subject to such limitations as are expressly set forth in the Transaction
Documents, its obligation to issue Shares upon purchases pursuant to this
Agreement is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company.
x. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable Section 203 of the Delaware General Corporation Law, or any other
similar anti-takeover provision contained in the Company's Certificate of
Incorporation or otherwise which is or could become applicable to the Investor
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Shares and the Investor's
ownership of the Shares.
y. Rights Plan. Except for the Amended and Restated Share
Rights Agreement dated July 24, 1997, as amended through the date of this
Agreement, neither the Company nor any of its Subsidiaries has adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company. The
Company confirms that no provision of such plan will, under any present or
future circumstances, delay, prevent or interfere with the performance of any of
the Company's obligations under the Transaction Documents and such plan will not
be "triggered" by such performance.
z. Market Capitalization. As of the date hereof, and at the
time of the filing of the Registration Statement, the aggregate market value of
the voting common equity of the Company held by non-affiliates of the Company
is, and was, greater than $50 million.
aa. Obligations Absolute. Each of the Company and the Investor
agrees that, subject only to the conditions, qualifications and exceptions (if
any) specifically set forth in the Transaction Documents, its obligations under
the Transaction Documents are unconditional and absolute. Except to the extent
(if any) specifically set forth in the Transaction Documents, each party's
obligations thereunder are not subject to any right of set off, counterclaim,
delay or reduction.
4. COVENANTS.
-19-
<PAGE>
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.
b. Blue Sky. The Company shall, on or before each of the Draw
Notice Dates, take such action as the Company shall reasonably determine is
necessary to qualify the Shares for, or obtain exemption for the Shares for,
sale to the Investor at each of the Closings pursuant to this Agreement under
applicable securities or "Blue Sky" laws of all the states of the United States,
and shall provide evidence of any such action so taken, if any such action is
required, to the Investor on or prior to the Draw Notice Date. The Company shall
make all filings and reports relating the offer and sale of the Shares required
under the applicable securities or "Blue Sky" laws of all the states of the
United States following each of the Draw Notice Dates.
c. Use of Proceeds. The Company will use the proceeds from the
sale of the Shares for legally permissible corporate purposes.
d. Financial Information. The Company agrees to send the
following to the Investor during the Commitment Period: (i) on the same day as
the release thereof, facsimile or e-mail copies of all press releases issued by
the Company or any of its Subsidiaries; and (ii) copies of any notices and other
information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders.
e. Listing. The Company shall promptly secure the listing of
all of the Shares upon the Principal Market and each other national securities
exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Shares from time to time issuable under the terms of the
Transaction Documents. The Company shall use its best efforts to maintain the
Common Stock's authorization for quotation on a Principal Market. Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on a Principal Market (excluding suspensions of not more than one trading day
resulting from business announcements by the Company). The Company shall pay all
fees and expenses in connection with satisfying its obligations under this
Section 4(e).
f. Transactions With Affiliates. The Company agrees that any
transaction or arrangement between it or any of its subsidiaries and any
affiliate or employee of the Company shall be effected on an arms' length basis
in accordance with customary commercial practice and, except with respect to
grants of options and stock to service providers, including employees, shall be
approved by a majority of the Company's outside directors.
-20-
<PAGE>
g. Filing of Form 8-K. No later than the opening of the
Principal Market on October 6, 1999, the Company will issue a press release (in
form and substance acceptable to the Investor and sufficient to allow the
Investor to freely trade in the Common Stock on the Principal Market during the
entire Trading Day following the execution of this Agreement) announcing the
existence of this equity line. On or before the date which is four Trading Days
after the date hereof, the Company shall file with the SEC a Current Report on
Form 8-K describing the terms of the transaction contemplated by the Transaction
Documents and including this Agreement as an exhibit thereto in the form
required by the 1934 Act.
h. Rights Plan. The Company shall not adopt a rights plan that
could be triggered by the exercise of any of the Investor's rights under this
Agreement or the Warrant.
i. Restrictions On Short Sales. Until this Agreement
terminates pursuant to Section 8.a. or 8.b., the Investor will not sell short
the Company's Common Stock if as a result of such sale the Investor's net short
position in the Company's Common Stock would exceed the Investor's good faith
estimate of the amount of Shares that the Investor then has (or will have after
giving effect to any outstanding Draw Notice) the right or obligation to
purchase under the Transaction Documents (or would have such right or obligation
but for the limitations contained in Sections 1.e. and 1.l.).
j. Comfort Letters. On (i) (for the first three calendar
quarters of a calendar year) the day immediately after the day the Company files
its Form 10-Q with the SEC (but no later than 46 days after the end of the
preceding calendar quarter) and (ii) (for the fourth calendar quarter of a
calendar year) the earlier of (x) the day when the Company's financial results
for such fourth quarter are publicly announced or (y) 45 days after the year
end, the Investor shall have received a letter (of the type, in the form and
with the substance of the letter described in Section 3(o) of the Registration
Rights Agreement) from the Company's independent auditors. The form and
substance of such letter shall be reasonably satisfactory to the Investor.
k. Legal Opinions. the Investor shall receive both from the
Company's independent legal counsel (which counsel shall have represented the
Company in preparing the then current Registration Statement and/or prospectus
and shall have been the primary outside legal advisor to the Company on
securities law compliance and general corporate matters for at least 60 days,
and which counsel shall be satisfactory to the Investor and its counsel) and
from the Company's in-house counsel a legal opinion in the form and substance of
Exhibit C hereto, with amendments acceptable to the Investor and its counsel in
their sole discretion: (i) upon each Draw Notice Date on which a Draw Notice is
delivered, and (ii) if no Draw Notice is delivered with respect to an Investment
Period and the Investor requests (within the first two weeks of such an
Investment Period) such an opinion, no later than the final date on which the
Company could deliver a Draw Notice with respect to the next Investment Period
(even if no Draw Notice is actually delivered for that next Investment Period).
-21-
<PAGE>
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of the Investor or its respective nominee(s), for the
Shares in such amounts as specified from time to time by the Investor to the
Company upon delivery of a Purchase Notice (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). The Irrevocable Transfer Agent Instructions shall have been
delivered by the Company to, and acknowledged in writing by, the Company's
transfer agent prior to the Company's delivery of the first Preliminary Draw
Notice hereunder. The Company warrants that no instruction relating to the
Shares other than the Irrevocable Transfer Agent Instructions referred to in
this Section 5 will be given by the Company to its transfer agent and that the
Shares shall be freely transferable on the books and records of the Company.
Nothing in this Section 5 shall affect in any way the Investor's obligations and
agreements set forth in Section 2(d) to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Shares. The Company shall
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Investor and without any restrictive
legends. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Investor by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that the Investor
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the
Shares to the Investor is further subject to the satisfaction, at or before each
Closing, of each of the following conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
a. The Investor shall have executed each of this Agreement and
the Registration Rights Agreement and delivered the same to
the Company.
b. The Investor shall have delivered to the Company the
Purchase Price for the Shares being purchased by the Investor
at the Closing (after receipt of confirmation of delivery of
such Shares) by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
-22-
<PAGE>
c. The representations and warranties of the Investor shall be
true and correct as of the date when made and as of the
applicable Closing Date as though made at that time (except
for representations and warranties that speak as of a specific
date, except that the representation in Section 2.h. need only
be made at the applicable Closing Date if the Investor's
continued status as a broker-dealer is a requirement of the
Investor fulfilling its obligations hereunder, and except to
the extent the representation in Section 2.b. is modified by
the Investor's acceptance of non-public information pursuant
to Section 3(h)(ii) of the Registration Rights Agreement), and
the Investor shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied
with by the Investor at or prior to such Closing Date. The
Company shall have received a certificate from the Investor,
dated as of the applicable Closing Date, in substantially the
form of Exhibit B, to the foregoing effect.
d. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority
of competent jurisdiction which prohibits the consummation of
any of the transactions contemplated by this Agreement.
e. The Registration Statement shall be effective at the time
of each Closing and no stop order suspending the effectiveness
of the Registration Statement shall be in effect, subject to
Section 9.
f. If applicable, the shareholders of the Company shall have
approved in accordance with Section 1(l) the issuance of any
Shares in excess of the Maximum Common Stock Issuance Shares.
g. The NASD shall have reviewed and, if necessary, approved
the Transaction Documents and related materials (all costs of
filing such items to be borne by the Company), in accordance
with NASD Rule 2710.
7. CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is
subject to the satisfaction, at or before each Closing, of each of the following
conditions set forth below. These conditions are for the Investor's sole benefit
and may be waived by the Investor at any time in its sole discretion.
a. The Company shall have executed each of the Transaction
Documents and delivered the same to the Investor.
-23-
<PAGE>
b. The Common Stock shall be authorized for quotation on a
Principal Market and trading in the Common Stock shall not
have been suspended by the SEC or the Principal Market on
which the Company's Common Stock is then traded or listed, at
any time beginning on the date hereof and through and
including the respective Closing Date (excluding suspensions
of not more than one trading day resulting from business
announcements by the Company, provided that such suspensions
occur prior to the Company's delivery of the Draw Notice
related to such Closing).
c. The representations and warranties of the Company shall be
true and correct as of the date when made and as of the
applicable Closing Date as though made at that time (except
for (i) representations and warranties that speak as of a
specific date and (ii) with respect to the representations
made in Sections 3(h), (j), (m), (v) and the first sentence of
Section 3(g) and the third sentence of Section 3(n) hereof,
events which occur on or after the date of this Agreement and
are disclosed in SEC filings made by the Company at least ten
Trading Days prior to the applicable Draw Notice Date) and the
Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to such Closing Date. The
Investor shall have received a certificate, executed by the
Chief Executive Officer and Chief Financial Officer of the
Company, dated as of the applicable Draw Notice Date and
Closing Date, in the form of Exhibit B attached hereto, to the
foregoing effect and an update as of such Closing Date
regarding the representation contained in Section 3(c) above
if there are any changes in the Company's capitalization.
d. Such Investor shall have received the opinions of both the
Company's outside counsel (which counsel shall be satisfactory
to the Investor and its counsel) and the Company's in-house
counsel in the forms and as of the dates specified in Section
4.k.
e. The Company shall have executed and delivered to the
Investor the certificates representing, or have executed
electronic book-entry transfer of, the Shares (in such
denominations as such Investor shall request) being purchased
by the Investor at such Closing.
f. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a
form reasonably acceptable to the Investor and its counsel
(the "RESOLUTIONS") and such Resolutions shall not have been
amended or rescinded prior to such Closing Date.
-24-
<PAGE>
g. On each Draw Notice Date the Investor will have received a
letter of the type specified in Section 4.j., issued by the
Company's Chief Financial Officer.
h. The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to, and
acknowledged in writing by, the Company's transfer agent.
i. The Company shall have delivered to the Investor a
certificate stating that no changes have been made to the
Company's Certificate of Incorporation or By-laws, except as
are attached to such certificate.
j. The Company shall have delivered to the Investor a
secretary's certificate, dated as of the first Draw Notice
Date and the first Closing Date, in the form of Exhibit E
attached hereto, as to (i) the Resolutions described in
Section 7(f), (ii) the Certificate of Incorporation and (iii)
the Bylaws, each as in effect at such dates.
k. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority
of competent jurisdiction which prohibits the consummation of
any of the transactions contemplated by this Agreement.
l. The Registration Statement shall be effective at the time
of each Closing and no stop order suspending the effectiveness
of the Registration Statement shall be in effect or shall be
pending or threatened.
m. At the time of each Closing, the Registration Statement and
the related prospectus (including information or documents
incorporated by reference therein) and any amendments or
supplements thereto shall not contain any 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
not misleading.
n. There shall have been no filing of a petition in
bankruptcy, either voluntarily or involuntarily, with respect
to the Company and there shall not have been commenced any
proceedings under any bankruptcy or insolvency laws, or any
laws relating to the relief of debtors, readjustment of
indebtedness or reorganization of debtors, and there shall
have been no calling of a meeting of creditors of the Company
or appointment of a committee of creditors or liquidating
agents or offering of a composition or extension to creditors
by, for, with or without the consent or acquiescence of the
Company.
-25-
<PAGE>
o. If applicable, the shareholders of the Company shall have
approved the issuance of any Shares in excess of the Maximum
Common Stock Issuance Shares in accordance with Section 1(1).
p. The conditions to such Closing set forth in Section 1(f)
shall have been satisfied.
q. The Company shall have delivered to the Investor a letter
from the Transfer Agent certifying the number of shares of
Common Stock outstanding as of a date within five days of such
Closing Date.
r. The NASD shall have reviewed and, if necessary, approved
the Transaction Documents and related materials (all costs of
filing such items to be borne by the Company), in accordance
with NASD Rule 2710.
s. The Company shall have delivered to such Investor such
other documents relating to the transactions contemplated by
this Agreement as such Investor or its counsel may reasonably
request.
t. The Warrants shall have been issued to the Investor.
8. TERMINATION.
a. Optional Termination. This Agreement may be terminated at
any time (i) by the mutual written consent of the Company and the Investor or
(ii) by the Investor if at any time the Common Stock is not listed on a
Principal Market.
b. Automatic Termination. This Agreement (except for the
Sections which survive pursuant to Section 10.i.) shall automatically terminate
without any further action of either party hereto upon the earlier of (i) when
the Investor has purchased an aggregate of $25,000,000 in the Common Stock of
the Company pursuant to this Agreement, and (ii) on the date which is 24 months
after the date hereof.
c. Survival. The representations, warranties and covenants
contained in or incorporated into this Agreement, insofar as applicable to the
transactions consummated hereunder prior to the termination of this Agreement,
shall survive its termination and any Closing for the period of any applicable
statute of limitations.
9. INDEMNIFICATION.
-26-
<PAGE>
In consideration of the Investor's execution and delivery of
the this Agreement and the Registration Rights Agreement and acquiring the
Shares hereunder and in addition to all of the Company's other obligations under
the Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless the Investor and all of their shareholders, officers, directors,
employees, members and direct or indirect investors and any of the foregoing
person's agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "INDEMNITEES") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate or document contemplated hereby or thereby, (b) any breach
of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate or document contemplated hereby
or thereby, (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party and arising out of or resulting from (i) the
execution, delivery, performance, breach by the Company or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Shares or (iii) the status of the Investor or holder of the Shares as an
investor in the Company, (d) the enforcement of this Section 9, and (e) the
Company's decision not to sell shares to the Investor because of the
non-satisfaction of Section 6(e). Notwithstanding the foregoing, Indemnified
Liabilities shall not include any liability of any Indemnitee arising solely out
of such Indemnitee's willful misconduct or fraudulent action(s). To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9 shall
be the same as those set forth in Section 6 (other than Section 6(b)) of the
Registration Rights Agreement, including, without limitation, those procedures
with respect to the settlement of claims and Company's right to assume the
defense of claims.
10. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY
OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE
-27-
<PAGE>
HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY
OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN
ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO
THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH
NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE
GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED
HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW. IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR
UNENFORCEABLE IN ANY JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT
AFFECT THE VALIDITY OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT
JURISDICTION OR THE VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS
AGREEMENT IN ANY OTHER JURISDICTION. EACH PARTY HERETO IRREVOCABLY WAIVES ANY
RIGHT TO TRIAL BY JURY.
b. Fees and Expenses.
As a further inducement to the Investor to enter into this
Agreement, the Company agrees (subject to the next sentence) to reimburse the
Investor or its designees, as applicable, for all reasonable expenses and costs
(including reasonable legal expenses) relating to present and future (i) due
diligence, (ii) the negotiation and execution of the Transaction Documents,
(iii) any Closings hereunder and (iv) the filing of the Registration Statement.
The Company's exclusive obligation to reimburse the Investor for such amounts
shall be capped at (x) $75,000 through the Investment Start Date and (y) $22,000
for each three (3) Investment Periods thereafter, with all costs within all such
periods and above such caps to be split 50-50 between the Company and the
Investor; provided that to the extent a cap is not fully utilized in any period
the amount of such unused availability shall carryforward and be available to
the Investor in any future period. Such amounts are to be paid promptly upon
submission of evidence thereof by the Investor to the Company. Without limiting
the foregoing, the Company will reimburse the Investor, at the time of signing
this Agreement, for all such estimated costs and expenses through and including
such date. If the Investor discovers that such estimates were higher than actual
costs and expenses, it will reimburse any excess to the Company within 30 days
of such discovery. The Company shall pay all stamp and other taxes and duties
levied in connection with the issuance of any Shares issued pursuant hereto.
-28-
<PAGE>
c. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
d. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
e. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
f. Entire Agreement; Amendments; Waivers.
(1) This Agreement supersedes all other prior oral or written
agreements between the Investor, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein (including the other Transaction
Documents) contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Investor, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.
(2) The Investor may at any time elect, by notice to the
Company, to waive (whether permanently or temporarily, and subject to such
conditions, if any, as the Investor may specify in such notice) any of its
rights under any of the Transaction Documents to acquire shares of Common Stock
from the Company, in which event such waiver shall be binding against the
Investor in accordance with its terms; provided, however, that the voluntary
waiver contemplated by this sentence may not reduce the Investor's obligations
to the Company under the Transaction Documents.
g. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing, must be delivered by (i) courier, mail or hand
delivery or (ii) facsimile, and will be deemed to have been delivered upon
receipt. The addresses and facsimile numbers for such communications shall be:
-29-
<PAGE>
If to the Company:
Secure Computing Corporation
One Almaden Boulevard, Suite 400
San Jose, California 95113
Telephone: (408) 918-6180
Facsimile: (408) 918-6205
Attention: Mr. Michael Anderegg
With a copy to:
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, California 94025
Telephone: (650) 234-4200
Facsimile: (650) 234-4299
Attention: Kyle Guse
If to the Transfer Agent:
NorWest Shareowner Services
161 North Concord Exchange Street
South St. Paul, MN 55075
Telephone: (651) 450-4187
Facsimile: (651) 450-4078
Attention: Transfer Agent
If to the Investor:
Manchester Securities Corp.
712 Fifth Avenue
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: Mark Brodsky and Brett Cohen
With a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Telephone: 212-986-6000
Facsimile: 212-986-8866
Attention: Stephen M. Schultz and Christopher P. Davis
Each party shall provide five (5) days prior written notice to the
other party of any change in address, telephone number or facsimile number.
Written confirmation of receipt (A) given by
-30-
<PAGE>
the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, including any Permitted
Assignee (as defined below). The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Investor, including by merger or consolidation. The Investor may assign some or
all of its rights hereunder to an affiliate or associate of the Investor or an
entity or fund which has the same principal investment adviser as the Investor,
without the consent of the Company, and to others, with the written consent of
the Company (in each case, a "PERMITTED ASSIGNEE"); provided, however, that any
such assignment shall not release the Investor from its obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Investor shall be entitled
to pledge the Shares in connection with a bona fide margin account.
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. The representations and warranties of the Company
and the Investor contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 5 and 10, and the indemnification provisions set forth in
Section 9, shall survive each of the Closings.
j. Publicity. The Company and the Investor shall have the
right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of the
Investor, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations (although the
Investor shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
-31-
<PAGE>
l. Placement Agent. The Investor and the Company each
acknowledges and warrants that it has not engaged any placement agent in
connection with the sale of the Shares other than Rochon Capital, whose fees
will be paid exclusively by the Company. The Company and the Investor shall each
be responsible for the payment of any fees or commissions of placement agents or
brokers engaged, directly or indirectly, by the Company or the Investor,
respectively, in connection with the purchase of the Shares by the Investor. The
Company and the Investor shall pay, and hold the other party harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any such
claim.
m. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
n. Remedies. The Investor and each Permitted Assignee shall
have all rights and remedies set forth in this Agreement and the Registration
Rights Agreement and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of the rights
which such holders have under any law. Any person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. The Investor and each Permitted Assignee without
prejudice may withdraw, revoke or suspend its pursuit of any remedy at any time
prior to its complete recovery as a result of such remedy.
o. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investor hereunder or the Registration Rights
Agreement or the Investor enforces or exercises its rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
p. Days. Unless the context refers to "business days" or
"Trading Days", all references herein to "days" shall mean calendar days.
q. Recission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction
-32-
<PAGE>
Documents, wherever the Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not fully perform
its related obligations within the periods therein provided, then the Investor
in its sole discretion may rescind or withdraw from time to time any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights.
* * * * * *
-33-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Investment Agreement to be duly executed as of the date and year first above
written.
COMPANY: INVESTOR:
SECURE COMPUTING CORPORATION MANCHESTER SECURITIES CORP.
By: /s/ Tim McGurran By: /s/ Elliot Greenberg
---------------- --------------------
Name: Tim McGurran Name: Elliot Greenberg
Title: S.V.P. Operations Title: Vice President
and CFO
-34-
<PAGE>
LIST OF SCHEDULES
Schedule 3(a) Organization and Qualification
Schedule 3(c) Capitalization
Schedule 3(e) No Conflicts
Schedule 3(g) Absence of Certain Changes
Schedule 3(h) Absence of Litigation
Schedule 3(n) Intellectual Property Rights
Schedule 3(p) Title
Schedule 3(u) Tax Status
Schedule 3(v) Certain Transactions
LIST OF EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Officers' Certificate
EXHIBIT C Opinion of Counsel
EXHIBIT D Irrevocable Transfer Agent Instructions
EXHIBIT E Secretary's Certificate
EXHIBIT F Warrants
Exhibit 10.2
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT
No. 1999-W1
To Purchase Shares of $0.01 Par Value Common Stock of
SECURE COMPUTING CORPORATION
THIS CERTIFIES that, for value received, MANCHESTER SECURITIES CORP.
(the "INVESTOR"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and on or prior
to 5:00 p.m. New York City Time on October 5, 2004 (the "TERMINATION DATE"), but
not thereafter, to subscribe for and purchase from SECURE COMPUTING CORPORATION,
a Delaware corporation (the "COMPANY"), a number of shares of Common Stock (the
"WARRANT SHARES") equal to $1,875,000 divided by the "Initial Exercise Price."
The "INITIAL EXERCISE PRICE" is equal to 120% of the average of the Closing Bid
Prices (as defined in the Agreement) for the ten consecutive Trading Day period
starting, in the sole discretion of the Investor, either (i) four Trading Days
before the date of this Warrant and ending five Trading Days after such date, or
(ii) on the Trading Day following the day that the Company files with the
Securities and Exchange Commission the Company's Form 10-Q covering the period
ending September 30, 1999. The Investor will use its best efforts to inform the
Company within 10 Trading Days after the expiration of the period referred to in
clause (ii) above whether the Investor elects to use the pricing period
specified in clause (i) or (ii) above for purposes of determining the Initial
Exercise Price. The "Exercise Price" and the number of shares for which the
Warrant is exercisable shall be subject to adjustment as provided herein. The
Initial Exercise Price, as so adjusted from time to time, is hereinafter
referred to as the "EXERCISE PRICE". This Warrant is being issued in connection
with the Common Stock Investment Agreement dated October 4, 1999 (the
"AGREEMENT") entered into between the Company and the Investor.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder
are transferable, in whole or in respect of the right to purchase at
least 100,000 Warrant Shares, at the office or agency of the Company by
the holder hereof in person or by duly authorized attorney, upon
surrender of this
<PAGE>
Warrant together with (a) the Assignment Form annexed hereto properly
endorsed, and (b) any other documentation reasonably necessary to
satisfy the Company that such transfer is in compliance with all
applicable securities laws.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights
represented by this Warrant and payment of the Exercise Price as set
forth herein will be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue or otherwise specified
herein).
3. Exercise of Warrant.
(a) The sole method of exercising this Warrant is as set forth below in
this Section 3. For the avoidance of doubt, the Warrant holder shall
not be entitled to exercise this Warrant by means of tendering cash in
payment of the aggregate Exercise Price for Warrant Shares sought to be
acquired.
(b) The Warrant holder may exercise this Warrant, in whole or in respect of
the right to surrender at least 100,000 Surrendered Shares, in a
"cashless" or "net-issue" exercise by delivering to the offices of the
Company or any transfer agent for the Common Stock this Warrant,
together with a Notice of Exercise specifying the number of Warrant
Shares to be delivered to such Warrant holder ("DELIVERABLE SHARES")
and the number of Warrant Shares with respect to which this Warrant is
being surrendered in payment of the aggregate Exercise Price for the
Deliverable Shares ("SURRENDERED SHARES").
The number of Deliverable Shares shall be calculated as follows:
<TABLE>
<S> <C>
# of Deliverable Shares = # of Surrendered Shares x Fair Market Value of Common Stock less Exercise Price
-----------------------------------------------------
Fair Market Value of Common Stock
</TABLE>
"FAIR MARKET VALUE" shall have the meaning specified in Section 12(c)
In the event that the Warrant is not exercised in full, the number of
Warrant Shares shall be reduced by the number of such Warrant Shares
for which this Warrant is exercised and/or surrendered, and the
Company, at its expense, shall within three (3) Trading Days issue and
deliver or upon the order of the Warrant holder a new Warrant of like
tenor in the name of Warrant holder or as Warrant holder (upon payment
by Warrant holder of any applicable transfer taxes) may request,
reflecting such adjusted Warrant Shares.
Certificates for shares purchased hereunder shall be delivered to the
holder hereof within five (5) Business Days after the date on which
this Warrant shall have been exercised as aforesaid. The Warrant holder
may withdraw its Notice of Exercise at any time if the company fails to
timely deliver the relevant certificates to the Warrant holder as
provided in this Agreement.
2
<PAGE>
(c) In lieu of delivering physical certificates representing the Common
Stock issuable upon exercise, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the Warrant
Holder, the Company shall use its best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon
exercise to the Warrant Holder by crediting the account of Warrant
Holder's prime broker with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system. The time periods for delivery described in
the immediately preceding paragraph shall apply to the electronic
transmittals described herein.
The term "TRADING DAY" means (x) if the Common Stock is listed on the
New York Stock Exchange or the American Stock Exchange, a day on which
there is trading on such stock exchange, or (y) if the Common Stock is
not listed on either of such stock exchanges but sale prices of the
Common Stock are reported on an automated quotation system, a day on
which trading is reported on the principal automated quotation system
on which sales of the Common Stock are reported, or (z) if the
foregoing provisions are inapplicable, a day on which quotations are
reported by National Quotation Bureau Incorporated.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of
this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the holder of this Warrant
or in such name or names as may be directed by the holder of this
Warrant; provided, however, that in the event certificates for shares
of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided further, that the Company
shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issuance of any Warrant
certificates or any certificates for the Warrant Shares other than the
issuance of a Warrant Certificate to the Investor in connection with
the Investor's surrender of a Warrant Certificate upon the exercise of
less than all of the Warrants evidenced thereby, and the Company shall
not be required to issue or deliver such certificates unless or until
the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
6. Closing of Books. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely
exercise of this Warrant.
3
<PAGE>
7. No Rights as Shareholder until Exercise. Subject to Section 12 of this
Warrant and the provisions of any other written agreement between the
Company and the Investor, the Investor shall not be entitled to vote or
receive dividends or be deemed the holder of Warrant Shares or any
other securities of the Company that may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Investor, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification
of stock, change of par value, or change of stock to no par value,
consolidation, merger, conveyance or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise
until the Warrant shall have been exercised as provided herein.
However, at the time of the exercise of this Warrant pursuant to
Section 3 hereof, the Warrant Shares so purchased hereunder shall be
deemed to be issued to such holder as the record owner of such shares
as of the close of business on the date on which this Warrant shall
have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be assigned by the
surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency
of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the
books of the Company); provided, however, that this Warrant may not be
resold or otherwise transferred except (i) in a transaction registered
under the Securities Act of 1933, as amended (the "Act"), or (ii) in a
transaction pursuant to an exemption, if available, from registration
under the Act and whereby, if requested by the Company, an opinion of
counsel reasonably satisfactory to the Company is obtained by the
holder of this Warrant to the effect that the transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that (a) upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of any Warrant or stock certificate representing the
Warrant Shares, and in case of loss, theft or destruction, of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and (b) upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the
Company will make and deliver a new Warrant or stock certificate of
like tenor and dated as of such cancellation, in lieu of this Warrant
or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
11. Effect of Certain Events. If at any time while this Warrant or any
portion thereof is outstanding and unexpired there shall be (i) a sale
or conveyance of all or substantially all
4
<PAGE>
of the Company's assets or (ii) a transaction (by merger or otherwise)
in which more than 50% of the voting power of the Company is disposed
of (collectively, a "SALE OR MERGER TRANSACTION"), in which the
consideration to be received by the Company or its shareholders
consists solely of cash, and in case the Company shall at any time
effect a Sale or Merger Transaction in which the consideration to be
received by the Company or its shareholders consists in part of
consideration other than cash, the holder of this Warrant shall have
the right thereafter to purchase, by exercise of this Warrant and
payment of the aggregate Exercise Price in effect immediately prior to
such action, the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive
after the happening of such transaction had this Warrant been exercised
immediately prior thereto, subject to further adjustment as provided in
Section 12. Notwithstanding the above, a Sale or Merger Transaction
shall not be deemed to occur in the event the Company is the acquiring
entity in connection with an acquisition by the Company.
12. Adjustments of Exercise Price and Number of Warrant Shares.
The number of and kind of securities purchasable upon exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time
to time as follows:
(a) Subdivisions, Combinations and other Issuances. If the Company shall at
any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase
rights under this Warrant exist, by split-up, spin-off, or otherwise,
or combine its outstanding securities as to which purchase rights under
this Warrant exist, the number of Warrant Shares as to which this
Warrant is exercisable as of the date of such subdivision, split-up,
spin-off or combination shall forthwith be proportionately increased in
the case of a subdivision, or proportionately decreased in the case of
a combination. Appropriate proportional adjustments (decrease in the
case of subdivision, increase in the case of combination) shall also be
made to the Exercise Price payable per share, so that the aggregate
Exercise Price payable for the total number of Warrant Shares
purchasable under this Warrant as of such date shall remain the same as
it would have been before such subdivision or combination.
(b) Stock Dividend. If at any time after the date hereof the Company
declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into Common
Stock ("COMMON STOCK EQUIVALENTS") without payment of any consideration
by holders of Common Stock for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common
Stock issuable upon exercise or conversion thereof), then the number of
shares of Common Stock for which this Warrant may be exercised shall be
increased as of the record date (or the date of such dividend
distribution if no record date is set) for determining which holders of
Common Stock shall be entitled to receive such dividends, in proportion
to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such
dividend, and the Exercise Price shall be
5
<PAGE>
proportionately reduced so that the aggregate Exercise Price for all
the Warrant Shares issuable hereunder immediately after the record date
(or on the date of such distribution, if applicable), for such dividend
shall equal the aggregate Exercise Price so payable immediately before
such record date (or on the date of such distribution, if applicable).
(c) Other Distributions. If at any time after the date hereof the Company
distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares
of its capital stock, any evidence of indebtedness or any of its assets
(other than Common Stock), then the number of Warrant Shares for which
this Warrant is exercisable shall be increased to equal: (i) the number
of Warrant Shares for which this Warrant is exercisable immediately
prior to such event, (ii) multiplied by a fraction, (A) the numerator
of which shall be the Fair Market Value (as defined below) per share of
Common Stock on the record date for the dividend or distribution, and
(B) the denominator of which shall be the Fair Market Value price per
share of Common Stock on the record date for the dividend or
distribution minus the amount allocable to one share of Common Stock of
the value (as jointly determined in good faith by the Board of
Directors of the Company and the Warrant Holder) of any and all such
evidences of indebtedness, shares of capital stock, other securities or
property, so distributed. For purposes of this Warrant, "Fair Market
Value" shall equal the 10 Trading Day average closing trading price of
the Common Stock on the Principal Market for the 10 Trading Days
preceding the date of determination or, if the Common Stock is not
listed or admitted to trading on any Principal Market, the average of
the closing bid and asked prices on the over-the-counter market as
furnished by any New York Stock Exchange member firm reasonably
selected from time to time by the Company for that purpose and
reasonably acceptable to the Holder, or, if the Common Stock is not
listed or admitted to trading on the Principal Market or traded
over-the-counter and the average price cannot be determined as
contemplated above, the Fair Market Value of the Common Stock shall be
as reasonably determined in good faith by the Company's Board of
Directors with the concurrence of the Holder. The Exercise Price shall
be reduced to equal: (i) the Exercise Price in effect immediately
before the occurrence of any event (ii) multiplied by a fraction, (A)
the numerator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately before the adjustment, and (B) the
denominator of which is the number of Warrant Shares for which this
Warrant is exercisable immediately after the adjustment.
(d) Merger, etc. If at any time after the date hereof there shall be a
merger or consolidation of the Company with or into or a transfer of
all or substantially all of the assets of the Company to another
entity, then the Warrant Holder shall be entitled to receive upon or
after such transfer, merger or consolidation becoming effective, and
upon payment of the Exercise Price then in effect, the number of shares
or other securities or property of the Company or of the successor
corporation resulting from such merger or consolidation, which would
have been received by Warrant Holder for the shares of stock subject to
this Warrant had this Warrant been exercised just prior to such
transfer, merger or consolidation becoming effective or to the
applicable record date thereof, as the case may be. The Company will
not merge or consolidate with or into any other corporation, or
6
<PAGE>
sell or otherwise transfer its property, assets and business
substantially as an entirety to another corporation, unless the
corporation resulting from such merger or consolidation (if not the
Company), or such transferee corporation, as the case may be, shall
expressly assume in writing the due and punctual performance and
observance of each and every covenant and condition of this Warrant to
be performed and observed by the Company.
(e) Reclassification, etc. If at any time after the date hereof there shall
be a reorganization or reclassification of the securities as to which
purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant
Holder shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares or other securities
or property resulting from such reorganization or reclassification,
which would have been received by the Warrant Holder for the shares of
stock subject to this Warrant had this Warrant at such time been
exercised.
(f) Exercise Price Adjustment. In the event that the Company issues or
sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options
for the purchase of its Common Stock or any such convertible securities
(other than shares or options issued or which may be issued pursuant to
(i) the Company's current or future employee, director or BONA FIDE
consultant option plans or shares issued upon exercise of options,
warrants or rights outstanding on the date of the Agreement and listed
in the Company's most recent periodic report filed under the Exchange
Act (ii) strategic corporate alliances not undertaken principally for
financing purposes, (iii) arrangements with the Investor, or (iv)
acquisitions of other entities by the Company) at an effective Exercise
Price per share which is less than the greater of the Exercise Price
then in effect or the fair market value (as described in Section 12(c)
above) of the Common Stock on the trading day next preceding such issue
or sale, then in each such case, the Exercise Price in effect
immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by
multiplying the Exercise Price then in effect by a fraction, (x) the
numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue or sale, plus
(2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would
purchase at such fair market value or, Exercise Price as the case may
be, then in effect; and (y) the denominator of which shall be the
number of shares of Common Stock of the Company outstanding immediately
after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the
issuance of any convertible securities, warrants, options or other
rights to subscribe for or to purchase or exchange for, shares of
Common Stock ("CONVERTIBLE SECURITIES"), the maximum number of shares
of Common Stock issuable upon exercise, exchange or conversion of such
Convertible Securities shall be deemed to be outstanding, provided that
no further adjustment shall be made upon the actual issuance of Common
Stock upon exercise, exchange or conversion of such Convertible
Securities.
7
<PAGE>
The number of shares which may be purchased hereunder shall be
increased proportionately to any reduction in Exercise Price pursuant
to this paragraph 5(f), so that after such adjustments the aggregate
Exercise Price payable hereunder for the increased number of shares
shall be the same as the aggregate Exercise Price in effect just prior
to such adjustments.
In the event of any such issuance for a consideration which is less
than such fair market value and also less than the Exercise Price then
in effect, than there shall be only one such adjustment by reason of
such issuance, such adjustment to be that which results in the greatest
reduction of the Exercise Price computed as aforesaid.
13. Voluntary Adjustment by the Company. The Company may at its option, at
any time during the term of this Warrant, reduce but not increase the
then current Exercise Price to any amount and for any period of time
deemed appropriate by the Board of Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise
of this Warrant or the Exercise Price is adjusted, the Company shall
promptly mail to the holder of this Warrant a notice setting forth the
number of Warrant Shares (and other securities or property) purchasable
upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding and exercisable, it will reserve from its
authorized and unissued Common Stock a sufficient number of shares to
provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant. The Company further covenants that
its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for the Warrant Shares
upon the exercise of the purchase rights under this Warrant. The
Company will take all such reasonable action as may be necessary to
assure that such Warrant Shares may be issued as provided herein
without violation of any applicable law or regulation, or of any
requirements of the American Stock Exchange or any domestic securities
exchange upon which the Common Stock may be listed.
16. 9.99% Limitation.
(1) Notwithstanding anything to the contrary contained herein,
the number of shares of Common Stock that may be acquired by the
Investor upon exercise pursuant to the terms hereof shall not exceed a
number that, when added to the total number of shares of Common Stock
deemed beneficially owned by such holder (other than by virtue of the
ownership of securities or rights to acquire securities that have
limitations on the Investor's right to convert, exercise or purchase
similar to the limitation set forth herein), together with all shares
of Common Stock deemed beneficially owned by the holder's "affiliates"
(as defined Rule 144 of the Act) that would be aggregated for purposes
of
8
<PAGE>
determining whether a group under Section 13(d) of the Securities
Exchange Act of 1934, as amended, exists, would exceed 9.99% of the
total issued and outstanding shares of the Company's Common Stock (the
"RESTRICTED OWNERSHIP PERCENTAGE"); provided that (w) each Holder shall
have the right at any time and from time to time to reduce its
Restricted Ownership Percentage immediately upon notice to the Company
and (x) each Holder shall have the right at any time and from time to
time, to increase its Restricted Ownership Percentage immediately in
the event of a Major Transaction (as such term is defined in the
Agreement).
(2) Each time (a "COVENANT TIME") the Investor makes a
Triggering Acquisition (as defined below) of shares of Common Stock
(the "TRIGGERING SHARES") pursuant to the Transaction Documents (as
defined in the Agreement), the Investor will be deemed to covenant that
it will not, during the balance of the day on which such Triggering
Acquisition occurs, and during the 61-day period beginning immediately
after that day, acquire additional shares of Common Stock pursuant to
rights-to-acquire existing at that Covenant Time, if the aggregate
amount of such additional shares so acquired (without reducing that
amount by any dispositions) would exceed (x) 9.99% of the number of
shares of Common Stock outstanding at that Covenant Time (including the
Triggering Shares) minus (y) the number of shares of Common Stock
actually owned by the Investor at that Covenant Time (regardless of how
or when acquired, and including the Triggering Shares). "TRIGGERING
ACQUISITION" means (i) the giving of a Purchase Notice (as defined in
the Agreement), (ii) a Closing (as defined in the Agreement), (iii) an
exercise of the Warrant by the Investor, or (iv) the issuance of
Warrant Shares to the Investor under the Warrant; provided, however,
that with respect to each event described in the preceding clauses "i"
and "iii", if the associated issuance of shares of Common Stock does
not occur, such event shall cease to be a Triggering Acquisition and
the related covenant under this paragraph shall terminate. At each
Covenant Time, the Investor shall be deemed to waive any right it would
otherwise have to acquire shares of Common Stock to the extent that
such acquisition would violate any covenant given by the Investor under
this paragraph. Notwithstanding anything to the contrary in the
Transaction Documents, in the event of a conflict between any covenant
given under this paragraph and any obligation of the Investor to buy
shares pursuant to the Transaction Documents, the former shall
supersede the latter, and the latter shall be reduced accordingly. The
Investor shall endeavor in good faith to avoid such a conflict. For the
avoidance of doubt:
(i) The covenant to be given pursuant to this
paragraph will be given at every Covenant Time and shall be calculated
based on the circumstances then in effect. The making of a covenant at
one Covenant Time shall not terminate or modify any prior covenants.
(ii) The Investor may therefore from time to time be
subject to multiple such covenants, each one having been made at a
different Covenant Time, and some possibly being more restrictive than
others. The Investor must comply with all such covenants then in
effect.
9
<PAGE>
17. Compliance with Securities Laws. (a) The holder hereof acknowledges
that the Warrant Shares acquired upon the exercise of this Warrant, if
not registered (or if no exemption from registration exists), will have
restrictions upon resale imposed by state and federal securities laws.
Each certificate representing the Warrant Shares issued to the Holder
upon exercise (if not registered or if no exemption from registration
exists) will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED, TRANSFERRED, SOLD OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS,
BASED ON AN OPINION LETTER OF COUNSEL SATISFACTORY TO THE COMPANY OR A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
(b) Without limiting the Investor's right to transfer, assign or otherwise
convey the Warrant or Warrant Shares in compliance with all applicable
securities laws, the Investor of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the Warrant Shares to be issued upon
exercise hereof are being acquired solely for the Investor's own
account and not as a nominee for any other party, and that the Investor
will not offer, sell or otherwise dispose of this Warrant or any
Warrant Shares to be issued upon exercise hereof except under
circumstances that will not result in a violation of applicable federal
and state securities laws. Upon exercise of this Warrant, the Investor
shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares of Common Stock so
purchased are being acquired solely for the Investor's own account and
not as a nominee for any other party, for investment, and not with a
view toward distribution or resale.
(c) Neither this Warrant nor any Share of Common Stock issued upon exercise
of this Warrant may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale
thereof within the meaning of the Act, unless (i) such security has
been registered for sale under the Act and registered or qualified
under applicable state securities laws relating to the offer an sale of
securities, or (ii) exemptions from the registration requirements of
the Act and the registration or qualification requirements of all such
state securities laws are available and the Company shall have received
an opinion of counsel that the proposed sale or other disposition of
such securities may be effected without registration under the Act,
such counsel and such opinion to be satisfactory to the Company.
10
<PAGE>
(d) Investor recognizes that investing in the Warrant and the Warrant
Shares involves a high degree of risk, and Investor is in a financial
position to hold the Warrant and the Warrant Shares indefinitely and is
able to bear the economic risk and withstand a complete loss of its
investment in the Warrant and the Warrant Shares. The Investor is a
sophisticated investor and is capable of evaluating the merits and
risks of investing in the Company. The Investor has had an opportunity
to discuss the Company's business, management and financial affairs
with the Company's management, has been given full and complete access
to information concerning the Company, and has utilized such access to
its satisfaction for the purpose of obtaining information or verifying
information and have had the opportunity to inspect the Company's
operation. Investor has had the opportunity to ask questions of, and
receive answers from, the management of the Company (and any person
acting on its behalf) concerning the Warrant and the Warrant Shares and
the agreements and transactions contemplated hereby, and to obtain any
additional information as Investor may have requested in making its
investment decision. The initial Investor in this Warrant is an
"accredited investor", as defined by Regulation D promulgated under the
Act.
18. Miscellaneous.
(a) ISSUE DATE; CHOICE OF LAW; VENUE; JURISDICTION. THE PROVISIONS OF THIS
WARRANT SHALL BE CONSTRUED AND SHALL BE GIVEN EFFECT IN ALL RESPECTS AS
IF IT HAD BEEN ISSUED AND DELIVERED BY THE COMPANY ON THE DATE HEREOF.
THIS WARRANT SHALL BE BINDING UPON ANY SUCCESSORS OR ASSIGNS OF THE
COMPANY. THIS WARRANT WILL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, EXCEPT FOR MATTERS
ARISING UNDER THE ACT, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF
LAW. EACH OF THE PARTIES CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE
U.S. DISTRICT COURT SITTING IN THE STATE OF CITY OF NEW YORK IN THE
STATE OF NEW YORK IN CONNECTION WITH ANY DISPUTE ARISING UNDER THIS
WARRANT AND HEREBY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY
OBJECTION, INCLUDING ANY OBJECTION BASED ON FORUM NON CONVENIENS, TO
THE BRINGING OF ANY SUCH PROCEEDING IN SUCH JURISDICTION. EACH PARTY
HEREBY AGREES THAT IF THE OTHER PARTY TO THIS WARRANT OBTAINS A
JUDGMENT AGAINST IT IN SUCH A PROCEEDING, THE PARTY WHICH OBTAINED SUCH
JUDGMENT MAY ENFORCE SAME BY SUMMARY JUDGMENT IN THE COURTS OF ANY
COUNTRY HAVING JURISDICTION OVER THE PARTY AGAINST WHOM SUCH JUDGMENT
WAS OBTAINED, AND EACH PARTY HEREBY WAIVES ANY DEFENSES AVAILABLE TO IT
UNDER LOCAL LAW AND AGREES TO THE ENFORCEMENT OF SUCH A JUDGMENT. EACH
PARTY TO THIS WARRANT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN
ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS IN
11
<PAGE>
ACCORDANCE WITH SECTION 18(c). NOTHING HEREIN SHALL AFFECT THE RIGHT OF
ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH
PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY.
(b) Modification and Waiver. This Warrant and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is
sought. Any amendment effected in accordance with this paragraph shall
be binding upon the Investor, each future holder of this Warrant and
the Company. No waivers of, or exceptions to, any term, condition or
provision of this Warrant, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
(c) Notices. Any notice, request or other document required or permitted to
be given or delivered to the Investor or future holders hereof or the
Company shall be personally delivered or shall be sent by certified or
registered mail, postage prepaid, to the Investor or each such holder
at its address as shown on the books of the Company or to the Company
at the address set forth in the Agreement. All notices under this
Warrant shall be deemed to have been given when received.
A party may from time to time change the address to which notices to it
are to be delivered or mailed hereunder by notice in accordance with
the provisions of this Section 18(c).
(d) Severability. Whenever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant is held to be
invalid, illegal or unenforceable in any respect under any applicable
law or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect the validity, legality or
enforceability of any other provision of this Warrant in such
jurisdiction or affect the validity, legality or enforceability of any
provision in any other jurisdiction, but this Warrant shall be
reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained
herein.
(e) No Impairment. The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times
in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order
to protect the rights of the Warrant Holder against impairment. Without
limiting the generality of the foregoing, the Company (a) will not
increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, and (b) will take all such action as may be
reasonably necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares
on the exercise of this Warrant.
12
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated: October 5, 1999
SECURE COMPUTING CORP.
By: /s/ Tim McGurran
----------------
Name: Tim McGurran
Title: S.V.P. Operations and CFO
Agreed and Accepted
this 5th day of October, 1999
MANCHESTER SECURITIES CORP.
By: /s/ Elliot Greenberg
--------------------
Name: Elliot Greenberg
Title: Vice President
13
<PAGE>
NOTICE OF EXERCISE
To: SECURE COMPUTING CORP.
(1) The undersigned hereby elects in a "cashless" or "net-issue exercise" for,
and to purchase thereunder, ______ shares of Common Stock, and herewith makes
payment therefor with _______ Surrendered Shares.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
(3) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
-----------------------------------
(Name)
- -------------------- -----------------------------------
(Date) (Signature)
-----------------------------------
(Address)
Dated:
- ------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________,
Holder's Signature:__________________________________
Holder's Address: __________________________________
__________________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
Exhibit 10.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of October
4, 1999, by and among Secure Computing Corporation, a Delaware corporation, with
headquarters located at One Almaden Boulevard, Suite 400, San Jose, CA 95113
(the "COMPANY"), and Manchester Securities Corp. (the "INVESTOR").
WHEREAS:
A. In connection with the Common Stock Investment Agreement by and
among the Company and the Investor of even date herewith (the "INVESTMENT
AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions of the Investment Agreement, to issue and sell to the Investor
certain shares of the Company's common stock, par value $0.01 per share (the
"COMMON STOCK"), pursuant to an effective Registration Statement (as defined
below);
B. The Company is filing a registration statement on Form S-1 with the
Securities and Exchange Commission (the "SEC"); and
C. To induce the Investor to execute and deliver the Investment
Agreement, the Company has agreed to provide certain rights with respect to the
Registration Statement under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute
(collectively, the "1933 Act"), and applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investor hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
(a) "HOLDER" means the Investor and any transferee or assignee thereof
to whom the Investor assigns its rights under this Agreement and who agrees to
become bound by the provisions of this Agreement in accordance with Section 8.
(b) "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
(c) "REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing one or more Registration Statements in
compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any
successor rule providing for offering securities on a continuous basis ("RULE
415"), and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.
<PAGE>
(d) "REGISTERED SECURITIES" means the shares of Common Stock issued or
issuable pursuant to the Investment Agreement or the Warrant and any shares of
capital stock issued or issuable with respect to the such shares of Common Stock
as a result of any stock split, stock dividend, recapitalization, exchange or
similar event or otherwise, regardless of any limitation on the Investor's right
to exercise to purchase the maximum number of shares of Common Stock provided
for under the Investment Agreement, in each case as issued pursuant the
Registration Statement.
(e) "REGISTRATION STATEMENT" shall have the meaning set forth in the
Investment Agreement, and will not include any securities owned by Persons other
than the Investor.
(f) "WARRANT" means the warrant attached to the Investment Agreement as
Exhibit F thereto.
(g) Capitalized terms used but not defined herein shall have the
meanings specified in the Investment Agreement.
2. REGISTRATION.
(a) Mandatory Registration. The Company represents and warrants that it
is filing a registration statement on Form S-1 with the SEC, which has not yet
been declared effective, all in compliance with the 1933 Act and Rule 415(a)(x)
thereunder, covering the issuance and sale to the Investor of the Registered
Securities.
(b) Counsel. Subject to Section 5 hereof, in connection with any
offering of the Registered Securities to the Holders under the Registration
Statement, the Holders shall have the right to select legal counsel to
administer their interest in the offering. The Company shall reasonably
cooperate with any such counsel.
3. RELATED OBLIGATIONS.
At all times that the Company is obligated to maintain the Registration
Statement effective, the Company will use its best efforts to effect the
registration of the Registered Securities in accordance with the intended method
of disposition thereof and, pursuant thereto, the Company shall have the
following obligations:
(a) The Company shall keep the Registration Statement (covering all
Registered Securities) effective pursuant to Rule 415 at all times during the
period beginning on the date the Registration Statement is declared effective by
the SEC and ending on the twenty-six (26) month anniversary of the date hereof
(collectively, the "REGISTRATION PERIOD"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall 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 therein, in light of the circumstances in which they were made, not
misleading. If at any time (the "NONEFFECTIVE
-2-
<PAGE>
TIME")during the Registration Period the Company shall fail to keep the
Registration Statement effective or the prospectus current and deliverable, the
Company shall pay to the Holders a cash amount equal to a percentage of the
higher of (i) the initial aggregate strike price of the Warrant and (ii) the
Fair Market Value (as defined in the Warrant) of the shares of Common Stock
(determined as of the commencement of the Noneffective Time) for which the
Warrant may be exercised (the higher of (i) and (ii) being the "NONEFFECTIVE
AMOUNT"). During the first 30 day period (or portion thereof) that the
Registration Statement is not effective or the prospectus is not current and
deliverable (such 30 day period being deemed to commence, for purpose of this
paragraph, 10 calendar days after the commencement of the Noneffective Time),
the Company shall make a cash payment equal to 1% of the Noneffective Amount;
and for each subsequent 30 day period (or portion thereof) the Company shall
make a cash payment equal to 2% of the Noneffective Amount. The payment of any
Noneffective Amount by the Company is in addition to and does not limit any
other rights and remedies the Investor or the Holders may have. Such cash
payment will be due 3 Trading Days after the earlier of (x) the day the
Registration Statement is again effective or the prospectus is again current or
(y) the end of each such 30 day period.
(b) The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
shall comply with the provisions of the 1933 Act with respect to the disposition
of all Registered Securities of the Company covered by such Registration
Statement until such time as all of such Registered Securities shall have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in such Registration Statement.
(c) Subject to Section 3(h)(ii), the Company shall furnish to each
Holder and its legal counsel without charge (i) promptly after the same is
prepared and filed with the SEC such number of copies as such Holder may
reasonably request of such Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits, the prospectus included in such Registration
Statement (including each prospectus supplement) and, with regards to such
Registration Statement(s), any correspondence by or on behalf of the Company to
the SEC or the staff of the SEC and any correspondence from the SEC or the staff
of the SEC to the Company or its representatives and (ii) such other documents,
including copies of any final prospectus and supplements thereto, as such Holder
may reasonably request from time to time in order to facilitate the disposition
of the Registered Securities owned by such Holder.
(d) Immediately after becoming aware of the existence of such event,
the Company shall notify (subject to Section 3(h)(ii)) each Holder in writing
that the prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
promptly prepare a supplement or amendment to such Registration Statement (which
may
-3-
<PAGE>
consist of a document to be filed by the Company with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act (as defined below) and to be
incorporated by reference in the prospectus) to correct such untrue statement or
omission, and deliver three (3) copies of such supplement or amendment to each
Holder (or such other number of copies as such Holder may reasonably request).
The Company shall also immediately notify (subject to Section 3(h)(ii)) each
Holder in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective, other than the Registration
Statement and the amendments thereto that were filed prior to the date hereof
(notification of such effectiveness shall be delivered to each Holder by
facsimile on the same day of such effectiveness and by overnight mail), (ii) of
any request by the SEC for amendments or supplements to a Registration Statement
or related prospectus or related information, and (iii) of the Company's
reasonable determination that a post-effective amendment to a Registration
Statement would be appropriate.
(e) The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registered Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify (subject to Section 3(h)(ii)) each Holder of the issuance
of such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.
(f) Subject to Section 3(h)(ii), the Company shall permit the Inspector
(as defined below) and/or the Investor's counsel, to review and comment upon a
Registration Statement and all amendments and prospectus supplements thereto at
least two (2) full Trading Days (or such shorter period as Investor's and
Company's counsel may mutually agree) prior to their filing with the SEC.
Without limiting Section 3(h)(iii), the Company shall not submit to the SEC any
amendment or prospectus supplement thereto if a Holder objects to facts or
characterizations therein related to such Holder.
(g) Subject to Section 3(h)(ii), the Company shall make available for
inspection by (i) any Holder and (ii) its independent attorneys and independent
accountants or other agents or Persons retained and designated by the Holders in
a written schedule to this Agreement (which schedule may be updated from time to
time by the Holders) (collectively, such attorneys, accountants or other agents
or Persons being "INSPECTORS") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the
"RECORDS"), as shall in good faith be deemed necessary by each Inspector, and
cause the Company's officers, directors and employees to supply all information
which any Inspector in good faith may request. The Investor agrees (to the
extent it has approved receipt of non-public information pursuant to Section
3(h)(ii)) to keep confidential (and to cause its Inspectors and counsel to keep
confidential) all non-public information received pursuant to Section 3(h)(ii);
provided such obligation to maintain confidentiality shall be subject to the
same type of limitations identified in Section 3(p).
-4-
<PAGE>
(h) Due Diligence Review. (I) Subject to Section 3(h)(ii), the Company
shall make available, during normal business hours, for inspection and review by
the Investor, its Inspectors (who may or may not be affiliated with the
Investor) all financial and other records, all SEC Documents and other filings
with the SEC, and all other corporate documents and properties of the Company as
the Investor may in good faith request reasonably in advance (it being
acknowledged that during pre-arranged diligence such advance request shall not
be required) for the purpose of such review, and cause the Company's officers,
directors and employees to supply promptly all such information requested by the
Investor or its Inspectors in connection with such Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of the Registration Statement for the sole
purpose of enabling the Investor and its Inspectors to conduct initial and
ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
(ii) Notwithstanding any other provision of any of the Transaction
Documents, the Company shall not disclose nonpublic information to the Investor
or its Inspectors unless prior to disclosure of such information the Company
identifies such information as being nonpublic information (without conveying
the substance of such nonpublic information) and provides the Investor and its
Inspectors with the opportunity to accept or refuse to accept such nonpublic
information for review. If nonpublic information is provided by the Company or
its representatives or advisors in violation of this Section 3(h)(ii), the
Investor shall be free to disclose such information to the public without
incurring liability therefor. If the Investor accepts such nonpublic
information, the Company will provide such information only to the Inspector
designated by the Investor. Nothing in the Transaction Documents shall entitle
the Company to withhold non-public information accepted pursuant to this Section
3(h)(ii).
(iii) Subject to Section 3(h)(ii), the Company will immediately
notify the Inspectors and, if any, underwriters, of any event or the existence
of any circumstance of which it becomes aware, constituting nonpublic
information (whether or not requested of the Company specifically or generally
during the course of due diligence or otherwise by any such persons or
entities), which, if not disclosed in the Prospectus included in the
Registration Statement, would cause such Prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. In no event shall the Investor's Inspectors receiving
nonpublic information pursuant to Section 3(h)(ii) disclose to the Investor the
nature of the specific event or circumstances constituting any nonpublic
information discovered by such advisors or representatives in the course of
their due diligence without the written consent of the Investor prior to
disclosure of such information. The Investor's Inspectors shall make complete
disclosure to the Investor's independent counsel of all events or circumstances
constituting nonpublic information discovered by such Inspectors in the course
of their due diligence upon which such Inspectors form the opinion that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in the light of the circumstances in
which they were made, not misleading. Upon receipt of such disclosure, the
Investor's independent counsel shall consult with the Company's independent
counsel (who, for all purposes of this
-5-
<PAGE>
Agreement, must be an independent law firm with substantial experience in
underwritten offerings which is reasonably acceptable to the Investor) in order
to address the concern raised as to the existence of a material misstatement or
omission and to discuss appropriate disclosure with respect thereto. In the
event after such consultation the Investor's independent counsel believes in
good faith that the Registration Statement contains an untrue statement or a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading, (a) if the Company does
not dispute the existence of such material misstatement or omission, the Company
shall file with the SEC an amendment to the Registration Statement responsive to
such alleged untrue statement or omission and provide the Investor, as promptly
as practicable, with copies of the Registration Statement and related
Prospectus, as so amended, (b) if the Company disputes the existence of any such
material misstatement or omission and the Investor has not unreasonably declined
to accept the opinion of the Company's independent counsel or the letter of the
Company's accountants, (i) the Company's independent counsel shall provide the
Investor's independent counsel with a written opinion stating that nothing has
come to their attention that would lead them to believe that the Registration
Statement or the related Prospectus, as of the date of such opinion, contains an
untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or the related Prospectus or necessary to
make the statements contained therein, in light of the circumstances in which
they were made, not misleading and (ii) in the event the dispute relates to the
adequacy of financial disclosure and the Investor shall reasonably request, the
Company's independent auditors shall provide to the Company a letter outlining
the performance of such "agreed upon procedures" as shall be reasonably
requested by the Investor and the Company shall provide the Investor with a copy
of such letter, or (c) if the Company disputes the existence of any such
material misstatement or omission, and the dispute relates to the timing of
disclosure of a material event and the Company's independent counsel is unable
to provide the opinion referenced in clause (b)(i) above to the Investor, then
the Investment Agreement shall be suspended for a period of up to thirty (30)
days, at the end of which, if the dispute still exists between the Company's
independent counsel and the Investor's independent counsel, the Company shall
either (i) amend the Registration Statement as provided above, (ii) provide to
the Investor the Company's independent counsel opinion and a copy of the letter
of the Company's independent auditors referenced above, or (iii) the obligation
of the Investor to purchase shares of Common Stock pursuant to the Investment
Agreement shall be terminable by the Investor in its sole discretion.
Notwithstanding any other provision of the Transaction Documents other than this
Section 3(h)(iii), if the Investor's independent counsel believes in good faith
that the Registration Statement or prospectus contains any material misstatement
or omission (regardless of whether it has received an opinion or a comfort
letter), the Investor shall have the right but not the obligation in its sole
discretion from time to time to refrain from purchasing, in whole or in part,
any Shares during any Investment Period in which such condition exists.
(i) Without limiting the Company's obligations under the Investment
Agreement, the Company shall cooperate with the Holders to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registered Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in
-6-
<PAGE>
such denominations or amounts, as the case may be, as the Holders may reasonably
request and registered in such names of the Persons as the Holders may request.
(j) If requested by the Investor, the Company shall (i) as soon as
practical incorporate in a prospectus supplement or post-effective amendment
such information as the Investor reasonably determines should be included
therein relating to the sale and distribution of Registered Securities,
including, without limitation, information with respect to the offering of the
Registered Securities to be sold in such offering; (ii) make all required
filings of such prospectus supplement or post-effective amendment as soon as
practical after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if reasonably requested by the
Investor.
(k) The Company shall use its best efforts to cause the Registered
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registered Securities.
(l) The Company shall make generally available to its security holders
as soon as practical, but not later than 90 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the 1933 Act) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of any Registration Statement.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the SEC and any other regulatory authorities
of competent jurisdiction in connection with any registration hereunder.
(n) Immediately after the Registration Statement is declared effective
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registered Securities (with copies to
the Holders whose Registered Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
(o) The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Holders of Registered Securities
pursuant to a Registration Statement.
(p) The Company shall hold in confidence and not make any disclosure of
information concerning a Holder provided to the Company unless and except to the
extent that (i) disclosure of such information is necessary to comply with
federal or state securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is sought pursuant to a legal
process, including without limitation, subpoena, interrogatory, request for
documents or information, civil investigative demand, deposition or similar
process, or a court of competent
-7-
<PAGE>
jurisdiction or by a governmental, quasi-governmental, regulatory or
administrative entity; provided that the Company shall immediately notify such
Holder of existence, terms and circumstances of such request, and the Company
shall reasonably cooperate with such Holder in attempting to (a) prevent or
limit such disclosure and (b) obtain confidential treatment of any information
required to be disclosed, or (iv) such information has been made generally
available to the public other than by disclosure in violation of the Company's
obligations under the Transaction Documents or otherwise. The Company agrees
that it shall, upon learning that disclosure of such information concerning a
Holder is sought in or by a court or governmental body of competent jurisdiction
or through other means, give prompt written notice to such Holder and allow such
Holder, at the Holder's expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
(q) The Company shall engage a transfer agent and registrar for all the
Registered Securities not later than the effective date of the first
Registration Statement filed pursuant hereto.
4. OBLIGATIONS OF THE HOLDERS.
Each Holder agrees that, upon receipt of any written notice from the
Company of the happening of any event of the kind described in Section 3(e) or
the first sentence of 3(d), such Holder will immediately discontinue disposition
of Registered Securities pursuant to any prospectus in the Registration
Statement(s) covering such Registered Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
3(e) or the first sentence of 3(d).
5. EXPENSES OF REGISTRATION.
Subject to the limitations set forth in the Investment Agreement, all
reasonable expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, and fees and disbursements of
counsel for the Company and reasonable fees and disbursements of counsel for the
Holders shall be paid by the Company.
6. INDEMNIFICATION.
(a) To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Holder, the directors,
officers, partners, employees, members, agents, representatives of, and each
Person, if any, who controls, any Holder within the meaning of the 1933 Act or
the Securities Exchange Act of 1934, as amended (the "1934 ACT"), (each, an
"INDEMNIFIED PERSON"), from and against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs (including the costs of
enforcing this provision), attorneys' fees and disbursements, amounts paid in
settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before
-8-
<PAGE>
any court or governmental, administrative or other regulatory agency, body or
the SEC, whether pending or threatened, whether or not an indemnified party is
or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may
become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registered Securities are
offered ("BLUE SKY FILING"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which the statements therein were
made, not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registered Securities
pursuant to a Registration Statement (the matters in the foregoing clauses (i)
through (iii) being, collectively, "VIOLATIONS"). The Company shall reimburse
the Holders and each such controlling Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees and
disbursements or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim to the extent arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person
expressly for inclusion in the Registration Statement or any such amendment
thereof or supplement thereto, if such prospectus was timely made available by
the Company pursuant to Section 3(c); (ii) shall not be available to the extent
such Claim is based on (a) a failure of the Holder to deliver or to cause to be
delivered the current prospectus made available by the Company or (b) the
Indemnified Person's use of an incorrect prospectus despite being promptly
advised in advance by the Company in writing not to use such incorrect
prospectus; and (iii) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld, delayed or conditioned. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registered Securities by the Holders pursuant to Section 8.
(b) In connection with any Registration Statement in which a Holder is
participating, each such Holder agrees, severally and not jointly, to indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, employees, agents and
representatives, each Person, if any, who controls the Company within the
meaning of the 1933 Act or the 1934 Act (collectively and together with an
Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim or Indemnified
Damages to
-9-
<PAGE>
which any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim or Indemnified Damages arise out of or are
based upon any Violation, in each case to the extent, and only to the extent,
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Holder expressly for inclusion in
such Registration Statement; and such Holder will reimburse the reasonable legal
expenses of one counsel or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and the agreement
with respect to contribution contained in Section 7 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Holder, which consent shall not be unreasonably
withheld, delayed or conditioned; provided, further, however, that the Holder
shall be liable under this Section 6(b) for only that amount of a Claim or
Indemnified Damages as does not exceed the net proceeds to such Holder as a
result of the sale of Registered Securities under such Registration Statement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registered Securities by the Holders pursuant to Section 8.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
(c) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement or threat of
commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party
shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires and can reasonably establish its
financial ability to meet its indemnity obligations, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses thereof to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The indemnifying
party shall pay for only one separate legal counsel for the Indemnified Persons
or the Indemnified Parties, as applicable, and such counsel shall be selected by
the Investor, if the Holders are entitled to indemnification hereunder, or the
Company, if the Company is entitled to indemnification hereunder, as applicable.
The Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
Claim by the indemnifying party and shall furnish to the indemnifying party all
information
-10-
<PAGE>
reasonably available to the Indemnified Party or Indemnified Person which
relates to such Claim. The indemnifying party shall keep the Indemnified Party
or Indemnified Person fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. No indemnifying
party shall be liable for any settlement of any action, claim or proceeding
effected without its written consent, provided, however, that the indemnifying
party shall not unreasonably withhold, delay or condition its consent. No
indemnifying party shall, without the consent of the Indemnified Party or
Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such Claim.
Following indemnification as provided for hereunder, the indemnifying party
shall be subrogated to all rights of the Indemnified Party or Indemnified Person
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
(d) The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
(e) The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law or otherwise, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by law or
otherwise; provided, however, that: (i) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (ii) no seller of Registered
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any seller of
Registered Securities who was not guilty of fraudulent misrepresentation; and
(iii) contribution by any Selling Holder of Registered Securities shall be
limited in amount to the net amount of proceeds received by such Selling Holder
from the sale of such Registered Securities under such Registration Statement.
8. ASSIGNMENT OF REGISTRATION RIGHTS.
-11-
<PAGE>
The Investor may assign some or all of its rights hereunder to an
affiliate or associate of the Investor or an entity or fund which has the same
principal investment adviser as the Investor without the consent of the Company,
and to others, with the written consent of the Company, which shall not be
unreasonably withheld (in each case, the "PERMITTED ASSIGNEE"). Notwithstanding
anything to the contrary contained in the Transaction Documents, the Investor
shall be entitled to pledge the Shares, the Warrant and the Warrant Shares in
connection with a bona fide margin account.
9. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Investor. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Holder and the Company.
10. MISCELLANEOUS.
(a) A Person is deemed to be a Holder of Registered Securities whenever
such Person owns of record such Registered Securities. If the Company receives
conflicting instructions, notices or elections from two or more Persons with
respect to the same Registered Securities, the Company shall act upon the basis
of instructions, notice or election received from the registered owner of such
Registered Securities.
(b) Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement (which must be given
subject to Section 3(h)(ii)) must be in writing, must be delivered by (i)
courier, mail or hand delivery or (ii) facsimile, and will be deemed to have
been delivered upon receipt. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Secure Computing Corporation
One Almaden Boulevard
Suite 400
San Jose, CA 95113
Telephone: (408) 918-6180
Facsimile: (408) 918-6205
Attention: Mr. Michael Anderegg
With a copy to:
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, CA 94025
-12-
<PAGE>
Telephone: (650) 234-4200
Facsimile: (650) 234-4299 and (212) 974-2093
Attention: Kyle Guse, Esq.
If to the Investor:
Manchester Securities Corp.
712 Fifth Avenue
New York, New York 10019
Telephone: (212) 506-2999
Facsimile: (212) 586-9467
Attention: Mr. Mark Brodsky and Mr. Brett Cohen
With a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
18th Floor
New York, New York 10176
Telephone: 212-986-6000
Facsimile: 212-986-8866
Attention: Stephen M. Schultz, Esq. and Christopher P. Davis, Esq.
Each party shall provide five (5) days prior written notice to the other party
of any change in address, telephone number or facsimile number. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
nationally recognized overnight delivery service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from a nationally recognized
overnight delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY
-13-
<PAGE>
OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN
ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO
THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH
NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE
GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED
HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW. IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR
UNENFORCEABLE IN ANY JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT
AFFECT THE VALIDITY OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT
JURISDICTION OR THE VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS
AGREEMENT IN ANY OTHER JURISDICTION.
(e) This Agreement, the Warrant and the Investment Agreement (and the
exhibits thereto) constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement and the Investment Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
(f) Subject to the requirements of Section 8, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
(g) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
(i) Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
-14-
<PAGE>
(j) All consents and other determinations to be made by the Holders
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Holders holding a majority of the Registered Securities.
(k) The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: INVESTOR:
SECURE COMPUTING CORPORATION MANCHESTER SECURITIES CORP.
By: /s/ Tim McGurran By: /s/ Elliot Greenberg
---------------------------- -----------------------
Name: Tim McGurran Name: Elliot Greenberg
-------------------------- ---------------------
Title: S.V.P. Operations and CFO Title: Vice President
------------------------- --------------------
-16-
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Norwest Shareowner Services
161 North Concord Exchange Street
South St. Paul, MN 55075
Attn: Transfer Agent
RE: SECURE COMPUTING CORP.
Ladies and Gentlemen:
We are counsel to Secure Computing Corp., a Delaware corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Common Stock Investment Agreement (the "INVESTMENT AGREEMENT") dated October 4,
1999 entered into by and among the Company and Manchester Securities Corp. (the
"INVESTOR") pursuant to which the Company may, from time to time, issue to the
Investor shares (the "SHARES") of the Company's common stock, par value $ 0.01
per share. On ____________ ___, 1999, the Company filed a Registration Statement
on Form S-1 (File No. [________]) (the "REGISTRATION STATEMENT") with the
Securities and Exchange Commission (the "SEC") relating to the Shares.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge as
of the date hereof, after telephonic inquiry of a member of the SEC's staff,
that any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Shares are available for issuance and sale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
Heller Ehrman White & McAuliffe
By: /s/Kyle Guse
--------------------------
Kyle Guse, Esq.
cc: Manchester Securities Corp.
Kleinberg, Kaplan, Wolff & Cohen, P.C.
2.
Exhibit 99.1
[LOGO]
COMPANY CONTACTS:
Michael Anderegg
Secure Computing Corporation
408-918-6182
SECURE COMPUTING CORPORATION
ENTERS INTO $25 MILLION EQUITY LINE FINANCING FACILITY
OCTOBER 5, 1999 - SAN JOSE, CA - Secure Computing Corporation (NASDAQ:
SCUR) today announced that it has entered into an equity line financing
agreement with Manchester Securities Corp., a securities firm headquartered in
New York City. The $25 million facility will allow the Company, at its option,
to sell common stock to the investor, from time to time over a two-year period.
The shares will be sold at a 2% discount to the price of the Company's common
stock during a predetermined period preceding the settlement date. Funding under
the equity line can begin shortly after the effectiveness of the Company's
registration statement by the Securities and Exchange Commission. The Company
expects to file the registration statement in approximately ten days.
"We extensively researched our financing alternatives and believe that
a flexible equity line structure will be the most beneficial for our
shareholders and will most closely match ongoing requirements of the Company,"
said John McNulty, Chairman and Chief Executive Officer of Secure Computing.
Under the equity line facility, the Company has the right to sell to
the investor up to $2,000,000 of common stock in any 30-day period. The Company
may also set a minimum purchase price for any investment period.
Under the agreement, the investor has the right to buy additional
shares in an amount up to 50% of the shares which the Company sought to sell to
the investor. The investor is not required to purchase shares in excess of
certain minimum trading volumes and its obligations are subject to other
conditions as set forth in the financing agreements.
<PAGE>
The investor has been issued a five-year warrant to purchase a number
of shares of common stock of the Company based on the average price of the stock
surrounding the subscription date, or at the investor's option following the day
on which the Company files its next quarterly report on Form 10-Q. The warrant
will be exercisable at a price equal to 120% of the average price of the stock
surrounding the subscription date. The specific number of warrants and exercise
price, as well as all other terms of the equity line financing, will be set
forth in a Form 8-K to be filed with the SEC by the Company this week.
Tim McGurran, Senior Vice President of Operations and Chief Financial
Officer of Secure Computing, added "We are extremely pleased to establish this
relationship with Manchester Securities, which provides us with the financial
flexibility to move forward in the world of e-commerce."
Rochon Capital Group, Ltd. acted as placement agent in the transaction.
ABOUT SECURE COMPUTING
Headquartered in San Jose, CA, Secure Computing Corporation provides
enterprise-wide network security solutions to a worldwide partner and customer
base in financial services, telecom, aerospace, manufacturing, hi-tech, service
providers and government agencies. More information is available over the
Internet at www.securecomputing.com or by calling: in the U.S., 800-379-4944 or
408-918-6100; in Europe, +44-1753-826000; in Asia/Pacific, +61-2-9844-5440.
This press release contains the following forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended, and is subject to the
Safe Harbor created by those sections: (1) that the Company will receive up to
$25 million in equity financing and that such financing will be available for a
period of 24 months; (2) that the financing will begin upon approval by
Securities and Exchange Commission ("SEC") of the Company's registration
statement; (3) that an equity line structure will be the most beneficial for the
Company's shareholders and will most closely match the ongoing requirements of
the Company; and (4) that the relationship with Manchester Securities will
provide the Company with the financial flexibility to move forward in the world
of e-commerce security.
The following are important factors that could cause actual results to
differ materially from those in these forward-looking statement: With regard to
Statement (1) the terms of the Agreement could be altered by the parties to
change the amount of the financing, the term of financing, or otherwise; with
regard to Statement (2) that the SEC may not declare effective the registration
statement, or the effectiveness of the registration statement will be granted at
a time or in such a manner as to prevent the financing from going forward in
accordance with its terms; with regard to Statement (3) that other forms of
financing might be more beneficial to the Company or might better match the
Company's present requirements, or that such requirements might change
materially in the future, thus making the equity line agreed upon by the Company
less beneficial than other alternatives, that the sale of shares pursuant to the
financing may have a dilutive impact on the Company's shareholders resulting in
a reduction in the market price of the Company's common stock; and with regard
to Statement (4) that the relationship with Manchester Securities will not grant
the company the financial flexibility to move forward in the world of e-commerce
security; and other risk factors detailed from time to time in Secure
Computing's periodic reports and registration statements filed with the
Securities and Exchange Commission.
All registration and trademarks are proprietary to their respective owners.
