EXHIBIT 4.2
PUT AND CALL AGREEMENT
PUT AND CALL AGREEMENT ("AGREEMENT") dated as of June __, 2000, between
SECURE COMPUTING CORPORATION, a Delaware Corporation (the "Company") and
WESTGATE INTERNATIONAL, L.P. (the "INVESTOR").
W I T N E S S E T H
WHEREAS, the Company and the Investor desire that, subject to the terms
and provisions of this Agreement, the Investor may purchase up to 15,250 shares
of the Company's Series F Preferred Stock, liquidation preference $1,000 per
share (all such shares being referred to as "PREFERRED SHARES"), having the
rights, designations, and preferences set forth in the Certificate of
Designation (the "CERTIFICATE") in the form of Exhibit 1.1A attached hereto and
filed on the date hereof, on the terms and conditions set forth therein, which
Preferred Shares shall be issuable in two tranches (each a "TRANCHE"), for an
aggregate consideration of $1,000 per share, pursuant to either the Company's
options to sell Preferred Shares to the Investor set forth in this Agreement
(each a "PUT") or the Investor's options to purchase Preferred Shares from the
Company set forth in this Agreement (each a "CALL"); and
WHEREAS, the Preferred Shares will be convertible into shares ("COMMON
SHARES") of common stock, par value $0.01, of the Company ("COMMON STOCK"),
pursuant to the terms of the Certificate, and the Investor will have
registration rights with respect to such Common Shares, pursuant to the terms of
that certain Registration Rights Agreement to be entered into between the
Company and the Investor substantially in the form of Exhibit 6.2(f) hereto
("REGISTRATION RIGHTS AGREEMENT") which is being executed and delivered
concurrently with this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
COMPANY'S PUT RIGHTS
Section 1.1 Company's First Put.
(a) At any time during the period commencing on the date hereof and
ending at the close of business on September 1, 2000 (the "First Put Period"),
the Company shall have the option to sell to the Investor all, but not less than
all, of a Tranche consisting of 5,250 Preferred Shares, subject to reduction set
forth in paragraph (d) below ("TRANCHE A"), subject to the provision of
paragraph (b) below, for an aggregate consideration of $1,000 per Preferred
Share (the "FIRST PUT"); provided that the Investor has not exercised the First
Call (as defined below).
<PAGE>
(b) The exercise of the First Put by the Company is subject to the
fulfillment, on the date of its exercise, of the following conditions, which
conditions may be waived by the Investor, in whole or in part, at its sole
discretion:
(i) The Company shall be in compliance with its obligations
under this Agreement, the Certificate and the Registration Rights Agreement (the
"TRANSACTION DOCUMENTS");
(ii) The Company shall be in compliance with its obligations
under the Certificate relating to the Company's Series E Preferred Stock
("Series E Preferred Stock") and the related Put and Call Agreement and
Registration Rights Agreement, each dated as of January 26, 2000, by and between
the Company and the Investor (collectively, the "SERIES E TRANSACTION
DOCUMENTS");
(iii) No event which would entitle the Investor to resell to
the Company any Preferred Shares, any shares of Series E Preferred Stock, or any
shares of Common Stock issuable upon conversion thereof shall have occurred and
be continuing;
(iv) No event which had or is likely to have, in the
reasonable judgment of the Investor, a Material Adverse Effect (as defined
below) on the Company or any of its subsidiaries shall have occurred since the
date hereof;
(v) The Standard & Poor's 500 Index shall not be 35% or more
below its level on the date hereof;
(vi) The closing bid price of the Company's Common Stock on
the Principal Market (as defined below) where it is traded shall not have
dropped below $6.00 (as may be adjusted for stock splits, stock dividends and
stock consolidation) at any time during the preceding 20 Trading Days;
(vii) At all times during the period beginning on the date
that the Company delivers the related Put Notice (as defined below), and ending
on and including the date on which the applicable Put Closing is consummated,
the Common Stock shall have been listed on The American Stock Exchange, Inc. or
The New York Stock Exchange, Inc. or listed on the Nasdaq National Market or The
Nasdaq SmallCap Market (each a "PRINCIPAL MARKET") and shall not have been
suspended from trading thereon;
(viii) The consummation of the applicable Put Closing or the
giving of a Put Notice therefor shall not cause the Company to be in violation
of NASD rules for stock issuances assuming all Preferred Shares are then
converted at the then applicable Conversion Price.
(ix) During the period beginning on the date of this Agreement
and ending on and including the date on which the applicable Put Closing is
consummated, 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;
2
<PAGE>
(x) A number of shares of Common Stock equal to at least 200%
of the aggregate number of Common Shares issuable upon conversion of Preferred
Shares included in the Tranche to be purchased shall have been duly authorized
and reserved for issuance; and
(xi) The representations and warranties of the Company set
forth in Section 3.1 shall be true and correct on the date of the Put Notice (as
defined below).
(c) The exercise of the First Put shall be effected by delivery of a
written notice by the Company to the Investor (the "FIRST PUT NOTICE"). Upon
delivery of the First Put Notice to the Investor, subject to the applicable
closing conditions set forth in Article VI herein, the Company shall be
obligated to sell to the Investor and the Investor shall be obligated to
purchase from the Company, the Preferred Shares included in Tranche A (the
"TRANCHE A SHARES"). Closing of such purchase and sale (the "FIRST PUT CLOSING")
shall take place at the offices of Kleinberg, Kaplan, Wolff & Cohen, P.C.
("KKWC") within 3 business days after delivery of the First Put Notice. The
Company's delivery of the First Put Notice shall constitute its representation
that the conditions set forth in paragraph (b) above (the "PUT CONDITIONS")
shall have been satisfied.
(d) In the event that on the date of receipt of the First Put Notice
or the First Put Closing, the purchase price for the Tranche A Shares, together
with the purchase price of any Series E Preferred Stock then outstanding or
being purchased concurrently with the Tranche A Shares, shall exceed 7% of the
Company's Market Capitalization (as defined below) on such date, then the number
of Tranche A Shares shall be reduced such that the aggregate purchase price of
the Tranche A shall , together with the purchase price of any Series E Preferred
Stock then outstanding or being purchased concurrently with the Tranche A
Shares, be equal to 7% of the Company's Market Capitalization on such date. If
Tranche A is so reduced, then the number of Preferred Shares included in Tranche
B (as defined below) shall be proportionately increased (except to the extent
that the First Call shall have been exercised pursuant to Section 2.01 below)
such that the total aggregate purchase price for such Preferred Shares included
in Tranche A and Tranche B shall equal $15,250,000.
(e) For purpose 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.
For purposes of this Agreement, "MARKET CAPITALIZATION" shall mean
the aggregate market value of the outstanding Common Stock based on the closing
bid price on the
3
<PAGE>
prior Trading Day on the market or exchange on which the Common Stock is then
principally traded.
For purposes of this Agreement, "TRADING DAY" shall mean any day on
which there is trading on the Principal Market or other market or exchange on
which the Common Stock is then principally traded.
For purposes of this Agreement, "MATERIAL ADVERSE EFFECT" means any
adverse effect on the business, operations, properties, prospects, or financial
condition of the Company and its subsidiaries, if any, which is (either alone or
together with all other adverse effects) material to the Company and its
subsidiaries, if any, taken as a whole, and any material adverse effect on the
transactions contemplated under Transaction Documents or the Series E
Transaction Documents.
Section 1.2 Company's Second Put.
(a) At any time during the period commencing on the later of the
Trading Date that (i) all Tranche A Shares shall have been issued and
subsequently converted into Common Shares and a registration statement covering
the resale by the Investor of the Common Shares issuable upon conversion of the
Tranche A Shares shall have been declared effective and remained effective for
at least five Trading Days following the delivery of Common Shares issued upon
conversion of the last Tranche A Shares to be converted, or (ii) October 30,
2000 and expiring at the close of business on March 1, 2001 (the "SECOND PUT
PERIOD"), the Company shall have the right to sell to the Investor all, but not
less than all, of a Tranche consisting of 10,000 Preferred Shares (subject to
adjustment as provided in Section 1.1(d) above and paragraph 1.2(d) below)
("TRANCHE B"), subject to the conditions in paragraph (b) below (the "SECOND
PUT"); provided that the Investors shall not have exercised the Second Call (as
defined below).
(b) The exercise of the Second Put shall be subject to the Put
Conditions, which conditions may be waived, in whole or in part, by the Investor
in its sole discretion.
(c) The exercise of the Second Put shall be effected by delivery of
a written notice by the Company to the Investor (the "SECOND PUT NOTICE"). Upon
delivery of the Second Put Notice to the Investor, subject to the applicable
closing conditions set forth in Article VI herein, the Company shall be
obligated to sell to the Investor and the Investor shall be obligated to
purchase from the Company, the Preferred Shares included in Tranche B (the
"TRANCHE B SHARES"). Closing of such purchase and sale ("SECOND PUT CLOSING")
shall take place at the offices of KKWC within 3 business days after delivery of
the Second Put Notice. The Company's delivery of the Second Put Notice shall
constitute its representation that the Put Conditions shall have been satisfied.
(d) In the event that on the date of receipt of the Second Put
Notice or the Second Put Closing, the purchase price for the Tranche B Shares
shall exceed 6% of the Company's Market Capitalization on such date, then the
number of Tranche B Shares shall be reduced such that the aggregate purchase
price of the Tranche B Shares shall be equal to 6% of the Company's Market
Capitalization on such date.
4
<PAGE>
Section 1.3 Put Closing Not Timely Effected By The Company. In the event
that either the First Put Closing or the Second Put Closing (each a "PUT
CLOSING") shall not have been effected within 10 business days after the receipt
of the First Put Notice or the Second Put Notice (each a "PUT NOTICE"), as the
case may be, for any reason other than the failure of Investor to comply with
the closing conditions applicable to Investor, then, at the sole option of the
Investor, the related Put may be cancelled by the Investor, and such Put shall
thereupon be of no further force or effect.
ARTICLE II
INVESTOR'S CALL RIGHTS
Section 2.1 Investor's First Call.
(a) The Investor has the option, exercisable from and including the
date hereof, until the close of business on September 1, 2000 (subject to
extension as set forth in Section 2.3(a) below) (the "FIRST CALL EXPIRATION
DATE"), to purchase all, but not less than all, of Tranche A (except as set
forth below) from the Company (subject to the adjustments set forth in Paragraph
(c) below), for an aggregate consideration of $1,000 per Tranche A Share (the
"FIRST CALL"). The First Call shall not be exercisable if the First Put shall
have been exercised (provided that the First Put shall not have been cancelled
pursuant to Section 1.03 above), except that in the event that the First Put
shall have been exercised and the number of Tranche A Shares shall have been
limited pursuant to Section 1.1(d), then the First Call shall remain exercisable
until the First Call Expiration Date, for the balance of the Tranche B Shares
that would have been included but for such limitation, subject to the limitation
in paragraph (c) below.
(b) The First Call shall be exercised by written notice to the
Company (the "FIRST CALL NOTICE"), which notice may be given concurrently with
the execution and delivery of this Agreement. Upon delivery of the First Call
Notice, subject to the applicable closing conditions contained in Article VI,
the Company shall be obligated to sell and deliver to the Investor and the
Investor shall be obligated to purchase from the Company, the Tranche A Shares.
Closing of such purchase and sale ("FIRST CALL CLOSING") shall take place at the
offices of KKWC within three business days after the delivery of the First Call
Notice. The First Call Notice may be delivered concurrently with, or pursuant to
the same notice as, a call notice for Series E Preferred Stock, and in such
case, at the Investor's option, the First Call Closing shall occur
contemporaneously with such purchase of Series E Preferred Stock.
(c) In the event that on the date of the First Call Notice or the
First Call Closing, the aggregate consideration for Tranche A , together with
the purchase price of any Series E Preferred Stock then outstanding or being
purchased concurrently with the Tranche A Shares, shall be in excess of 9% of
the Company's Market Capitalization, then the number of Tranche A Shares shall
be reduced such that such aggregate consideration shall equal 9% of the
Company's Market Capitalization. If Tranche A is so reduced, the number of
Preferred Shares in Tranche B shall be correspondingly increased so that the
total consideration for the Preferred Shares in Tranche A and Tranche B shall
equal $15,250,000.
5
<PAGE>
Section 2.2 Investor's Second Call.
(a) At any time after October 30, 2000, but no later than March 1,
2001 (subject to extension as set forth in Section 2.3(b) below) (the "SECOND
CALL EXPIRATION DATE"), the Investor may exercise the option to purchase all,
but not less than all, of Tranche B (except as set forth below) from the Company
for an aggregate consideration of $1,000 per Tranche B Share (the "SECOND
CALL"). The Second Call shall not be exercisable if the Second Put shall have
been exercised (provided that the Second Put shall not have been cancelled
pursuant to Section 1.03 above), except that in the event that the Second Put
shall have been exercised and the number of Tranche B Shares shall have been
limited pursuant to Section 1.2(d), then the Second Call shall remain exerciable
until the Second Call Expiration Date, for the balance of the Tranch B Shares
that would have been included but for such limitation, subject to the limitation
in paragraph (c) below.
(b) The Second Call shall be exercised by written notice to the
Company (the "SECOND CALL NOTICE"). Upon delivery of the Second Call Notice,
subject to the applicable closing conditions contained in Article VI, the
Company shall be obligated to sell and deliver to the Investor and the Investor
shall be obligated to purchase from the Company, the Tranche B Shares. Closing
of such purchase and sale ("SECOND CALL CLOSING") shall take place at the
offices of KKWC within three business days after the delivery of the Second Call
Notice.
(c) In the event that on the date of the Second Call Notice or the
Second Call Closing, the aggregate purchase price for the Tranche B Shares shall
exceed 9% of the Company's Market Capitalization, then the number of Tranche B
Shares shall be reduced such that such aggregate consideration shall equal 9% of
the Company's Market Capitalization.
Section 2.3 Extension of First Call and Second Call Expiration Dates.
(a) In the event that there is a delay in the registration of shares
of Common Stock pursuant to the registration rights agreement contained in the
Series E Transaction Documents beyond the required time set forth therein, then
the First Call Expiration Date shall be extended by one day for each day that
such registration is not effected by the required time set forth in such
registration rights agreement.
(b) In the event that there is a delay in the Registration of Common
Shares, issuable upon conversion of the Tranche A Shares, pursuant to the
Registration Rights Agreement beyond the required time set forth therein, then
the Second Call Expiration Date shall be extended by one day for each day that
the registration is not effected by the required time set forth in the
Registration Rights Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Investor as of
the date hereof, the date
6
<PAGE>
of any Put Notice and on the date of any Put Closing, and as of the date of the
First Call Notice or Second Call Notice and on the date of the First Call
Closing or Second Call Closing:
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE EFFECT. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Delaware and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. The Company
does not have any subsidiaries other than the subsidiaries listed on Schedule
3.1(a) attached hereto ("SUBSIDIARIES"). Except where specifically indicated to
the contrary, all references in this Agreement to subsidiaries shall be deemed
to refer to all direct and indirect subsidiaries of the Company. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to enter into and perform the Transaction
Documents and to issue the Preferred Shares in accordance with the terms hereof,
(ii) the execution and delivery of this Agreement and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including the issuance of the Preferred Shares
and the resolutions contained in the Certificate, have been duly authorized by
all necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors (or any committee or subcommittee thereof) or
stockholders is required, (iii) this Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company, (iv) this
Agreement, the Certificate and the Registration Rights Agreement constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except (A) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application, and
(B) to the extent the indemnification provisions contained in this Agreement and
the Registration Rights Agreement may be limited by applicable federal or state
securities laws, and (v) the Preferred Shares have been duly authorized and,
upon issuance thereof and payment therefor in accordance with the terms of this
Agreement, the Preferred Shares will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, claims and encumbrances.
(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, 24,708,724 shares are issued and outstanding, 11,944,131
shares are issuable and reserved for issuance pursuant to the Company's stock
option and purchase plans and 1,403,746 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) 23,500 shares were designated as Series C
Preferred Stock and all shares of which have been issued, converted and
cancelled, (B) 7,500 shares were designated as Series D Preferred Stock, all
shares of which have been issued, converted and cancelled, (C) 17,500 shares
were designated as Series E Preferred Stock, of which 8,750 shares have been
issued, and 8,750 shares have not yet been issued and are reserved for issuance
pursuant to the
7
<PAGE>
Series E Transaction Documents, and (D) 15,250 shares designated as Series F
Preferred Stock, none of which shares were issued and outstanding and all of
such were reserved for issuance hereunder. 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 contemplated by the Series E Transaction Documents
or as disclosed in Schedule 3.1(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) 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 Securities Act of 1933, as amended ("SECURITIES ACT"
or "1933 ACT") (except the Registration Rights Agreement and the registration
rights agreements included in the Series E Transaction Documents, (v) there are
no outstanding securities of the Company or any of its Subsidiaries which
contain any redemption or similar provisions other than the Series E Preferred
Stock, 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 Preferred 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 and the Certificate, the Preferred Shares and Common Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof.
(e) NO CONFLICTS. Except as disclosed in Schedule 3.1(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 Nasdaq National Market ("PRINCIPAL MARKET") or
principal securities
8
<PAGE>
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 3.1(e), neither the Company nor its Subsidiaries is in
violation of 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 3.1(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 Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT" or "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
Company to the Investor which is not included in the SEC Documents, including,
without
9
<PAGE>
limitation, information referred to in Section 3.2(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
3.1(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 3.1(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
Preferred 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 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, the
Company shall not provide, any Investor with any material non-public
information. This Agreement and
10
<PAGE>
the transactions contemplated hereby do not constitute material events or
transactions pertaining to the Company and do not require public disclosure
pursuant to applicable securities laws and the rules and regulations of the
NASD.
(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
Preferred 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 3.1(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 3.1(n), there is no claim, action or
proceeding being made or 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
11
<PAGE>
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct 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 3.1(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 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 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
12
<PAGE>
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 3.1(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 3.1(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 3.1(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 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 Common Shares issuable upon conversion of Preferred Shares
purchased 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 (x) to issue Preferred
Shares on exercise of the options contained in Articles I and II hereof, and (y)
to issue Common Shares upon conversion of Preferred Shares purchased pursuant to
this Agreement, is absolute and unconditional regardless of the dilutive effect
that such issuances 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
13
<PAGE>
limitation, the Company's issuance of the Preferred Shares and the Investor's
ownership of the Preferred 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 or similar or successor 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, including, without limitation, the exercise
of any Put or Call, the sale of any Preferred Shares, or the conversion of any
Preferred Shares.
(z) MARKET CAPITALIZATION. As of the date hereof, the aggregate
market value of the voting common equity of the Company held by non-affiliates
of the Company is greater than $150 million and on the date of the filing of the
Registration Statement, such aggregate market value shall be greater than $150
million as of a date within 60 days prior to such filing.
(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.
(bb) ISSUANCE OF COMMON SHARES. The Common Shares are duly
authorized and reserved for issuance and, upon conversion of Preferred Shares in
accordance with the Certificate (including receipt by the Company of the
Preferred Shares or being converted or a lost stock affidavit), such Common
Shares will be validly issued, fully paid and non-assessable, free and clear of
any and all liens, claims and encumbrances, and entitled to be traded on the
Principal Market or the New York Stock Exchange or the American Stock Exchange,
or the Nasdaq small cap market (collectively with the Principal Market, the
"APPROVED MARKETS"), and the holders of such Common Shares shall be entitled to
all rights and preferences accorded to a holder of Common Stock. As of the date
of this Agreement, the outstanding shares of Common Stock are currently listed
on the Principal Market.
(cc) FORM S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) for secondary
offerings on Form S-3 (as in effect on the date of this Agreement) under the
1933 Act and rules promulgated thereunder, and Form S-3 (as in effect on the
date of this Agreement) is permitted to be used for the transactions
contemplated hereby under the 1933 Act and rules promulgated thereunder.
Section 3.2 Representations and Warranties of the Investor. The Investor,
hereby makes the following representations and warranties to the Company as of
the date hereof, on the date of the First Call Notice or the Second Call Notice
(each a "Call Notice") and on the date of any Closing:
14
<PAGE>
(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 Preferred Shares and Common 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 Preferred Shares and Common 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. 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 3.1
above. The Investor understands that its investment in the Preferred Shares and
Common 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 Preferred
Shares and Common 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 Preferred Shares
and Common Shares or the fairness or suitability of the investment in the
Preferred Shares and Common Shares nor have such authorities passed upon or
endorsed the merits of the offering of the Preferred Shares and Common Shares.
(d) LEGENDS. The Company shall issue certificates for the Preferred
Shares and Common Shares to the Investor without any legend except as described
in Article VII below. The Investor covenants that, in connection with any
transfer of Common Shares by the Investor pursuant to the registration statement
contemplated by the Registration Rights Agreement, it will comply with the
applicable prospectus delivery requirements of the 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 and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Investor and are valid and binding agreements 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 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 Cayman Islands or
such other jurisdiction as the Company shall be advised of in writing by the
Investor.
15
<PAGE>
(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) INVESTMENT REPRESENTATION. If purchasing Preferred Shares
pursuant to this Agreement, the Investor will be purchasing such Preferred
Shares for its own account and not with a view to distribution in violation of
any securities laws. The Investor has been advised and understands that neither
the Preferred Shares nor the shares of Common Stock issuable upon conversion
thereof have been registered under the 1933 Act or under the "blue sky" laws of
any jurisdiction and may be resold only if registered pursuant to the provisions
of the 1933 Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law. The Investor has been advised and understands that the Company in
issuing the Preferred Shares is relying upon, among other things, the
representations and warranties of the Investor contained in this Section 3.2 in
concluding that such issuance is a "private offering" and is exempt from the
registration provisions of the 1933 Act.
(i) RULE 144. The Investor understands that there is no public
trading market for the Preferred Shares, that none is expected to develop, and
that the Preferred Shares must be held indefinitely unless and until such
Preferred Shares or Common Shares received upon conversion thereof are
registered under the 1933 Act or an exemption from registration is available.
The Investor has been advised or is aware of the provisions of Rule 144
promulgated under the 1933 Act.
(j) BROKERS. The Investor has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company or the Investor relating to this Agreement or the
transactions contemplated hereby.
(k) RELIANCE BY THE COMPANY. The Investor understands that the
Preferred Shares are being offered and sold in reliance on a transactional
exemption from the registration requirements of Federal and state securities
laws and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of the Investor to acquire the Preferred Shares.
ARTICLE IV
COVENANTS
Section 4.1 Registration and Listing; Effective Registration. Until such
time as no Preferred Shares or options to sell or acquire Preferred Shares
pursuant to Articles I or II, are outstanding, the Company will cause the Common
Stock to continue at all times to be registered under Sections 12(b) or (g) of
the Exchange Act, will comply in all material respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such reporting and filing obligations. Until
such time as no Preferred Shares are
16
<PAGE>
outstanding, the Company shall continue the listing or trading of the Common
Stock on the Principal Market or one of the other Approved Markets and comply in
all material respects with the Company's reporting, filing and other obligations
under the bylaws or rules of the Approved Market on which the Common Stock is
listed. The Company shall cause the Common Shares to be listed on the Principal
Market or one of the other Approved Markets no later than the effectiveness of
the registration of the Common Shares under the Act, and shall continue such
listing(s) on one of the Approved Markets, for so long as any Preferred Shares
are outstanding.
Section 4.2 Certificates on Conversion. Upon any conversion by the
Investor (or then holder of Preferred Shares) of the Preferred Shares pursuant
to the Certificate, the Company shall issue and deliver to the Investor (or
holder) within three (3) Trading Days of the conversion date a new certificate
or certificates for the number of Preferred Shares which the Investor (or
holder) has not yet elected to convert but which are evidenced in part by the
certificate(s) submitted to the Company in connection with such conversion (with
the denominations of such new certificate(s) designated by the Investor or
holder).
Section 4.3 Replacement Certificates. The certificate(s) representing the
Preferred Shares held by any Investor (or then holder) may be exchanged by the
Investor (or such holder) at any time and from time to time for certificates
with different denominations representing an equal aggregate number of Preferred
Shares, as requested by the Investor (or such holder) upon surrendering the
same. No service charge will be made for such registration or transfer or
exchange.
Section 4.4 Securities Compliance. The Company shall notify the SEC and
the Principal Market, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Certificate and the Registration Rights
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Preferred Shares hereunder and the Common Shares issuable
upon conversion thereof.
Section 4.5 Notices. The Company agrees to provide all holders of
Preferred Shares with copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to the holders of shares of Common Stock, contemporaneously with
the delivery of such notices or information to such Common Stock holders.
Section 4.6 Use of Proceeds. The Company agrees that the net proceeds
received by the Company from the sale of the Preferred Shares hereunder shall be
used for legally permitted corporate purposes.
Section 4.7 Reservation Preferred Shares; Stock Issuable Upon Conversion.
(a) The Company shall reserve all authorized but unissued Series F
Preferred Stock for issuance to the Investor pursuant to the terms of this
Agreement.
(b) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, such number of its shares of
Common Stock as shall from
17
<PAGE>
time to time be sufficient to effect the conversion of all Preferred Shares, and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all the then Preferred
Shares, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including without limitation engaging in best efforts to obtain the requisite
shareholder approval. Without in any way limiting the foregoing, the Company
agrees to reserve and at all times keep available solely for purposes of
conversion of Preferred Shares, such number of authorized but unissued shares of
Common Stock that is at least equal to 200% of the number of Common Shares
issuable upon conversion of all Preferred Shares. If at any time the number of
authorized but unissued shares of Common Stock is not sufficient to effect the
conversion, up to the Maximum Common Stock Issuance (as defined in Section 4.16
below), of all the then outstanding Preferred Shares, the Investor shall be
entitled to, INTER ALIA, the redemption rights provided in the Registration
Rights Agreement.
Section 4.8 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article VI of this Agreement.
Section 4.9 Form D; Blue Sky Laws. Upon a sale of Preferred Shares to the
Investor, the Company agrees to file a Form D with respect to the Preferred
Shares and Common Shares, as required under Regulation D and to provide a copy
thereof to the Investor promptly after such filing. The Company shall, on or
before the date of any Closing, take such action as the Company shall have
reasonably determined is necessary to qualify the Preferred Shares and Common
Shares for sale to the Investor under applicable securities or "blue sky" laws
of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Investor on or prior to such Closing; provided, however, that the Company shall
not be required in connection therewith to register or qualify as a foreign
corporation in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits or taxation, in each
case, in any jurisdiction where it is not now so subject.
Section 4.10 Update Filings. The Company shall make such filings as shall
be required to update any current registration statements filed pursuant to the
Series E Transaction Documents to reflect this Agreement and the transaction
contemplated hereby.
Section 4.11 Shareholder Rights Plan. None of the acquisitions of
Preferred Shares or Common Shares nor the deemed beneficial ownership of shares
of Common Stock prior to, or the acquisition of such shares pursuant to, the
conversion of Preferred shares will in any event under any circumstances trigger
the poison pill provisions of any stockholders' rights or similar agreements, or
a substantially similar occurrence under any successor or similar plan.
Section 4.12 Issuances of Preferred Shares. The Company shall not, without
the prior written consent of the Investor, issue any Preferred Shares to any
persons other than the Investor.
Section 4.13 Financial Information. The Company agrees to send the
following to the Investor for so long as any Preferred Shares are outstanding:
(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
18
<PAGE>
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.
Section 4.14 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.
Section 4.15 Restrictions On Short Sales. So long as the Investor owns
Preferred Shares, 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
Common Shares that the Investor then has the right to acquire pursuant to
conversion of any Preferred Shares owned by the Investor or issuable to the
Investor upon conversion of Preferred Shares acquired upon exercise of any Put
or Call, pursuant to the conversion of any shares of Series E Preferred Stock
owned by the Investor or issuable to the Investor upon conversation of shares of
Series E Preferred Stock acquired upon exercise of any put or call, or pursuant
to the exercise of any warrants held by the Investor or any affiliate of the
Investor.
Section 4.16 Overall Limit on Common Stock Issuable. Notwithstanding
anything contained herein to the contrary, the number of Common Shares issuable
by the Company and acquirable by the Investor hereunder pursuant to conversion
of the Preferred Shares shall not exceed 4,941,744 shares of Common Stock
outstanding as of the date hereof, or such smaller amount as shall apply under
the rules of the National Association of Securities Dealers, Inc. ("NASD") if
the NASD integrates the issuance of the Preferred Shares with the issuance of
other securities by the Company, 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 Certificate 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 the Maximum Common Stock Issuance 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
Preferred Shares hereunder, and that such approval pertains only to the
applicability of the Maximum Common Stock Issuance limitation provided in this
Section. The Company agrees to provide, upon request by the Investor,
information on the number reserved shares of Common Stock which may be issued
without exceeding the Maximum Common Stock Issuance. In the event that Common
Shares may not be issued without exceeding the Maximum Common Stock Issuance,
then the Company shall thereupon use its best efforts to obtain shareholder
approval to issue the Common Shares in excess of the Maximum Common Stock
Issuance within 90 days of such deficiency (the "Approval Period"). In the event
that such approval is not obtained by the end of the Approval Period, the
Investor shall be entitled to the conversion deficiency remedies set forth in
Section 2(b)(iv) of the Registration Rights Agreement. If a conversion notice
for
19
<PAGE>
Preferred Shares is tendered by the Investor during the Approval Period, then
the Investor shall be entitled to the difference between (A) the closing bid
price of the Common Stock on the date preceding the date of the Conversion
Notice multiplied by the number of Common Shares issued upon such conversion and
(B) the aggregate conversion price of such Common Shares.
Section 4.17 Right of First Refusal. From the date hereof until the Second
Call Expiration Date, neither the Company nor any Subsidiary shall: offer, sell,
contract to sell or otherwise issue or deliver or dispose of any capital stock
of the Company or any Subsidiary, or securities convertible into, exchangeable
for or exercisable for, or which derive any substantial portion of their value
from, capital stock of the Company or any Subsidiary ("Equity Securities") or
engage in a financing involving its Equity Securities (other than a transaction
involving the grant of employee stock options pursuant to an employee stock
option plan currently in effect, an employee stock purchase plan currently in
effect, a joint venture or strategic investment entered into with another entity
in the same or complementary line of business, an investment by a corporation
which is not an institutional investor, investment company or similar such
entity, or a bona fide public offering other than an equity line) unless such
offer, sale or financing ("FINANCING TRANSACTION") is first offered to the
Investor on the same terms and conditions to be offered to the non-Investor;
provided, however, that in the case of an offer consisting in whole or in part
of consideration other than cash, the Investor shall have the right to offer the
fair market value cash equivalent of such offer. The Company shall make such
offer by providing the Investor with written notice of the Company's intention
to enter into the Financing Transaction together with a term sheet containing
the economic terms and significant provisions of the Financing Transaction,
promptly following receipt of such terms from a third party, and any other
information reasonably requested by the Investor (the "OFFER"). Such Offer shall
be given with respect to each Financing Transaction contemplated by the Company.
The Investor shall have ten (10) days from receipt of the Offer to deliver a
written notice to the Company that the Investor wishes to accept the Offer in
whole or in part (subject to reasonable acceptable definitive documentation) for
the Financing Transaction. If the Investor does not accept the Offer in whole or
in part or fails to respond within such ten (10) day period, then the Company
shall be permitted to complete such Financing Transaction without the Investor
on terms and conditions substantially identical to those contained in the Offer,
provided that the transaction is consummated within ninety (90) days of receipt
of the Offer. If the Investor accepts such Offer in whole or in part, the
consummation of such transaction with the Investor shall occur by the later of:
(i) the time originally provided by the Financing Transaction with the third
party or (ii) 30 days from the receipt of the Investor's notice. If any
Financing Transaction is contemplated on terms and conditions not substantially
identical to those contained in the Offer, then such Financing Transaction shall
be deemed a new Financing Transaction and the Investor shall again be entitled
to receive an Offer for such Financing Transaction on such new terms and
conditions (and/or with such new definitive documentation if applicable).
ARTICLE V
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 Common Shares in such
amounts as specified from time to time
20
<PAGE>
by the Investor to the Company upon delivery of a conversion notice (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company warrants that no
instruction relating to the Common Shares other than the Irrevocable Transfer
Agent Instructions referred to in this Article V will be given by the Company to
its transfer agent and that the Common Shares shall be freely transferable on
the books and records of the Company as contemplated by Article VII below when
the legend referred to therein may be removed. Nothing in this Article V shall
affect in any way the Investor's obligations and agreements set forth in Section
3.2(d) to comply with all applicable prospectus delivery requirements, if any,
upon resale of the Common 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 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, 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.
ARTICLE VI
CONDITIONS TO CLOSINGS
Section 6.1 Conditions Precedent to the Obligation of the Company to Sell
the Preferred Shares. The obligation hereunder of the Company to issue and/or
sell the Preferred Shares to the Investor at a Put Closing, or the First Call
Closing or Second Call Closing (each a "Closing") is subject to the
satisfaction, at or before such Closing, as the case may be, of each of the
applicable 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) ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Investor will be true and correct in all
material respects as of the date when made and as of the date of such Closing,
as though made at that time.
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Investor at or prior to the Closing, including payment of the
applicable purchase price.
(c) NO INJUNCTION. 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 or the Registration Rights Agreement or the Certificate.
Section 6.2 Conditions Precedent to the Obligation of the Investor to
Purchase the Preferred Shares. The obligation hereunder of the Investor to
acquire and pay for any Preferred Shares at the first Closing (whether pursuant
to a Put or a Call) and on each subsequent Closing
21
<PAGE>
is subject to the satisfaction, on the date hereof (in the case of paragraphs
(e),(f) and (h) below) and at or before such Closing, of each of the applicable
conditions set forth below. These conditions are for the Investor's benefit and
may be waived by the Investor at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the date of such Closing as
though made at that time (except for representations and warranties as of an
earlier date, which shall be true and correct in all material respects as of
such date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing, including, without limitation, delivery
of certificates representing the Preferred Shares issued to Investor.
(c) NASDAQ TRADING. From the date hereof to the date of the Closing,
trading in the Company's Common Stock shall not have been suspended by the SEC
and trading in securities generally as reported by the Principal Market (or
other Approved Market) shall not have been suspended or limited, and the Common
Stock shall be listed on the Principal Market or another Approved Market.
(d) NO INJUNCTION. 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 the
Transaction Documents. The NASD shall not have objected or indicated that it may
object to the consummation of any of the transactions contemplated by this
Agreement.
(e) OPINION OF COUNSEL. On the date of this Agreement, the Investor
shall have received an opinion of counsel to the Company in form and substance
satisfactory to the Investor and at the Closing, the Investor shall have
received an opinion of counsel to the Company in the form attached hereto as
Exhibit 6.2(e) and such other opinions, certificates and documents as the
Investor or their counsel shall reasonably require incident to the Closing.
(f) REGISTRATION RIGHTS AGREEMENT. The Company and the Investor
shall have executed and delivered the Registration Rights Agreement in the form
and substance of Exhibit 6.2(f) attached hereto on the date of this Agreement.
(g) OFFICER'S CERTIFICATE. The Company shall have delivered to the
Investor a certificate in form and substance satisfactory to the Investor and
the Investor's Counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, satisfaction of the Put Conditions (if a Put
Closing), incumbency of signing officers, and the true, correct and complete
nature of the Certificate of Incorporation, By-Laws, good standing and
authorizing resolutions of the Company.
(h) CERTIFICATE. The Certificate shall have been accepted for filing
by the Secretary of State of the State of Delaware on or before the date hereof
and a stamped copy
22
<PAGE>
thereof shall have been provided to the Investor's Counsel not later than one
business day from the date of this Agreement.
(i) MISCELLANEOUS. The Company shall have delivered to the Investor
such other documents relating to the transactions contemplated by this Agreement
or the Investor or its counsel may reasonable request.
(j) PUT CONDITIONS. If the Closing is a Put Closing, the Put
Conditions shall have been satisfied on the date of receipt of the Put Notice
and on the date of the Closing.
(k) COMPLIANCE WITH DOCUMENTS. The Company shall be in compliance
with all of its obligations under the Transaction Documents and the Series E
Transaction Documents.
Section 6.3 Closing Deliveries.
(a) On the date of the first Closing, the Company shall deliver to
the Investor:
(i) Certificates representing the Tranche A Shares;
(ii) The certificate referred to in Section 6.2(g) above; and
(iii) The opinion of counsel referred to in Section 6.2(e)
above.
(b) On the date of the first Closing, the Investor shall deliver to
the Company:
(i) The purchase price for the Tranche A Shares.
Section 6.4 Closing Deliveries at Subsequent Closings.
(a) On the date of each Closing after the first Closing, the Company
shall deliver to the Investor:
(i) certificates representing the Preferred Shares issued to
the Investor;
(ii) the certificate referred to in Section 6.2 (g) above;
(iii) the opinion of counsel referred to in Section 6.2(e).
(b) On the date of each subsequent Closing, the Investor shall
deliver to the Company:
(i) The purchase price for the Preferred Shares purchased.
Section 6.5 Option to Convert Preferred Shares at Time of Exercise of Put
or Call. Concurrently with, or at any time after, the delivery of a Put Notice
or Call Notice, the Investor shall have the right to tender a conversion notice
for any or all of the Preferred Shares to be purchased pursuant to such Put or
Call (regardless of whether the Certificate has been filed), provided that the
Company's obligation to issue Common Stock upon conversion shall be conditioned
upon the consummation of the related Put Closing or Call Closing.
23
<PAGE>
ARTICLE VII
LEGEND AND STOCK
Upon payment therefor as provided in this Agreement, the Company will
issue one or more certificates representing the Preferred Shares in the name of
the Investor or its designees and in such denominations to be specified by the
Investor prior to (or from time to time subsequent to) each Closing. Each
certificate representing the Preferred Shares and any Common Shares issued upon
conversion thereof, prior to such Common Shares being registered under the 1933
Act for resale or available for resale under Rule 144 under the 1933 Act, shall
be stamped or otherwise imprinted with a legend substantially in the following
form:
THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Preferred Shares without the legend set
forth above at such time as (i) the holder thereof is permitted to dispose of
such Preferred Shares and/or Common Shares issuable upon conversion thereof
pursuant to Rule 144 under the Act, or (ii) such Preferred Shares are sold to a
purchaser or purchasers who (in the opinion of counsel to the seller or such
purchaser(s), in form and substance reasonably satisfactory to the Company and
its counsel) are able to dispose of such shares publicly without registration
under the Act.
Prior to the Registration Statement (as defined in the Registration Rights
Agreement) being declared effective, any Common Shares issued pursuant to
conversion of Preferred Shares shall bear a legend in the same form as the
legend indicated above; provided that such legend shall be removed from the
Common Shares and the Company shall issue new certificates without such legend
if (i) the holder thereof is permitted to dispose of such Common Shares pursuant
to Rule 144 under the 1933 Act, (ii) such Common Shares are registered for
resale under the 1933 Act, or (iii) such Common Shares are sold to a purchaser
or purchasers who (in the opinion of counsel to the seller or such purchaser(s),
in form and substance reasonably satisfactory to the Company and its counsel)
are able to dispose of such shares publicly without registration under the 1933
Act. Upon such Registration Statement becoming effective, the Company agrees to
promptly, but no later than three (3) business days thereafter, issue new
certificates representing such Common Shares without such legend. Any Common
Shares issued after the Registration Statement has become effective shall be
free and clear of any legends, transfer restrictions and stop orders.
Notwithstanding the removal of such legend, the Investor agrees to sell the
Common Shares represented by the new certificates in accordance with the
applicable prospectus delivery requirements (if copies of a current prospectus
are provided to the Investor by the Company) or in accordance with an exemption
from the registration requirements of the 1933 Act.
24
<PAGE>
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement entered
into in compliance with law, including applicable securities laws.
ARTICLE VIII
TERMINATION
Section 8.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Investor.
Section 8.2 Other Termination. In the event that a Closing shall not have
occurred within ten business days of the date of receipt of the relevant Put or
Call Notice due to the failure by one party (the "Defaulting Party") to satisfy
the closing conditions applicable to it, then the other party (the
"Non-Defaulting Party") may at its option, terminate the Defaulting Party's
right to acquire pursuant to a Call or sell (pursuant to a Put), as the case may
be, the Preferred Shares in the relevant Tranche. In the event that the Investor
is the Defaulting Party, then if its right to purchase the relevant Tranche is
terminated, its rights under Section 4.17 shall terminate at the same time.
ARTICLE IX
INDEMNIFICATION
In consideration of the Investor's execution and delivery of the this
Agreement and the Registration Rights Agreement and acquiring the Preferred
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 its partners, 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 "INDEMNITIEES") 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 Preferred Shares or (iii) the status of the Investor or holder of the
Preferred Shares as an investor in the Company, and (d) the enforcement of this
Section. Notwithstanding the foregoing, Indemnified Liabilities shall not
include any liability of any
25
<PAGE>
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 Article IX 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.
ARTICLE X
GOVERNING LAW, MISCELLANEOUS.
Section 10.1 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 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.
EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY.
Section 10.2 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.
Section 10.3 Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
26
<PAGE>
Section 10.4 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.
Section 10.5 Entire Agreement; Amendments; Waivers.
(a) 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.
(b) 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.
Section 10.6 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:
If to the Company:
Secure Computing Corporation
601 Campus Drive South, Suite 7
New Brighton, MN 55112
Telephone: (651) 628-6221
Facsimile: (651) 628-2714
Attention: Ms. Mary Budge
and
Secure Computing Corporation
One Almaden Boulevard, Suite 400
San Jose, California 95113
Telephone: (408) 918-6180
Facsimile: (408) 918-6205
Attention: Mr. Tim McGurran
27
<PAGE>
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) 450-4045
Facsimile: (651) 450-4078
Attention: Transfer Agent
If to the Investor:
Westgate International, L.P.
c/o Elliott Management Corporation
712 Fifth Avenue, 36th Floor
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: 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
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,
28
<PAGE>
receipt by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.
Section 10.7 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 Preferred Shares and/or Common Shares in connection with a bona fide margin
account.
Section 10.8 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.
Section 10.9 Survival. The representations, warranties and agreements of
the Company and the Investor contained in the Agreement shall survive each
Closing.
Section 10.10 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).
Section 10.11 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.
Section 10.12 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.
29
<PAGE>
Section 10.13 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.
Section 10.14 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.
Section 10.15 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.
Section 10.16 Days. Unless the context refers to "business days" or
"Trading Days", all references herein to "days" shall mean calendar days.
Section 10.17 Recission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction 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.
* * * * *
[SIGNATURE PAGE FOLLOWS]
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
COMPANY: INVESTOR:
SECURE COMPUTING CORPORATION WESTGATE INTERNATIONAL, L.P.
By: Elliott International Capital
Advisors Inc., as Attorney-in-Fact
By: /S/ JOHN MCNULTY By: /S/ PAUL E. SINGER
--------------------------------- ----------------------------------
Name: John McNulty Name: Paul E. Singer
Title: Chairman and CEO Title: President
31
<PAGE>
LIST OF SCHEDULES
Schedule 3.1(a) Organization and Qualification
Schedule 3.1(c) Capitalization
Schedule 3.1(e) No Conflicts
Schedule 3.1(g) Absence of Certain Changes
Schedule 3.1(h) Absence of Litigation
Schedule 3.1(n) Intellectual Property Rights
Schedule 3.1(p) Title
Schedule 3.1(u) Tax Status
Schedule 3.1(v) Certain Transactions
LIST OF EXHIBITS
Exhibit 1.1A Certificate
Exhibit 6.2(e) Opinion of Counsel
Exhibit 6.2(f) Registration Rights Agreement
