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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT FEBRUARY 10, 2000
(Date of earliest event reported)
SOFTLOCK.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
33-37751-D 84-1130229
(Commission File Number) (IRS Employer Identification No.)
5 CLOCK TOWER PLACE, SUITE 440, MAYNARD, MA 01754
(Address principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (978) 461-5940
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ITEM 5. OTHER EVENTS.
On February 14, 2000, SoftLock.com, Inc. (the "Company") announced
that pursuant to closings on February 10, 2000, it had issued 46,875 shares
of Series B Preferred Stock (the "Series B Preferred") to a group of
investors, including affiliates of Tudor Investment Corp. and Ritchie Capital
as well as investors in an earlier round of financing, SI Venture Fund II,
L.P. and Apex Investment Fund IV, L.P. for a purchase price of $160 per share
for an aggregate purchase price of $7,500,000. These investors were also
issued two warrants, one of which becomes exercisable for an aggregate of
312,500 shares of common stock if as of August 15, 2000 the Company's
registration statement for the shares of common stock issuable upon
conversion of the Series B Preferred (the "Series B Registration Statement")
was not declared effective and the Nasdaq listing application for the common
stock was not accepted and the second of which would become exercisable for
an aggregate of an additional 312,500 shares of common stock if as of
November 15, 2000 these two conditions were not met.
The Company also announced that Ascent Venture Partners III, L.P.
("Ascent") had purchased 14,706 shares of the Company's Series A Preferred Stock
for $102 per share for an aggregate purchase price of $1,500,000. In connection
with the investment by Ascent, the Company agreed to appoint an Ascent
representative to its Board of Directors.
In connection with the Series B Preferred transaction, the Company
entered into a Series B Preferred Stock and Warrant Purchase Agreement dated as
of February 10, 2000 (the "Purchase Agreement") with the investors
(collectively, the "Purchasers") and an Amended and Restated Shareholders' and
Rights Agreement (the "Shareholders Agreement") with the Purchasers, the holders
of the Series A Preferred Stock and the Company's President and Chief Executive
Officer and its Chief Technology Officer. The Company also filed a Certificate
of Designation with the Delaware Secretary of State that states the powers,
preferences and rights of the Series B Preferred. These documents are attached
as exhibits to this Report and are incorporated into this Report by reference.
The following summarizes important terms of these documents. Because it
is a summary, it does not contain all the information that may be important and
is qualified in its entirety by the exhibits filed with this Report.
THE CERTIFICATE OF DESIGNATION
CONVERSION: Each share of Series B Preferred is initially convertible
into 100 shares of the Company's common stock, subject to certain anti-dilution
adjustments described below. The Series A Preferred will automatically convert
into common stock upon the earlier of (i) immediately prior to the consummation
of an underwritten public offering with aggregate proceeds to the Company and
the Purchasers in excess of $20 million at a public offering price per share
that is at least $6.40 (subject to adjustment for stock splits and the like) per
common share (a "Qualified Public Offering"), or (ii) at the election of
two-thirds of the outstanding shares of the Series B Preferred Stock. If the
Company issues any equity securities or the right to purchase equity securities
at a price below the conversion price then in effect (subject to certain
exceptions), prior to the effective
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date of the Series B Registration Statement and the acceptance of the listing
application to be filed with the Nasdaq SmallCap Market (the "Listing
Application"), then the conversion price used to determine the number of
shares of common stock into which the Series B is convertible will be reduced
to the price at which such new securities were issued. If the Company issues
any equity security or the right to purchase any equity security at a price
below the conversion price then in effect after the Series B Registration
Statement is effective and the Listing Application is accepted, the
conversion price will be reduced on a weighted average basis.
DIVIDEND RIGHTS: Holders of the Preferred Stock are entitled to receive
dividends when and as declared by the Board.
LIQUIDATION PREFERENCE: Upon any liquidation, dissolution, winding up
or any merger, consolidation, sale of assets, reorganization or other
transaction in which control of the Company is transferred, each holder of a
Series B Preferred is entitled to receive prior to the common shareholders, $160
per share. However, if the preferred shareholder would receive higher value in
the liquidation transaction if its shares were converted into common stock, then
the holders of the Series B Preferred will receive the higher amount along with
the common shareholders.
REDEMPTION RIGHTS: If, on or after May 31, 2001, there remain
outstanding shares of Series B Preferred that have not been converted to
Common Stock and the Series B Registration Statement has not been declared
effective or the shares of common stock (including the shares of Common Stock
issuable upon conversion of the Series B Preferred) have not been accepted
for listing on the Nasdaq, the Company will be required to redeem the Series
B Preferred for the greater of (i) $160 per share or (ii) its fair market
value at the election of the majority of the Series B Preferred in two equal
annual installments, subject to the availability of legally sufficient funds.
VOTING RIGHTS: Holders of Series B Preferred vote with the common
shareholders as a single class on any matter submitted to the shareholders with
the holders of the Series B Preferred having that number of votes equal to the
whole number of common shares into which each share of Series B Preferred is
then convertible.
The Company also agreed in the Certificate of Designation and the
Purchase Agreement to obtain the consent of the holders of Series B Preferred
Stock who meet a certain ownership threshold before engaging in certain
activities, including but not limited to (i) sale or disposal of any stock of
the subsidiary or a substantial part of the Company's assets or business; (ii)
the acquisition of another entity for a purchase price greater than certain
thresholds, (iii) consolidation or merger with any other entity (subject to
certain exceptions); (iv) the grant of any registration rights preferential to
those granted to the Purchasers; (v) any substantial change in the character of
the Company's business; (vi) any distributions on equity securities other than
the Series A Preferred and Series B Preferred; (v) any redemption, purchase or
acquisition of the Company's own stock other than the Series A and Series B
Preferred (subject to certain exceptions); (vii) amendment to the Company's
certificate of incorporation or bylaw amendment not approved by the Board or
(viii) any issuance or award of equity securities or options to acquire equity
securities of the Company other than the Series A Preferred with rights ranking
senior or equivalent to the Series B Preferred.
FURTHER ADJUSTMENTS: The redemption price, liquidation preference,
ownership threshold and conversion price are subject to adjustment for stock
splits and other stock distributions.
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THE PURCHASE AGREEMENT
In the Purchase Agreement, the Company and its wholly owned subsidiary
made various representations and warranties about the Company and its subsidiary
subject to information contained in a disclosure schedule and also agreed to
various negative and affirmative covenants as set forth in the Purchase
Agreement filed as an exhibit hereto.
The Company agreed to file the Series B Registration Statement on Form
S-1 or Form S-3, as determined by the Company, on behalf of the Purchasers with
the Securities and Exchange Commission and to file the Listing Application with
Nasdaq no later than April 15, 2000 and to use its reasonable best efforts to
cause such Registration Statement to be declared effective and the Listing
Application to be accepted by July 15, 2000. The Purchasers agreed not to sell
any common stock under the Series B Registration Statement until the earlier of
(i) four months after the Series B Registration Statement was declared
effective, or (ii) November 1, 2000.
THE SHAREHOLDERS AGREEMENT
Under the Shareholders Agreement, the Company granted the Purchasers
the same rights of first refusal on issuances of additional equity securities by
the Company and on transfers of common stock owned by the President and Chief
Executive Officer or the Chief Technology Officer as were provided to the
holders of Series A Preferred. Such Shareholders Agreement was also revised to
provide Ascent with the right to designate a second director to the Company's
Board. The terms of these rights are set forth in the Shareholders Agreement
filed as an exhibit hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) The followings Exhibits are filed with this Current Report on Form
8-K.
EXHIBIT NO. DESCRIPTION
99.1 Press Release dated as of February 14, 2000
99.2 Amendment to Certificate of Designation for
Series A Preferred Stock filed with the
Delaware Secretary of State as of January
13, 2000
99.3 Amended and Restated Shareholders' and
Rights Agreement
99.4 Series B Preferred Stock and Warrant
Purchase Agreement by and among the
Purchasers, Softlock.com, Inc. and SoftLock
Services, Inc.
99.5 Certificate of Designation of Powers,
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Preferences and Rights of the Series B
Preferred Stock
99.6 Supplement to Series A Preferred Stock
Purchase Agreement
99.7 Form of Warrant exercisable under certain
conditions on August 15, 2000
99.8 Form of Warrant exercisable under certain
conditions on November 15, 2000
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
SOFTLOCK.COM, INC.
(REGISTRANT)
Date: February 15, 2000 By: /s/ Douglas R. Johnson
----------------------------------------
Douglas R. Johnson
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99.1 Press Release dated as of February 14, 2000
99.2 Amendment to Certificate of Designation for
Series A Preferred Stock filed with the
Delaware Secretary of State as of January
13, 2000
99.3 Amended and Restated Shareholders' and
Rights Agreement
99.4 Series B Preferred Stock and Warrant
Purchase Agreement by and among the
Purchasers, Softlock.com, Inc. and SoftLock
Services, Inc.
99.5 Certificate of Designation of Powers,
Preferences and Rights of the Series B
Preferred Stock
99.6 Supplement to Series A Preferred Stock
Purchase Agreement
99.7 Form of Warrant exercisable under certain
conditions on August 15, 2000
99.8 Form of Warrant exercisable under certain
conditions on November 15, 2000
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Exhibit 99.1
NEWS RELEASE
PRESS CONTACTS:
Doug Johnson Bob Joyce
SoftLock.com Inc. FitzGerald Communications
[email protected] [email protected]
http://www.softlock.com http://www.fitzgerald.com
978-461-4105 617-588-2298
SOFTLOCK.COM ANNOUNCES PLANS FOR NASDAQ LISTING AND $9 MILLION
STRATEGIC INVESTMENT LED BY TUDOR INVESTMENT CORP AND THE RITCHIE FUND
ABILITY TO CAPITALIZE ON FIRST-MOVER ADVANTAGE DRAMATICALLY STRENGTHENED
MAYNARD, MA. - FEBRUARY 14, 2000 - SoftLock.com, Inc. (OTCBB: SLCK), a leader in
merchandising valuable digital content, today announced the completion of a $7.5
million Series B investment round, led by prominent money managers Tudor
Investment Corporation and The Ritchie Fund. The backing of Tudor and Ritchie
gives SoftLock.com both strength and strategic positioning in the financial and
investment markets.
Building upon a prior investment in SoftLock.com, Apex Investment Fund IV and
SI Venture Fund II, L.P, a GartnerGroup Affiliate, also participated in the B
round. The company further announced that Ascent Venture Partners invested
$1.5 million in SoftLock.com's previous Series A round of financing. Ascent,
a venture capital firm which provides early-stage and growth oriented
financing to companies located in the Eastern United States, has a broad
portfolio of software and Internet investments, including Network Engines,
Viewlogic Systems, Indus River, Synchronicity and Ganymede Software. Leigh
Michl, managing director at Ascent Venture Partners, will also join the board
of directors at SoftLock.com.
Over the last three months SoftLock.com has raised a total of $14.75M. These
financings are expected to qualify SoftLock.com for listing on the Nasdaq
SmallCap Market, and the company plans to apply for this listing shortly.
Acceptance of the listing application by Nasdaq will be an important
milestone for the company. The renewed strength of the company's balance
sheet positions SoftLock.com to focus on longer-term strategic and investment
banking relationships which will expand the business model and position
SoftLock.com to pursue additional growth capital in the public markets.
"This strategic backing is a strong endorsement of SoftLock.com's first mover
advantage in merchandising digital content," said Keith Loris, SoftLock.com's
president and CEO. "SoftLock.com is the only company to provide a complete
business solution for securely selling, marketing and distributing premium
electronic content, and these funds will enable us to strengthen our business
and optimize our operating plan."
SoftLock.com will use the proceeds from these rounds to invest in additional
sales, merchandising,
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engineering and partnership efforts. The company also intends to use the funds
to explore additional intellectual property protection for the company's
software methods, and to enforce its existing and pending patent rights.
"We are excited by strong financial support from Tudor, Ritchie, Ascent and
our earlier strategic investors," said Doug Johnson, SoftLock.com's executive
vice president and CFO. "If our listing application with Nasdaq is accepted,
the Company expects to enjoy greater visibility with investors, improved
liquidity, and better positioning for future financings."
ABOUT SOFTlOCK.COM, INC.
SoftLock.com (OTCBB: SLCK) is an e-commerce leader in merchandising valuable
digital content. SoftLock.com's patented system and service offering, the
SoftLock CyberSales Solution-TM-, actively markets and sells brand-name
electronic content that delivers major benefits to Content Providers, SoftLock
Affiliates, and Consumers. The SoftLock CyberSales Solution brokers prime Web
placements, helping Content Providers effectively merchandise valuable
intellectual property through a point-of-sale system while also opening new
revenue streams, extending audience reach, building Web site stickiness and
growing brand awareness for SoftLock Affiliates. Consumers reap the benefits of
a universe full of valuable, trusted online content that is easily and readily
available, and can be safely and securely passed from consumer to consumer.
SoftLock.com's customers include respected publishers such as Standard & Poor's,
Morningstar, and G2News. SoftLock.com turns piracy into profits and makes every
copy an opportunity. For more information, visit www.softlock.com. Further
information on the investment can be found in the Company's Form 8-K filing with
the U.S. Securities Exchange Commission.
DIGITAL CONTENT @ ITS BEST.
# # #
SoftLock-Registered Trademark- is a registered trademark of SoftLock.com, Inc.
The SoftLock CyberSales Solution, the SoftLock Chain Reaction Channel, the
SoftLock Merchandising Network, and SoftLock PagePortals are trademarks of
SoftLock.com. All other products or company names are trademarks or registered
trademarks of their respective owners.
This news release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are subject to
risks and uncertainties that could cause actual results to vary materially from
those projected in the forward-looking statements. SoftLock.com may experience
significant fluctuations in future operating results due to a number of
economic, competitive and other factors, including, among other things, the size
and timing of customer orders, changes in laws, new or increased competition,
delays in new products, production problems, changes in market demand, market
acceptance of new products, seasonality in product purchases and availability of
capital to finance intended expansion of operations. These factors and others
could cause operating results to vary significantly from those in prior periods,
and those projected in forward-looking statements. Additional information with
respect to these and other factors, which could materially affect the Company
and its operations, are included in the Company's fillings with the Securities
and Exchange Commission and are incorporated herein.
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Exhibit 99.2
AMENDMENT NO. 1 TO
CERTIFICATE OF DESIGNATION OF POWERS,
PREFERENCES AND RIGHTS OF THE SERIES A PREFERRED STOCK
OF
SOFTLOCK.COM, INC.
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ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
SOFTLOCK.COM, INC., a Delaware corporation (the "Corporation"),
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
certifies that:
FIRST: The Board of Directors of the Corporation has duly adopted and
filed effective as of December 29, 1999 with the Secretary of State of the State
of Delaware certain resolutions providing for the issuance of a series of its
Preferred Stock to be designated "Series A Preferred Stock."
SECOND: The Board of Directors wishes to increase the number of shares
of the Series A Preferred Stock from 40,000 shares to 54,000 shares pursuant to
this Amendment No.1 (this "Amendment") to the Certificate of Designation of
Powers, Preferences and Rights of the Series A Preferred Stock effective as of
December 29, 1999 (the "Certificate of Designation").
THIRD: This Amendment to the Certificate of Designation has been duly
adopted in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware by the directors of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Keith Loris, its President and Chief Executive Officer, this 13th day
of January, 2000.
/s/ Keith Loris
-------------------------------------
Keith Loris
President and Chief Executive Officer
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Exhibit 99.3
AMENDED AND RESTATED
SHAREHOLDERS' AND RIGHTS AGREEMENT
THIS AMENDED AND RESTATED SHAREHOLDERS' AND RIGHTS AGREEMENT (this
"Agreement") is made and entered into as of this 10th day of February, 2000, by
and among SoftLock.com, Inc., (the "Company"), a Delaware corporation, and the
Shareholders listed on Schedule I, Schedule II and Schedule III hereto.
W I T N E S S E T H:
WHEREAS, the Shareholders listed on Schedule I hereto (each a "Series A
Shareholder" and collectively the "Series A Shareholders") have purchased from
the Company shares of Series A Preferred (as hereinafter defined); and
WHEREAS, the Shareholders listed on Schedule II hereto (each a "Series
B Shareholder" and collectively the "Series B Shareholders") have agreed to and,
contemporaneously with the execution of this Agreement, will purchase from the
Company shares of Series B Preferred (as hereinafter defined); and
WHEREAS, the Shareholders listed on Schedule III hereto (each a "Common
Shareholder" collectively the "Common Shareholders" and collectively with the
Series A Shareholders and Series B Shareholders, the "Shareholders") were, prior
to the date hereof, owners of shares of the Company's Common Stock; and
WHEREAS, the Shareholders and the Company have agreed to enter into an
agreement with respect to (i) the procedures to be followed in connection with
the election of Series A representative to the Company's Board of Directors,
(ii) certain restrictions upon the transfer by each Common Shareholder of shares
of Common Stock, (iii) certain restrictions upon the issuance by the Company of
New Securities (as hereinafter defined), and (iv) the rights to register shares
of Common Stock under the Securities Act resulting from the conversion of the
Series A Preferred;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and to induce the Preferred
Shareholders to purchase the shares of Preferred Stock, and in consideration
thereof, it is hereby covenanted and agreed as follows:
SECTION L
DEFINITIONS
As used herein, the following terms shall have the respective meanings
following such term:
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ADJUSTMENT EVENT shall mean any stock dividend, stock split,
combination or division of shares, recapitalization, reclassification, merger,
consolidation, reorganization, or the like.
AFFILIATE shall mean, as to any Shareholder, any other person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with the Shareholder and includes without limitation, (i) any person who
is an officer, director, or direct or indirect beneficial holder of at least 5%
of the then outstanding capital stock of the Shareholder and any of the Family
Members of any such person, (ii) any person of which the Shareholder and/or its
Affiliates (as defined in clause (i) above), directly or indirectly, either
beneficially own(s) at least 5% of the then outstanding equity securities or
constitute(s) at least a 5% equity participant, (iii) in the case of a
Shareholder who is an individual, Family Members of such person, and (iv) in the
case of the Preferred Shareholders, any entities for which a Purchaser or any of
its Affiliates serve as general partner and/or investment adviser or in a
similar capacity, and all mutual funds or other pooled investment vehicles or
entities under the control or management of such Preferred Shareholder or the
general partner or investment adviser thereof, or any Affiliate of any of them,
or any Affiliates of any of the foregoing. For purposes hereof, "FAMILY MEMBERS"
means, as applied to any individual, any parent, spouse, child, spouse of a
child, brother or sister of the individual sharing the same household as such
individual, and each trust created for the benefit of one or more of such
persons and each custodian of a property of one or more such persons and the
estate of any such persons.
BOARD shall mean the Board of Directors of the Company.
CERTIFICATE OF INCORPORATION shall mean the Company's Amended and
Restated Certificate of Incorporation, as amended from time to time.
COMMISSION shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
COMMON GROUP shall mean any Group that has a Common Shareholder as a
member thereof; provided however, that the Company and SoftLock Services, Inc.
shall not be considered a part of any Common Group.
COMMON SHAREHOLDERS shall mean the persons listed on Schedule III
hereto.
COMMON STOCK shall mean the Company's common stock, par value $0.01 per
share.
EQUITY SECURITY shall mean any capital stock (including the Common and
Preferred Stock) of the Company, whether now authorized or not, and rights,
options, warrants or rights to purchase capital stock, and securities of any
type whatsoever that are, or may become, convertible into capital stock; the
number of shares of an Equity Security which is an option, warrant, right or
convertible security shall be the number of shares of such Equity Security which
would result upon the immediate exercise of such option, warrant or right of
conversion of such convertible security, without regard to when such option,
warrant or right may in fact be exercised or such convertible
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security may in fact be converted.
EXCHANGE ACT shall mean the Securities Exchange Act of l934, as
amended, and any successor statute thereto.
FIRST PUBLIC OFFERING shall mean the first firm commitment underwritten
public offering of the Company's Common Stock occurring after the date of this
Agreement.
GROUP shall mean:
(i) IN THE CASE OF ANY SHAREHOLDER WHO IS AN INDIVIDUAL, such
Shareholder or any Affiliate of
such Shareholder;
(ii) IN THE CASE OF ANY SHAREHOLDER WHICH IS A PARTNERSHIP,
(A) such partnership and any of its limited or general partners, (B)
any corporation or other business organization to which such
partnership shall sell all or substantially all of its assets or with
which it shall be merged or consolidated and (C) any Affiliate of such
partnership;
(iii) IN THE CASE OF ANY SHAREHOLDER WHICH IS A CORPORATION,
(A) any such corporation, its parent and any of such corporation's or
parent's subsidiaries, (B) any corporation or other business
organization to which such corporation shall sell all or substantially
all of its assets or with which it shall be merged, and (C) any
Affiliate of such corporation;
(iv) IN THE CASE OF ANY SHAREHOLDER WHICH IS A LIMITED
LIABILITY COMPANY, OR OTHER BUSINESS ORGANIZATION NOT DESCRIBED IN (ii)
OR (iii) ABOVE, (A) any such company or organization, any member or
similar equity owner of such company or organization, and any person or
entity controlling such company or organization or under common control
with such company or organization, (B) any corporation, limited
liability company or other business organization to which such company
or organization shall sell all or substantially all of its assets or
with which it shall be merged, and (C) any Affiliate of such company or
organization; and
(v) IN THE CASE OF ANY SHAREHOLDER WHICH IS A TRUST, (A) any
grantor or beneficiary of such trust, or (B) any Affiliate of such
grantor or beneficiary.
NEW SECURITIES shall mean any Equity Securities hereafter issued;
provided, however, that such term shall not include (i) securities purchased
under the Series A Purchase Agreement by Series A Shareholders listed on
Schedule I as of the date hereof and Series A Conversion Shares and securities
issuable under the warrants to purchase 1,964 shares of Series A Preferred
issued to SI Venture Fund II, L.P.; (ii) securities purchased under the Series B
Purchase Agreement, the Series B Conversion Shares and the Warrant Shares (as
defined in the Series B Purchase Agreement); (iii) securities offered to the
public pursuant to a registration statement filed in accordance with the
provisions of the Securities Act; (iv) securities issued in connection with the
acquisition of another corporation by the Company by merger, purchase of
substantially all assets or
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other reorganization whereby the Company or its shareholders immediately prior
to such acquisition own, upon consummation of such acquisition, greater than
fifty percent (50%) of the voting power to elect the directors of such
corporation; (v) securities evidencing any borrowings, direct or indirect, from
financial institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, provided such securities do not have equity features (such as
warrants, options or other rights to purchase capital stock) and are not
convertible into capital stock of the Company; (vi) securities issued or
issuable to employees, officers or directors of, or consultants to, the Company
pursuant to the Company's 1998 Stock Option Plan (the "Plan"), provided that the
number of shares so issued or issuable shall not exceed 5,000,000 (subject to
adjustment upon the occurrence of an Adjustment Event in accordance with the
Plan); (vii) securities issued to financial institutions and leasing companies
in connection with borrowing or lease financing arrangements of the Company,
provided that such issuances or grants are approved by the Board of Directors
and provided further that the number of securities so issued or issuable shall
not exceed 500,000 (subject to adjustment upon the occurrence of an Adjustment
Event) and (viii) securities issued to strategic partners or licensors, provided
that such issuances or grants are approved by the Board of Directors and
provided further that the number of securities so issued or issuable shall not
exceed 1,500,000 (subject to adjustment upon the occurrence of an Adjustment
Event).
PREEMPTIVE SHARE shall mean, immediately prior to any issue of New
Securities, and as to each Preferred Group, the percentage which expresses the
ratio between (i) the number of Equity Securities owned at such time by such
Preferred Group (assuming that all such Equity Securities are fully converted
into the Common Stock), and (ii) the aggregate number of Equity Securities
(assuming all such Equity Securities are fully converted and/or exercised into
the Common Stock) outstanding at such time.
PREFERRED GROUP shall mean any Group that has a Preferred Shareholder
as a member thereof.
PREFERRED SHAREHOLDER shall mean any person listed on either Schedule I
or II hereto.
PREFERRED STOCK shall mean the Company's Series A Preferred and Series
B Preferred.
PRO RATA SHARE shall mean, at any time, as to each Preferred Group, the
percentage which expresses the ratio between (i) the number of Equity Securities
owned at such time by such Preferred Group (assuming that all Equity Securities
owned by that Preferred Group are fully converted or exercised into Common
Stock), and (ii) the aggregate number of Equity Securities owned at such time by
all Preferred Groups (assuming that all Equity Securities owned by all Preferred
Groups are fully converted or exercised into Common Stock).
PUBLIC FLOAT shall mean the existence of a minimum aggregate market
value of at least $100,000,000 for the outstanding equity securities of the
Company that are registered under the Exchange Act, and held by non-Affiliates
of the Company, sustained for a ninety (90) day period.
QUALIFIED PUBLIC OFFERING shall mean an underwritten public offering
pursuant to an
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effective registration statement under the Securities Act covering the offer and
sale of Common Stock for the account of the Company, on a firm commitment basis,
yielding aggregate proceeds to the Company of $20,000,000 at a public offering
price per share of Common Stock of $6.40 (subject to adjustment upon the
occurrence of an Adjustment Event).
SECURITIES ACT shall mean the Securities Act of l933, as amended, and
any successor statute thereto.
SELL, as to any Equity Security, shall mean to sell, or in any other
way directly or indirectly transfer, assign, distribute, encumber or otherwise
dispose of such Equity Security, either voluntarily or involuntarily.
SELLING GROUP shall mean any Common Group proposing to Sell any Equity
Security and which is obligated to deliver a Notice of Intention to Sell
pursuant to Section 3 hereof.
SERIES A CONVERSION SHARES shall mean, at any time, (i) the issued and
outstanding shares of Series A Preferred (for purposes of calculating the number
of Series A Conversion Shares at any time, each such share shall be deemed to be
that number of shares of Common Stock or other securities into which such share
is then convertible), (ii) the shares of Common Stock issued upon conversion of
the issued and outstanding shares of Series A Preferred owned by the Series A
Shareholders, and (iii) any securities issued or issuable directly or indirectly
in respect of the aforesaid shares of Common Stock or Series A Preferred, or
both, in payment of a dividend or in connection with an Adjustment Event.
SERIES B CONVERSION SHARES shall mean, at any time, (i) the issued and
outstanding shares of Series B Preferred (for purposes of calculating the number
of Series B Conversion Shares at any time, each such share shall be deemed to be
that number of shares of Common Stock or other securities into which such share
is then convertible), (ii) the shares of Common Stock issued upon conversion of
the issued and outstanding shares of Series B Preferred owned by the Series B
Shareholders, and (iii) any securities issued or issuable directly or indirectly
in respect of the aforesaid shares of Common Stock or Series B Preferred, or
both, in payment of a dividend or in connection with an Adjustment Event.
SERIES A PREFERRED shall mean the Company's Series A Preferred Stock,
par value $0.01 per share.
SERIES B PREFERRED shall mean the Company's Series B Preferred Stock,
par value $0.01 per share.
SERIES A PURCHASE AGREEMENT shall mean the Series A Preferred Stock
Purchase Agreement, dated as of December 30, 1999, and supplemented from time to
time among the Company, SoftLock Services, Inc. and the Series A Shareholders.
SERIES B PURCHASE AGREEMENT shall mean the Series B Preferred Stock
Purchase Agreement of even date herewith among the Company, SoftLock Services,
Inc. and the Series B
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Shareholders.
SERIES A SHAREHOLDER shall mean the persons listed on Schedule I
hereto.
SERIES B SHAREHOLDER shall mean the persons listed on Schedule II
hereto.
SHAREHOLDERS shall mean the persons listed on Schedules I, II and III
hereto and shall include any other party who agrees in writing with the parties
hereto to be bound by and to comply with all applicable provisions of this
Agreement.
TUDOR ENTITY or TUDOR ENTITIES means each of the following: Tudor
Private Equity Fund, L.P., Tudor Arbitrage Partners, L.P., Tudor BVI Futures,
Ltd., Raptor Global Fund, L.P., Raptor Global Portfolio, Ltd. and Raptor Global
Fund Ltd., or any funds or other investment vehicles or entities of which any of
the foregoing entities are Affiliates, or any Affiliate or Group of Tudor
Investment Corporation and/or Tudor Global Trading, Inc.
SECTION 2
ELECTION OF DIRECTORS
SECTION 2.1. DESIGNATION OF NOMINEES.
(a) Pursuant to the Certificate of Incorporation, the holders
of the Series A Preferred have the right to elect one member of the Board voting
as a class separate from the holders of Common Stock. So long as the Series A
Shareholder named below shall continue to hold (with any members of its Group)
no less than thirty five percent (35%) of the shares of Series A Preferred
initially acquired by it under the Series A Purchase Agreement (on an
as-converted basis), such Series A Shareholder shall be entitled, but shall be
under no obligation, to designate one nominee to be elected to the Board by the
holders of the Series A Preferred (a "Series A Director").
SI VENTURE FUND II, L.P. ("SI")
Initially, the Series A Director designated by SI will be N. Adam Rin. The
Series A Director designated by SI shall be a Class III director under Section
5.2 of the Certificate of Incorporation.
(b) The Company hereby agrees to use its best efforts to cause
the Board of Directors to appoint a person designated by Ascent Venture Partners
III, L.P. ("Ascent") to serve as a Class II director upon the purchase of Series
A Preferred by Ascent pursuant to the Series A Purchase Agreement. Initially,
this person shall be Leigh Michl. Such person (also a "Series A Director") will
be elected pursuant to a vote by the Preferred Shareholders and the holders of
Common Stock, voting together as a single class of capital stock as set forth in
Sections 5(a) of the Certificates of Designation for the Series A Preferred and
the Series B Preferred. So long as Ascent shall continue to hold (with any
members of its Group) no less than thirty five percent (35%) of the shares of
Series A Preferred initially acquired by it under the Series A Purchase
Agreement (on an as-converted basis), Ascent shall be entitled, but shall be
under no obligation, to designate the one
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nominee to be so elected as a Class II director.
(c) In the event a designation is not made by SI or Ascent in
accordance with this Section 2.1, unless otherwise agreed by SI or Ascent or
unless SI or Ascent has notified the Company in writing that it no longer wishes
to have the right to designate one of the nominees for Series A Director, the
Series A Shareholders will use their best efforts to ensure that such position
on the Board shall be left vacant until nominees are so designated but in no
event longer than thirty (30) days. If SI or Ascent has notified the Company in
writing that it no longer wishes to designate the nominee for Series A Director,
if SI or Ascent fails to designate a nominee within thirty (30) days after the
position becomes vacant or if SI or Ascent shall no longer own thirty five
percent (35%) or more of the shares of Series A Preferred initially acquired by
it under the Purchase Agreement (on an as-converted basis), the nominee for the
Series A Director which should have been designated by SI or Ascent, as the case
may be, shall be designated by majority action of the Series A Shareholders.
SECTION 2.2. VOTING FOR NOMINEES. Each Shareholder agrees to vote the
Equity Securities held by it from time to time for the nominees so designated in
accordance with Section 2.1 at any annual meeting of shareholders of the Company
at which any such nominee is included on the slate of directors to be elected,
and at any special meeting of shareholders of the Company called for the
election of directors at which any such nominee is included on the slate of
directors to be elected, in such manner as may be required to elect such
nominee.
SECTION 2.3. OBLIGATIONS OF COMPANY. The Company agrees to use its best
efforts to cause the nominees so designated in accordance with Section 2.1 to be
included in part of the slate of directors to be recommended to, and elected by
shareholders, at the annual meeting of shareholders of the Company electing
Class II and Class III directors (or any earlier annual meeting if any Series A
Director then in office shall have died, resigned or been removed), and at any
special meeting of shareholders of the Company called for the election of
directors including the Class III directorship or Class II directorship held by
a Series A Director.
SECTION 2.4. REMOVAL; ELECTION OF SUCCESSORS. If (a) any Series A
Director elected pursuant to Section 2.1 is removed or (b) such a director shall
have resigned or shall be unable to serve, then, in any such case, the Company
and the Shareholders will use their best efforts to cause the Board of Directors
to appoint a replacement Series A Director nominated by SI or Ascent, as
applicable, to serve on the Board of Directors until the next annual meeting of
shareholders and to include such person on the slate of directors to be elected
at such next annual meeting. At such meeting each Shareholder shall vote to
accomplish said result. The procedures set forth in this Section 2, including
Section 2.1, shall apply to the nomination and election of any replacement for a
Series A Director. If requested by SI, at the next annual meeting of
shareholders, the Company will include on the agenda an amendment to its
Certificate of Incorporation to permit the Series A Director designated by SI to
be removed with or without cause by the Series A Shareholders only and without
the approval or concurrence of the holders of outstanding shares of any other
class of voting stock.
SECTION 2.5. PROXY. If any Shareholder shall refuse to vote the Equity
Securities held by it
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as provided in any of the foregoing Sections of this Section 2 at any meeting of
shareholders of the Company, or shall refuse to give its written consent in lieu
of a meeting, thereupon, without further action by such Shareholder, the
President or any Vice President of the Company shall be, and hereby is,
irrevocably constituted the attorney-in-fact and proxy of such Shareholder for
the purpose of voting, and shall vote such shares at such meeting as provided in
the foregoing Sections of this Section 2 or give such consent, as the case may
be.
SECTION 2.6 AUDIT AND COMPENSATION COMMITTEES. Except as otherwise
required by law or regulation including but not limited to the federal
securities laws or requirements of any exchange or market on which the Company's
Equity Securities are listed or quoted from time to time, the Company shall, by
provision of its bylaws or otherwise, establish and maintain a Compensation
Committee and an Audit Committee of the Board. For so long as the holders of
Series A Preferred Stock have the right to elect a director to the Board, the
Audit Committee shall consist of at least two directors, one of whom is the
Series A Director designated by Ascent (to the extent that Ascent continues to
retain the right to designate such director) and the other of whom shall be
unaffiliated with management of the Company, and the Compensation Committee
shall consist of at least two directors, one of whom is the Series A Director
designated by SI (to the extent that SI continues to retain the right to
designate such director) and the other of whom shall be unaffiliated with
management of the Company.
SECTION 3
RESTRICTIONS ON TRANSFER OF EQUITY SECURITIES
BY SHAREHOLDERS
SECTION 3.1. LIMITATIONS. Each Common Shareholder hereby agrees that
such Common Shareholder shall not at any time prior to the completion of a
Qualified Public Offering, Sell any Equity Securities except:
(a) by sale in accordance with this Section 3;
(b) by pledge which creates a mere security interest in the
Equity Securities, provided that the pledgee thereof shall agree in writing in
advance with the parties hereto to be bound by and comply with all applicable
provisions of this Agreement to the same extent as if such pledgee were the
Common Shareholder making such pledge;
(c) by transfer to another member of its Common Group,
provided that the transferee of such Equity Securities shall agree in writing
with the parties hereto to be bound by and to comply with all applicable
provisions of this Agreement and to be deemed a member of such Common Group; or
(d) by sale as a part of a registered public offering of the
Company's securities in accordance with Section 7 of this Agreement, in which
case the transferee of such Equity Securities shall not be bound by, or entitled
to the benefits of, this Agreement.
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SECTION 3.2. PROCEDURES ON SALE OF EQUITY SECURITIES. Except as
otherwise expressly provided herein, each Common Shareholder, and each member of
its Common Group which agrees to comply herewith, hereby agrees that until the
completion of a Qualified Public Offering, such Common Shareholder and the
members of such Common Shareholder's Group shall not Sell any Equity Securities
except in accordance with the following procedures:
(a) The Selling Group shall first deliver to the Company a
written Notice of Intention to Sell offering to the Company such Equity
Securities owned by the Selling Group at the purchase price and on the other
material terms specified therein at which it proposes to Sell the Equity
Securities. The Company shall have the right of first refusal and option for a
period of ten (10) days after delivery to the Company of the Notice of Intention
to Sell, to purchase all or any part of the Equity Securities so offered at the
purchase price and on the other terms stated therein. Such acceptance shall be
made by delivering a written Notice of Acceptance to the Selling Group within
the aforesaid ten (10) day period.
(b) In the event that the Company shall elect to purchase none
or less than all of the Equity Securities so offered, the Selling Group shall
promptly deliver to each Preferred Shareholder a written Notice of Intention to
Sell, which shall be irrevocable for a period of ten (10) days after delivery
thereof, offering to each Preferred Group the Equity Securities that were
offered to, and not purchased by, the Company, at the same purchase price and on
the same other terms, whereupon each Preferred Group shall have the right and
option for a period of ten (10) days after delivery to each Preferred
Shareholder of the Notice of Intention to Sell, to accept up to its Pro Rata
Share of the Equity Securities so offered which are not so purchased by the
Company at the purchase price and on the other terms stated therein. Such
acceptance shall be made by delivering a written Notice of Acceptance to the
Selling Group within the aforesaid ten (10) day period.
(c) If any Preferred Group shall fail to accept, or shall
reject in writing, the offer made pursuant to Section 3.2(b), then, upon the
earlier of the expiration of such ten (10) day period, or the receipt of Notices
of Acceptance or written rejections of such offer from all Preferred Groups, the
Selling Group's then remaining Equity Securities formerly subject to such offer
shall be reoffered to all other Preferred Groups, if any, which shall have
accepted their Pro Rata Share of such original offer. Such subsequent offer
shall be on the terms and subject to acceptance in the manner provided in
Section 3.2(b), except that the Preferred Groups receiving such subsequent offer
shall have (i) the right and option to accept such offer with respect to all of
the then remaining Equity Securities subject thereto pro rata, in accordance
with their respective Pro Rata Shares for a period of five (5) business days and
(ii) the further right and option to offer, in any Notice of Acceptance, to
purchase any of such Equity Securities not purchased by other Preferred Groups,
in which case such Equity Securities not accepted by the other Preferred Groups
shall be deemed to have been offered to and accepted by the Preferred Groups
which have exercised their option under this clause (ii), PRO RATA in accordance
with their respective Pro Rata Shares, and on the above-described terms and
conditions.
(d) The closing of any sales of Equity Securities under the
terms of Section 3.2(a), Section 3.2(b) and Section 3.2(c) shall be made at the
offices of the Company on a mutually
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satisfactory business day within fourteen (l4) days after the expiration of the
aforesaid periods. Delivery of certificates or other instruments evidencing such
Equity Securities duly endorsed for transfer to the Company or to members of the
Preferred Groups, as the case may be, shall be made on such date against payment
of the purchase price therefor.
(e) Any Preferred Group which does not deliver a Notice of
Acceptance during the ten (10) day period referred to in Section 3.2(b) hereof
shall have the right during such ten (10) day period to deliver to the Selling
Group a Notice of Intention to Participate. The Company shall compute the
proportion of shares of Equity Securities available for sale by the Selling
Group to the purchaser thereof. If, and to the extent the Selling Group is to
Sell all or part of the remaining Equity Securities covered by the Notice of
Intention to Sell as contemplated by Section 3.2(f) hereof, it shall be a
condition of such sale that each Preferred Group delivering the Notice of
Intention to Participate shall have the right to have a portion of its Equity
Securities purchased by the purchaser of the Equity Securities covered by the
Notice of Intention to Sell, such portion to be equal to the product obtained by
multiplying (i) the aggregate number of Equity Securities to be purchased by the
purchaser by (ii) the "Ownership Percentage" (as hereinafter defined) of such
Preferred Group giving a Notice of Intention to Participate. The Ownership
Percentage for any Preferred Group giving a Notice of Intention to Participate
shall be the percentage figure which expresses the ratio between (i) the number
of Equity Securities desired to be sold by such Preferred Group and (ii) the
aggregate of (a) the number of Equity Securities desired to be sold by all
Preferred Groups delivering a Notice of Intention to Participate and (b) the
number of Equity Securities to be sold by the Selling Group delivering a Notice
of Intention to Sell. The sale of any Equity Securities by a Preferred Group
pursuant to a Notice of Intention to Participate shall be subject to all terms
and conditions applicable to the sale by the Selling Group as set forth in the
Notice of Intention to Sell.
(f) If effective acceptance shall not be received pursuant to
Section 3.2(a), Section 3.2(b) and Section 3.2(c) above with respect to all
Equity Securities offered for sale pursuant to a Notice of Intention to Sell,
then the Selling Group may sell all or any part of the remaining Equity
Securities so offered for sale at a price not less than the price, and on terms
not more favorable to the purchaser thereof than the terms, stated in the
original Notice of Intention to Sell, at any time within ninety (90) days after
the expiration of the last offer required by Section 3.2(b) and Section 3.2(c)
above. In the event the remaining Equity Securities are not sold by the Selling
Group during such ninety (90) day period, the right of the Selling Group to sell
such remaining Equity Securities shall expire and the obligations of this
Section 3.2 shall be reinstated; provided, however, that in the event the
Selling Group determines, at any time during such ninety (90) day period, that
the sale of all or any part of the remaining Equity Securities on the terms set
forth in the Notice of Intention to Sell is impractical, the Selling Group can
terminate the offer and reinstate the procedure provided in this Section 3.2
without waiting for the expiration of such ninety (90) day period.
(g) Anything contained in this Section 3.2 to the contrary
notwithstanding, any purchaser or other transferee of Equity Securities pursuant
to this Section 3.2 who is not a Shareholder but who is an employee of the
Company as of the date of the purchase or transfer shall agree in writing in
advance with the parties hereto to be bound by and comply with all applicable
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provisions of this Agreement and shall be deemed to be a Common Shareholder for
all purposes of this Agreement.
SECTION 3.3. EXPIRATION OF RIGHTS. At any time prior to the completion
of a Qualified Public Offering, a Common Shareholder shall not be required to
comply with Sections 3.1 and 3.2 (a) with respect to the Series A Shareholders
if at such time the Series A Shareholders in the aggregate have ceased to own at
least ten percent (10%) of the shares of Series A Preferred initially acquired
by them pursuant to the Series A Purchase Agreement or (b) with respect to the
Series B Shareholders if at such time such Series B Shareholders in the
aggregate have ceased to own at least fifteen percent (15%) of the shares of
Series B Preferred initially acquired by them pursuant to the Series B Purchase
Agreement (whether through the conversion of such shares of Series B Preferred
to Common Stock or otherwise). Notwithstanding the foregoing, if a Preferred
Shareholder is both a Series A Shareholder and a Series B Shareholder, the
expiration of its rights under clause (a) above shall not affect its rights as a
Series B Shareholder to the extent such rights would otherwise be in effect and
likewise, the expiration of its rights under clause (b) above shall not affect
its rights as a Series A Shareholder to the extent such rights would otherwise
be in effect.
SECTION 4
SALE OF NEW SECURITIES BY THE COMPANY
Except as otherwise expressly provided herein, the Company hereby
agrees that until (but not including) the consummation of a Qualified Public
Offering, it shall not Sell any New Securities except in accordance with the
following procedures:
(a) The Company shall first deliver to each Preferred
Shareholder a written Notice of Intention To Sell, which shall be irrevocable
for a period of ten (10) days after delivery thereof, offering to each Preferred
Group the right to purchase up to its Preemptive Share of such New Securities at
the purchase price and on the terms specified therein. Each Preferred Group
shall have the right and option, for such period of ten (10) days after delivery
to Preferred Shareholders of such Notice of Intention To Sell, to purchase all
or any part of the New Securities so offered up to its Preemptive Share at the
purchase price and on the terms stated therein. Such acceptance shall be made by
delivering a written Notice of Acceptance to the Company within the aforesaid
ten (10) day period.
(b) If any Preferred Group shall fail to accept, or shall
reject in writing, the offer made pursuant to Section 4(a), then, upon the
earlier of the expiration of the aforesaid ten (10) day period or the receipt of
Notices of Acceptance or written rejections of such offer from all Preferred
Groups, the then remaining New Securities formerly subject to such offer shall
be reoffered to all other Preferred Groups, if any, which shall have accepted
their Preemptive Share of such original offer. Such subsequent offer shall be on
the terms and subject to acceptance in the manner provided in Section 4(a),
except that the Preferred Groups receiving such subsequent offer shall have (i)
the right and option to accept such offer with respect to all of the then
remaining New Securities subject thereto PRO RATA in accordance with their
respective Preemptive Shares, for a period of five (5)
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business days, and (ii) the further right and option to offer, in any Notice of
Acceptance, to purchase any of such New Securities not purchased by other
Preferred Groups, in which case such New Securities not accepted by other
Preferred Groups shall be deemed to have been offered to and accepted by the
Preferred Groups which have exercised their option under this clause (ii), PRO
RATA, in accordance with their respective Preemptive Shares, and on the
above-described terms and conditions.
(c) The closing of any sales of New Securities under the terms
of Section 4(a) shall be made at the offices of the Company on a mutually
satisfactory business day within fourteen (14) days after the expiration of the
aforesaid periods. Delivery of certificates or other instruments evidencing such
New Securities duly endorsed for transfer to the Preferred Shareholders shall be
made on such date against payment of the purchase price therefor.
(d) If effective acceptance shall not be received pursuant to
Section 4(a) above with respect to all New Securities offered for sale pursuant
to a Notice of Intention To Sell, then the Company may sell all or any part of
the remaining New Securities so offered for sale at a price not less than the
price, and on terms not more favorable to the purchaser thereof than the terms
stated in the original Notice of Intention To Sell, at any time within one
hundred twenty (l20) days after the expiration of the offer required by Section
4(a) above. In the event the remaining New Securities are not sold by the
Company during such one hundred twenty (l20) day period, the right of the
Company to sell such remaining New Securities shall expire and the obligations
of this Section 4 shall be reinstated; provided, however, that in the event the
Company determines, at any time during such one hundred twenty (l20) day period,
that the sale of all or any part of the remaining New Securities on the terms
set forth in the Notice of Intention To Sell is impractical, the Company can
terminate the offer and reinstate the procedure provided in this Section 4
without waiting for the expiration of such one hundred twenty (l20) day period.
SECTION 5
TRANSFER OF SHARES; COVENANTS OF THE COMPANY
SECTION 5.1. TRANSFER BY SHAREHOLDERS. No Shareholder shall sell,
assign, transfer, pledge, encumber or otherwise dispose of, whether by operation
of law or otherwise, any Equity Securities unless any such transfer is made to a
transferee who concurrently with or prior to such transfer becomes a party to
this Agreement or unless the Equity Securities are shares of Common Stock sold
pursuant to an effective registration statement.
SECTION 5.2. REGISTRATION OF TRANSFER. The Company shall permit
registration of transfer of Equity Securities held by a Shareholder only in
accordance with the terms of this Agreement. Any transfer of Equity Securities
which is made in any manner contrary to the provisions of this Agreement shall
be void and shall not be effective to constitute the transferee as a shareholder
of the Company entitled to any rights, benefits, and privileges as such.
SECTION 5.3. LEGEND. Each certificate of Common Stock or Preferred
Stock and
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certificates representing other Equity Securities of the Company, held by a
Shareholder, shall be stamped or otherwise have endorsed or imprinted thereon a
legend in substantially the following form:
"The transfer of the shares represented by this certificate, and the
rights of the holder hereof, are subject to the terms and conditions of a
Amended and Restated Shareholders' and Rights Agreement, dated as of February
10, 2000 (a copy of which is on file with the Company), as the same may be
amended from time to time, and no transfer of the shares represented hereby or
of shares issued in exchange therefor shall be valid or effective unless the
terms and conditions of such Agreement have been fulfilled."
SECTION 6
DURATION
SECTION 6.1 DURATION. The provisions of Sections 2, 3, 4 and 5 of this
Agreement shall be of no further force or effect upon the closing of a Qualified
Public Offering. Furthermore, the Company shall no longer be subject to
provisions of Section 4 of this Agreement with respect to any Series B
Shareholder at such time as the Series B Shareholder no longer owns fifteen
percent (15%) of the Series B Preferred initially purchased by it pursuant to
the Series B Purchase Agreement. In addition, the provisions of Section 7 of
this Agreement shall be of no further force or effect upon (a) the date that is
four (4) years after the First Public Offering, or (b) as to a particular Series
A Shareholder, at such earlier time as such Series A Shareholder may sell all
Series A Conversion Shares held by such Series A Shareholder in any ninety (90)
day period pursuant to Commission Rule 144, PROVIDED, HOWEVER, that in the case
of either clause (a) or (b), there exists a Public Float at such time.
SECTION 6.2 CALCULATION OF THRESHOLDS. For purposes of determining
whether, for any provision hereof, the number of shares of Series A Preferred
held by any person or entity is sufficient to meet a required threshold, such
person or entity shall be deemed to hold the number of shares of Series A
Preferred held by its Group. For purposes of determining whether, for any
provision hereof, the number of shares of Series B Preferred held by any person
or entity is sufficient to meet a required threshold, such person or entity
shall be deemed to hold the number of shares of Series B Preferred held by its
Group (including but not limited to in the case of any Tudor Entity, any shares
of Series B Preferred Stock held by any other Tudor Entity).
SECTION 7
RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; COMPLIANCE WITH SECURITIES ACT
SECTION 7.1 CERTAIN DEFINITIONS. As used in this Section 7, the
following terms shall have the following respective meanings:
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"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 7.2 hereof.
"REGISTRABLE SECURITIES" shall mean, from time to time, (i) the Series
A Conversion Shares, and (ii) any shares of Common Stock issued as dividends on
the shares of the Series A Preferred.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in compliance with Sections 7.4, 7.5 and 7.6 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company and one special counsel for all Holders
chosen by the Holders of a majority of the securities included in such
registration, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company).
"SELLING EXPENSES" shall mean all underwriting discounts, stock
transfer taxes and selling commissions applicable to the sale of Registrable
Securities, and all fees and disbursements of counsel for any Holder not
specifically included in Registration Expenses.
"HOLDER" shall mean any holder of outstanding shares of Series A
Preferred or Registrable Securities.
"INITIATING HOLDERS" shall mean any Series A Shareholders (or their
assignees under Section 7.13 hereof) who in the aggregate are Holders of not
less than twenty percent (20%) of the then outstanding Registrable Securities,
and, after any other Holder or Holders have joined in a request by Initiating
Holders, shall include such other Holder or Holders.
"OTHER SHAREHOLDERS" shall have the meaning set forth in Section
7.4(b).
SECTION 7.2 RESTRICTIVE LEGEND. Each certificate representing (i) the
shares of Series A Preferred, or (ii) Series A Conversion Shares, or (iii) any
other securities issued in respect of the shares of Series A Preferred or the
Series A Conversion Shares, upon any Adjustment Event, shall (unless otherwise
permitted or unless the securities evidenced by such certificate shall have been
registered under the Securities Act) be stamped or otherwise imprinted with a
legend substantially in the following form (in addition to any legend required
under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN
OPINION OF COUNSEL SATISFACTORY
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TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED PURSUANT TO A
VALID EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933 OR
APPLICABLE STATE SECURITIES LAWS
Upon request of a holder of such a certificate, the Company shall
remove the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if with such request, the
Company shall have received either the opinion referred to in Section 7.3(a)(i)
or the "no-action" letter referred to in Section 7.3(a)(ii), to the effect that
any transfer by such holder of the securities evidenced by such certificate will
not violate the Securities Act and applicable state securities laws.
SECTION 7.3 NOTICE OF PROPOSED TRANSFERS AND SECURITIES ACT COMPLIANCE.
The holder of Restricted Securities by acceptance thereof
agrees to comply in all respects with the provisions of this Section 7.3. Prior
to any proposed transfer of any Restricted Securities (other than under
circumstances described in Sections 7.4, 7.5 and 7.6 hereof), the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall be accompanied (except
that transactions in compliance with Rule 144 may instead be accompanied by such
broker and seller representations reasonably requested by the Company to support
the qualification of the transaction under Rule 144) by either (i) a written
opinion of Shipman & Goodwin LLP or other legal counsel (including counsel for
the holder who also may be an employee of the holder) who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act and applicable state securities laws, or
(ii) a "no-action" letter from the Commission to the effect that the
distribution of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto. Upon receipt by the Company of such notices and accompanying opinion or
"no-action" letter, if required, the holder of such Restricted Securities shall
be entitled to transfer such Restricted Securities in accordance with the terms
of the notice delivered by the holder to the Company. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear
the appropriate restrictive legend set forth in Section 7.2 above, except that
such certificate need not bear such restrictive legend if such legend is no
longer required in the opinion of counsel or "no-action" letter referred to
above is to the further effect that such legend is not required in order to
establish compliance with any provisions of the Securities Act or applicable
state securities laws or if the transaction is made, to the Company's reasonable
satisfaction, in compliance with Rule 144.
SECTION 7.4 REQUESTED REGISTRATION.
(A) REQUEST FOR REGISTRATION. If at any time after the earlier
of (x) two (2) years from the initial issuance of the shares of Series A
Preferred pursuant to the Series A Purchase Agreement, or (y) the closing of the
First Public Offering, the Company shall receive from Initiating Holders a
written request that the Company effect a registration with respect to all or a
part of the Registrable Securities, the Company will, without limiting any other
rights under this Section 7:
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(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent best
efforts to effect such registration (including, without
limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued
under the Securities Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in
such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request given by
such Holder or Holders within ten (10) days after receipt of
such written notice from the Company; PROVIDED that the
Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this
Section 7.4:
(A) after the Company has effected
one (1) such registration pursuant to this Section 7.4 and
such registration has been declared or ordered effective and
has remained in effect for one hundred twenty (120) days
thereafter; or
(B) if the request for registration
does not request the registration of Registrable Securities
with a proposed public offering price of $10,000,000 or more;
or
(C) If the Company shall furnish to
such Holders a certificate signed by the President of the
Company, stating that in the good faith judgment of the Board
of Directors of the Company it would be seriously detrimental
to the Company and its shareholders for such Registration
Statement to be filed at the date filing would be required, in
which case the Company shall have an additional period of not
more than 30 days within which to file such registration
statement; provided, however, that the Company shall not use
this right more than once in any 12 month period.
Subject to Section 7.4(a)(ii), the Company shall file a
registration statement on Commission Form S-1 covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Initiating Holders.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 7.4(b) below,
include other securities of the Company which are held by officers or directors
of the Company or which are held by parties who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration.
(b) UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable
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Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 7.4
and the Company shall include such information in the written notice referred to
in Section 7.4(a)(i) above. The right of any Holder to registration pursuant to
this Section 7.4 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein.
If officers or directors of the Company holding other
securities of the Company shall request inclusion in any registration pursuant
to this Section 7.4, or if holders of securities of the Company who are
entitled, by contract with the Company, to have securities included in such
registration (the "Other Shareholders") request such inclusion, the Initiating
Holders shall, on behalf of all Holders, offer to include the securities of such
officers, directors and Other Shareholders in the underwriting and may condition
such offer on their acceptance of all applicable provisions of this Section 7.
The Company shall (together with all Holders, officers, directors and Other
Shareholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by a majority
in interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 7.4, if
the representative of the underwriter or underwriters advises the Initiating
Holders in writing that marketing factors make it advisable to impose a
limitation on the number of shares to be underwritten, the securities of the
Company (other than Registrable Securities) held by officers or directors of the
Company and by Other Shareholders shall be excluded from such registration to
the extent so required by such limitation and if a limitation of the number of
shares is still required, the Initiating Holders shall so advise all Holders of
Registrable Securities whose securities would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the registration and underwriting shall be allocated among all such Holders
in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such persons at the time of filing the
registration statement. No Registrable Securities or any other securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration.
If any Holder of Registrable Securities, officer, director or
Other Shareholder above disapproves of the terms of the underwriting, such party
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The securities so withdrawn shall also
be withdrawn from registration.
If the underwriter has not limited the number of Registrable
Securities or other securities to be underwritten, the Company may include its
securities for its own account in such registration if the underwriter so agrees
and if the number of Registrable Securities and other securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
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SECTION 7.5 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If the Company shall determine to
register any of its securities either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights, other than the registration statement for the Series B Preferred
required by Section 7.17(a) of the Series B Purchase Agreement, or a
registration on Commission Forms S-4 or S-8, or a registration relating solely
to employee benefit plans, or a registration relating solely to a Commission
Rule 145 transaction, or a registration on any registration form which does not
permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such
securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other
compliance), and in any underwriting involved
therein, all the Registrable Securities specified in
a written request or requests, made by any Holder
within ten (10) days after receipt of the written
notice from the Company described in clause (i)
above, except as set forth in Section 7.5(b) below;
PROVIDED, HOWEVER, that if at any time after giving
written notice of its intention to register any
securities and prior to the effective date of the
registration statement filed in connection with such
registration, the Company shall determine for any
reason not to register or to delay registration of
such securities, the Company may, at its election,
give written notice of such determination to each
Holder of Registrable Securities and, thereupon, (i)
in the case of a determination not to register, shall
be relieved of its obligation to register any
Registrable Securities in connection with such
registration (but not from its obligation to pay the
Registration Expenses in connection therewith) and
(ii) in the case of a determination to delay
registering, shall be permitted to delay registering
any Registrable Securities, for the same period as
the delay in registering such other securities.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given pursuant
to Section 7.5(a)(i). In such event, the right of any Holder to registration
pursuant to Section 7.5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company, directors and officers and the Other Shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for underwriting by
the Company.
Notwithstanding any other provision of this Section 7.5, if
the underwriter determines that marketing factors require a limitation on the
number of shares to be underwritten, the underwriter may (subject to the
allocation priority set forth below) exclude from such
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registration and underwriting some or all of the Registrable Securities which
would otherwise be underwritten pursuant hereto. The Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated in the following manner: The number of shares that may be
included in the registration and underwriting on behalf of such Holders,
directors and officers and Other Shareholders shall be allocated among such
Holders, directors and officers and Other Shareholders in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities and other
securities held by such persons at the time of filing the registration
statement, PROVIDED, HOWEVER, that the underwriter's limitation shall not apply
to Holders unless it also applies in the same proportion to the Company's other
Shareholders. In addition, the Company hereby covenants and agrees not to grant
registration rights similar to those contained in Section 7.5 to any other party
that will provide such party with preferential terms and conditions with respect
to underwriters' limitations.
If any Holder of Registrable Securities or any officer,
director or Other Shareholder disapproves of the terms of any such underwriting,
such party may elect to withdraw therefrom by written notice to the Company and
the underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
SECTION 7.6 REGISTRATION ON FORM S-3. The Company shall take reasonable
actions to qualify for the use of Form S-3 or any comparable or successor form
or forms of the Commission within twelve (12) months of its First Public
Offering; and to that end the Company shall take reasonable actions to register
(whether or not required by law to do so) the Common Stock under the Exchange
Act, in accordance with the provisions of the Exchange Act following the
effective date of the registration of Equity Securities of the Company on Form
S-1. At any time when the Company is qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Section 7,
and provided that at such time the Holders continue to hold at least ten percent
(10%) of the Registrable Securities initially issuable to them upon conversion
of the shares of Series A Preferred initially acquired by them pursuant to the
Series A Purchase Agreement, the Holders of Registrable Securities shall have
the right to request registrations on Form S-3 (by written request stating the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of such shares by such Holder or Holders), subject only to
the following:
(i) No request made under this Section 7.6 shall require
a registration statement requested therein to become
effective prior to ninety (90) days after the
effective date of a registration statement filed by
the Company covering the First Public Offering; and
(ii) The Company shall not be required to effect a
registration pursuant to this Section 7.6 unless (a)
the Registrable Securities requested to be registered
pursuant to this Section 7.6 have a proposed public
offering price of $500,000 or more; and (b) the
Company has not completed a registration on Form S-3
within the preceding twelve (12) month period.
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The Company shall give notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this Section
7.6 and shall provide a reasonable opportunity for other Holders to participate
in the registration, and, if the intended method of disposition specified as
aforesaid is an underwritten public offering, participation by the Company and
other holders of Common Stock shall be on the basis set forth in Section 7.4(b)
above. Subject to the foregoing, the Company will use its best efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 to
the extent requested by the Holder or Holders thereof for purposes of
disposition.
SECTION 7.7 EXPENSES OF REGISTRATION. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification and compliance by the Company pursuant to Sections 7.4, 7.5 and
7.6 hereof. All Selling Expenses shall be borne by the holders of the securities
so registered pro rata on the basis of the number of their shares so registered.
Notwithstanding anything to the contrary above, the Company shall not be
required to pay for any expenses of any registration proceeding under Section
7.4 if the registration request is subsequently withdrawn at the request of the
Initiating Holder or Holders of a majority of the Registrable Securities to have
been registered, and the Holders of Registrable Securities to have been
registered shall bear all such expenses pro rata on the basis of the Registrable
Securities to have been registered. Notwithstanding the preceding sentence,
however, (a) if at the time of the withdrawal, the Holders have learned of a
materially adverse change in the condition, business or prospects of the Company
from that known to the Holders at the time of their request, then the Company
shall be required to pay said expenses, and (b) the Holders electing to withdraw
a registration may specify in the notice of withdrawal that the withdrawn
registration is to be treated as a registration declared effective and in effect
for 120 days for purposes of determining the number of registrations effected
pursuant to Section 7.4, in which case the Company shall be required to pay said
expenses.
SECTION 7.8 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Section 7, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. Except as provided in Section 7.6, at its expense, the
Company will:
(a) Keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs, provided, however, that such 120-day period shall be extended for
a period of time equal to the period the Holder refrains from selling any
securities included in such registration in accordance with the provisions of
Section 7.14 hereof;
(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request; and
(c) Use its best efforts to register or qualify the
Registrable Securities under the securities or blue-sky laws of such
jurisdictions as any Holder may request; provided, however, that the Company
shall not be obligated to register or qualify such Registrable Securities in any
particular jurisdiction in which the Company would be required to execute a
general consent to
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service of process in order to effect such registration, qualification or
compliance, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act or applicable
rules or regulations thereunder; and
(d) To the extent the Company then is able to meet the
applicable listing standards, use its best efforts to cause the Common Shares to
be listed on a national securities exchange or the Nasdaq National Market
System.
SECTION 7.9 INDEMNIFICATION AND CONTRIBUTION.
(a) The Company, with respect to each registration,
qualification and compliance effected pursuant to this Section 7, will indemnify
and hold harmless each Holder, each of its officers, directors and partners, and
each party controlling such Holder, and each underwriter, if any, and each party
who controls any underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each party controlling such Holder, each such underwriter and each party who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case (i) to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission based
solely upon written information furnished to the Company by such Holder or
underwriter, as the case may be, and stated to be specifically for use therein
or (ii) to any particular Holder, officer, director or partner or other party
controlling such Holder, or underwriter or party controlling an underwriter to
the extent that any such claim, loss, damage or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any final, preliminary or summary prospectus if such
untrue statement or alleged untrue statement or omission or alleged omission is
completely corrected in an amendment or supplement to such prospectus provided
to, and which the relevant Holder or underwriter or its controlling persons
fails to deliver prior to or concurrently with the sales of the Registrable
Securities to the person or entity asserting such claim, loss, damage or
liability.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by such party are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers and each underwriter,
if any, of the Company's securities covered by such a registration statement,
each party who controls the Company or such underwriter, each other such Holder
and Other Shareholder and each of their respective officers, directors and
partners, and each party controlling such Holder or Other Shareholder, against
all claims, losses, damages and liabilities (or actions in
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respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, Other Shareholders, directors, officers, partners,
parties, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document solely in reliance upon and in
conformity with written information furnished to the Company by such Holder or
Other Shareholder and stated to be specifically for use therein; provided,
however, that the obligations of such Holders and Other Shareholders hereunder
shall be limited to an amount equal to the proceeds to each such Holder or Other
Shareholder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
7.9 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 7 except to the extent such failure to give notice shall materially
adversely affect the Indemnifying Party in the defense of any claim or
litigation. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. If the defense of any claim or resulting litigation is not assumed
by the Indemnifying Party, the Indemnifying Party will not be subject to any
liability for any settlement made without its consent, but such consent may not
be unreasonably withheld; provided that an Indemnifying Party shall not be
deemed unreasonable in withholding consent to any settlement involving the
imposition of equitable remedies or involving the imposition of any material
obligations on such Indemnifying Party other than financial obligations for
which such Indemnified Party will be indemnified hereunder.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Restricted Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 7.9 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case
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notwithstanding the fact that this Section 7.9 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of any such selling holder or any such controlling person in circumstances
for which indemnification is provided under this Section 7.9; then, and in each
such case, the Company and such holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such holder is responsible for the
portion represented by the percentage that the public offering price of its
Restricted Securities offered by the registration statement bears to the public
offering price of all securities offered by such registration statement, and the
Company is responsible for the remaining portion; PROVIDED, HOWEVER, that, in
any such case, (A) no such holder will be required to contribute any amount in
excess of the public offering price of all such Restricted Securities offered by
it pursuant to such registration statement; and (B) no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
SECTION 7.10 INFORMATION BY HOLDER. Each Holder of Registrable
Securities, and each Other Shareholder holding securities included in any
registration, shall furnish to the Company such information regarding such
Holder or Other Shareholder as the Company may reasonably request in writing and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 7.
SECTION 7.11 LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES. From
and after the date of this Agreement, the Company shall not enter into any
agreement (other than the Series B Purchase Agreement) with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder the right to require the Company to initiate any registration
of any securities of the Company that would provide such holder or prospective
holder with registration rights that are inconsistent with or more favorable
than the rights of the Holders set forth in this Section 7; PROVIDED that this
Section 7.11 shall not limit the right of the Company to enter into any
agreements with any holder or prospective holder of any securities of the
Company giving such holder or prospective holder the right to require the
Company, upon any registration of any of its securities, to include, among the
securities which the Company is then registering, securities owned by such
holder and PROVIDED FURTHER that a majority of the Holders of the Registrable
Securities may waive the requirement that the Company not enter into any
agreement giving a holder of any securities of the Company the right to require
the Company to initiate registration of any securities of the Company. Except
for the rights granted to the holders of the Series B Preferred under the Series
B Purchase Agreement, any right given by the Company to any holder or
prospective holder of the Company's securities in connection with the
registration of securities shall be conditioned such that it shall be (i)
consistent with the provisions of this Section 7 and with the rights of the
Holders provided in this Agreement, and (ii) require the inclusion of
Registrable Securities (within the meaning of this Agreement) in any
registration required by any such holder or prospective holder on the same basis
as securities of Other Shareholders are required to be included in registrations
effected pursuant to Sections 7.4 and 7.5 of this Agreement.
SECTION 7.12 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission, which may permit
the sale of the Restricted Securities to
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the public without registration, the Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) So long as a Series A Shareholder owns any Restricted
Securities, furnish to the Series A Shareholders forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time from and after ninety (90) days following
the effective date of the First Public Offering), and of the Securities Act and
the Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as a Series A Shareholder
may reasonably request in availing itself of any rule or regulation of the
Commission allowing a Series A Shareholder to sell any such securities without
registration.
SECTION 7.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted by the Company under this Section 7 may
be assigned by any Holder to a transferee or assignee, provided that the Company
is given written notice at the time of or within a reasonable time after said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned, and provided further that the transferee or assignee of such
rights assumes the obligations of such Series A Shareholder under this Section
7.
SECTION 7.14 "MARKET STAND-OFF" AGREEMENT. Each Holder of Registrable
Securities agrees, if requested by the managing underwriter of the First Public
Offering or of any other underwritten offering in which part of the Registrable
Securities are not sold, to enter into an agreement pursuant to which such
Holder agrees not to sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by it during a period specified by
such underwriter, not to exceed one hundred eighty (180) days following the
effective date of the registration statement of the Company filed under the
Securities Act in connection with the First Public Offering or any subsequent
underwritten offering, provided that all Holders, Other Shareholders and
officers and directors of the Company enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said period.
SECTION 8
MISCELLANEOUS PROVISIONS
SECTION 8.1. ASSIGNMENT OF RIGHTS. The provisions of this Agreement
shall be binding
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upon and inure to the benefit of any successor or assign of any party hereto.
SECTION 8.2. DURATION OF AGREEMENT. Unless sooner terminated in
accordance with the provisions of this Agreement, the rights and obligations of
each Shareholder under this Agreement shall terminate as to such Shareholder
when the Group of which it is a member has transferred all Equity Securities
owned by such Group in accordance with this Agreement.
SECTION 8.3. ENFORCEMENT. The parties hereto agree that the remedy at
law for any breach of this Agreement is inadequate and that should any dispute
arise concerning any matter hereunder, this Agreement shall be enforceable in a
court of equity by an injunction or a decree of specific performance. Such
remedies shall, however, be cumulative and not exclusive, and shall be in
addition to any other remedies that the parties hereto may have.
SECTION 8.4. SEVERABILITY OF PROVISIONS. If any one or more provisions
of this Agreement shall be declared invalid or unenforceable, the same shall not
affect the validity or enforceability of any other provisions of this Agreement.
SECTION 8.5. AMENDMENTS. Neither this Agreement nor any term hereof may
be amended, waived, discharged, or terminated, except by written instrument
signed by the Company and Preferred Shareholders holding greater than two-thirds
of the voting Equity Securities held by the Preferred Shareholders; PROVIDED,
HOWEVER, that (i) the provisions of Section 2 may not be amended without the
consent of SI and Ascent, (ii) the provisions of Section 3 may not be amended
without the consent of Common Shareholders holding greater than fifty percent
(50%) of the voting Equity Securities held by the Common Shareholders; (iii) the
periods set forth in Section 6 may not be extended without the consent of each
and every Shareholder; (iv) this Section may not be amended without the consent
of each and every Shareholder and the Company; (v) the obligations of any
Shareholder may not be increased without the consent of such Shareholder; (vi)
additional Series A Shareholders may be added to Schedule I from time to time if
such Series A Shareholders agree in writing to be bound by the terms of this
Agreement and are approved by SI; (vii) additional Series B Shareholders may be
added to Schedule II from time to time if such Series B Shareholders agree in
writing to be bound by the terms of this Agreement; and (viii) the Company and
the Series A Shareholders shall not be required to obtain the written consent of
any Series B Shareholder to amend, waive, discharge or terminate the provisions
of Section 7 of this Agreement. Notwithstanding the foregoing, the execution of
a joinder or similar agreement by which a transferee of a Shareholder agrees to
be bound by and become a party to this Agreement in the manner contemplated by
this Agreement shall not be deemed an amendment.
SECTION 8.6. NOTICES.
(a) All notices and other communications required or permitted
hereunder shall be in writing and (unless otherwise expressly provided on
Schedule I, Schedule II or Schedule III attached hereto) shall be mailed by
registered or certified mail, postage prepaid, or delivered either by hand or by
overnight courier or messenger, or sent via telex, telecopier, computer mail or
other electronic means, addressed (i) if to a Shareholder, as indicated on
Schedule I, Schedule II or Schedule III, or at such other address as such
Shareholder shall have furnished in writing to the
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<PAGE>
party initiating the notice or communication, or (ii) if to the Company, to Five
Clock Tower Place, Suite 440, Maynard, Massachusetts 01754, or at such other
address as the Company shall have furnished in writing to the party initiating
the notice or communication.
(b) Any notice or other communications so addressed and
mailed, postage prepaid, by registered or certified mail (in each case, with
return receipt requested) shall be deemed to be delivered and given when so
mailed. Any notice so addressed and otherwise delivered shall be deemed to be
given when actually received by the addressee.
SECTION 8.7. GOVERNING LAW. This Agreement shall be construed in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Delaware.
SECTION 8.8. ENTIRE AGREEMENT. All prior understandings and agreements
between the parties hereto with respect to the transactions contemplated hereby
are merged in this Agreement, and this Agreement reflects all the understandings
with respect to such transactions. Nothing herein contained shall be construed
to obligate the Shareholders to make any additional investment in the Company or
to constitute the Shareholders as partners.
SECTION 8.9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed and delivered shall constitute a
complete and original instrument but all of which together shall constitute one
and the same agreement, and it shall not be necessary when making proof of this
Agreement or any counterpart thereof to account for any other counterpart.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
signed by its duly authorized officer or partner, as the case may be, as of the
date and year first above written.
SOFTLOCK.COM, INC.
By: /s/ Douglas R. Johnson
---------------------------------------
Name: Douglas R. Johnson
Title: Executive Vice President and Chief
Financial Officer
/s/ Jonathan Schull
-----------------------------------------
Jonathan Schull
/s/ Keith Loris
-----------------------------------------
Keith Loris
SI VENTURE FUND II, L.P.
By: SI Venture Management II, L.L.C.
its General Partner
By: /s/ N. Adam Rin
---------------------------------------
its Managing Member
APEX INVESTMENT FUND IV, L.P.
By: Apex Management IV, L.L.C., its General Partner
By: /s/ George M. Middlemas
---------------------------------------
George M. Middlemas
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<PAGE>
APEX STRATEGIC PARTNERS IV, LLC
By: Apex Management IV, LLC, Manager
By: /s/ George M. Middlemas
---------------------------------------
George M. Middlemas, Managing Member
RSA SECURITY, INC.
By: /s/ Charles Stuckey
---------------------------------------
Its: Chairman
RAPTOR GLOBAL PORTFOLIO, LTD.
By: TUDOR INVESTMENT CORPORATION,
as Investment Advisor
By: /s/ William T. Flaherty
---------------------------------------
William T. Flaherty
Vice President
ALTAR ROCK FUND, L.P.
By: Tudor Investment Corporation, as General Partner
By: /s/ William T. Flaherty
---------------------------------------
William T. Flaherty
Vice President
/s/ Ronald A. Santella
-------------------------------------------
Ronald A. Santella
/s/ Anthony Kamin
-------------------------------------------
Anthony Kamin
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<PAGE>
RC CAPITAL, L.L.C.
By: Ritchie Capital Investments, L.L.C., its manager
By: Ritchie Capital Management, L.L.C., its manager
By: THR, Inc.
By: /s/ A. R. Thane Ritchie
--------------------------------------
A. R. Thane Ritchie, its President
RAM TRADING, LTD.
By: Ritchie Capital Management, L.L.C., its investment
manager
By: THR, Inc.
By: /s/ A.R. Thane Ritchie
--------------------------------------
A.R. Thane Ritchie, its President
RITCHIE CAPITAL MANAGEMENT, LLC
By: THR, Inc.
By: /s/ A.R. Thane Ritchie
--------------------------------------
A.R. Thane Ritchie, its President
ASCENT VENTURE PARTNERS III, L.P.
By: ASCENT VENTURE MANAGEMENT III, LLC, its
General Partner
By: /s/ Leigh E. Michl
-------------------------------------
Leigh E. Michl, Manager
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<PAGE>
Exhibit 99.4
SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
================================================================================
SERIES B PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
BY AND AMONG
THE PURCHASERS LISTED ON SCHEDULE 1 HERETO,
SOFTLOCK.COM, INC.
AND
SOFTLOCK SERVICES, INC.
DATED AS OF FEBRUARY 10, 2000
================================================================================
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<PAGE>
2/09/00
BD LLP DRAFT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
SECTION 1 - AUTHORIZATION, PURCHASE AND SALE OF THE
ACQUIRED SECURITIES
1.1 Authorization of the Acquired Securities...............................1
1.2 Sale and Purchase of the Shares and Warrants...........................1
1.3 Certain Defined Terms..................................................1
SECTION 2 - CLOSING, PAYMENT AND DELIVERY
2.1 Closing ...............................................................2
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
3.1 Organization and Standing; Articles and By-laws........................2
3.2 Corporate Power........................................................3
3.3 Subsidiaries...........................................................3
3.4 Capitalization.........................................................3
3.5 Authorization..........................................................4
3.6 Contracts; Insurance...................................................5
3.7 SEC Documents..........................................................7
3.8 Absence of Undisclosed Liabilities.....................................7
3.9 Absence of Certain Changes.............................................8
3.10 Taxes..................................................................9
3.11 Transactions with Affiliates...........................................9
3.12 Litigation.............................................................9
3.13 Consents..............................................................10
3.14 Title to Properties; Liens and Encumbrances...........................10
3.15 Leases................................................................10
3.16 Franchises, Licenses, Trademarks,
Patents and Other Rights............................................11
3.17 Issuance Taxes........................................................12
3.18 Offering..............................................................12
3.19 Employees.............................................................12
3.20 Business of the Company and Subsidiary................................13
3.21 Use of Proceeds.......................................................13
3.22 Applicability of, and Compliance With, Other Laws.....................14
3.23 Indebtedness..........................................................15
3.24 Insurance Coverage....................................................15
3.25 Illegal or Unauthorized Payments; Political Contributions.............16
3.26 Disclosure............................................................16
3.27 Potential Conflicts of Interest.......................................16
3.28 Real Property Holding Corporation.....................................16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASERS
4.1 Organization; Good Standing; Power and Authority; Binding Obligation............16
4.2 Purchase Entirely for Own Account, Etc..........................................17
4.3 Disclosure......................................................................17
4.4 Accredited Investor.............................................................17
4.5 Restricted Securities...........................................................18
4.6 Legends.........................................................................18
4.7 Termination of Restrictions.....................................................18
SECTION 5 - CONDITIONS TO CLOSING OF PURCHASERS
5.1 Representations and Warranties Correct..........................................18
5.2 Performance.....................................................................18
5.3 Compliance Certificate..........................................................18
5.4 Opinion of Company's Counsel....................................................19
5.5 Good Standing Certificates......................................................19
5.6 Qualifications..................................................................19
5.7 Amendment of Certificate and Filing of Certificate..............................19
5.8 Proceedings and Documents.......................................................19
5.9 Provisions of By-Laws...........................................................19
5.10 Shareholders' and Rights Agreement..............................................19
5.11 Certification by Corporate Secretary............................................19
5.12 Warrants........................................................................20
5.13 Legal Investment................................................................20
5.14 Side Letter.....................................................................20
SECTION 6 - CONDITIONS TO CLOSING OF COMPANY
6.1 Representations and Warranties Correct..........................................20
6.2 Performance.....................................................................20
6.3 Qualifications..................................................................20
6.4 Proceedings and Documents.......................................................20
6.5 Statement of Accredited Investor................................................20
6.6 Legal Investment................................................................21
6.7 Shareholders' and Rights Agreement..............................................21
SECTION 7 - AFFIRMATIVE COVENANTS
7.1 Basic Financial Information.....................................................21
7.2 Additional Information and Rights...............................................21
7.3 Prompt Payment of Taxes, etc....................................................23
7.4 Maintenance of Properties and Leases............................................23
7.5 Insurance.......................................................................23
7.6 Accounts and Records............................................................24
7.7 Compliance with Laws, Contracts, Licenses and Permits...........................24
7.8 Maintenance of Corporate Existence, etc.........................................25
7.9 Availability of Common Stock for Conversion.....................................25
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
7.10 Proprietary Information Agreement, and
Key Employee Agreement....................................................25
7.11 Use of Proceeds.............................................................25
7.12 Compliance by Subsidiaries..................................................25
7.13 Expenses of Board Members...................................................25
7.14 Securities Law Filings......................................................25
7.15 Registration and Transfer of Securities.....................................26
7.16 Indemnification.............................................................26
7.17 Registration Requirements...................................................27
7.18 Indemnification and Contribution............................................29
7.19 "Market Stand-Off" Agreement................................................31
SECTION 8 - NEGATIVE COVENANTS
8.1 Sale/Purchase of Assets; Merger.............................................31
8.2 Future Registration Rights..................................................32
8.3 Changes in Type of Business.................................................32
8.4 Dividends and Distributions.................................................32
8.5 Purchase of Equity Securities...............................................32
8.6 Conflicting Agreements......................................................32
8.7 Amendment of Charter Documents..............................................33
8.8 Related Party Transactions..................................................33
8.9 Issuance of Equity Securities...............................................33
8.10 Subsidiaries................................................................33
8.11 Fiscal Year.................................................................33
8.12 Business Plan...............................................................33
8.13 Employee Stock Plans........................................................33
8.14 Liens ....................................................................33
8.15 Investments.................................................................33
8.16 Purchases and Sales.........................................................34
8.17 Leases ....................................................................34
8.18 Indebtedness................................................................34
8.19 Loans, Guarantees...........................................................34
8.20 License of Listed Rights and Intellectual Property..........................34
8.21 Compliance by Subsidiaries..................................................34
SECTION 9 - DEFINITIONS.................................................................34
SECTION 10 - MISCELLANEOUS
10.1 Governing Law...............................................................39
10.2 Survival....................................................................39
10.3 Successors and Assigns......................................................39
10.4 Entire Agreement; Amendment.................................................40
10.5 Notices, etc................................................................40
10.6 Delays or Omissions.........................................................40
10.7 Rights; Severability........................................................41
10.8 Agent's Fees and Services...................................................41
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.9 Legal Fees and Expenses....................................................41
10.10 Titles and Subtitles.......................................................41
10.11 Counterparts...............................................................41
10.12 Construction...............................................................41
10.13 Further Assurances.........................................................42
10.14 Equitable Relief...........................................................42
10.15 Publicity..................................................................42
</TABLE>
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<PAGE>
SCHEDULES AND EXHIBITS
SCHEDULE 1 - Schedule of Purchasers
SCHEDULE 2 - Disclosure Schedules
EXHIBIT A - Certificate of Designation of Powers, Preferences and Rights of
Series B Preferred Stock
EXHIBIT B - Form of Proprietary Information Agreement
EXHIBIT C - Form of Opinion of Counsel
EXHIBIT D - Shareholders' and Rights Agreement
EXHIBIT E - Statement of Accredited Investor
EXHIBIT F - Form of Common Stock Warrant
EXHIBIT G - Form of Common Stock Warrant
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<PAGE>
SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this
"AGREEMENT") is made and entered into as of the 10th day of February, 2000, by
and among SoftLock.com, Inc. (the "COMPANY"), a Delaware corporation having
offices at Five Clock Tower Place, Suite 440, Maynard, Massachusetts, SoftLock
Services, Inc. ("SUBSIDIARY"), a Delaware corporation having offices at Five
Clock Tower Place, Suite 440, Maynard, Massachusetts, and each of the parties
listed on SCHEDULE 1 hereto (the "SCHEDULE OF PURCHASERS"). The parties listed
on the Schedule of Purchasers and any transferee(s) to which the Purchasers may
from time to time have transferred any "Shares" (as such term is defined in
Section 1.1 below) are hereinafter referred to collectively as the "PURCHASERS".
WHEREAS, the Company desires to issue and sell, and the Purchasers
desire to purchase, certain securities of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the Company, Subsidiary and the
Purchasers (in the case of the Purchasers, severally and not jointly), hereby
agree as follows:
SECTION 1
AUTHORIZATION, PURCHASE AND SALE OF THE ACQUIRED SECURITIES
1.1 AUTHORIZATION OF THE ACQUIRED SECURITIES. The Company has, or
before the Closing (as defined in Section 2.1 hereof) will have, authorized the
designation of Series B Preferred Stock, par value $0.01 per share (the "SERIES
B PREFERRED"), having the rights, privileges and preferences as set forth in the
Certificate of Designation of the Series B Preferred Stock, the form of which is
attached to this Agreement as EXHIBIT A (the "CERTIFICATE"), and the issuance
and sale under this Agreement of all of the Acquired Securities, including
without limitation the 46,875 shares (the "SHARES") of Series B Preferred, the
Conversion Shares, the Warrants and the Warrant Shares. The term "SHARES" as
used in this Agreement also includes any securities issued or issuable with
respect to the original Shares by way of a stock dividend, stock split,
combination or division of shares, recapitalization, reclassification, merger,
consolidation, reorganization, or the like and any securities into which any of
the original Shares are converted or convertible, directly or indirectly
(including but not limited to the Conversion Shares) or for which any of the
original Shares are exchanged or exchangeable, directly or indirectly.
1.2 SALE AND PURCHASE OF THE SHARES AND WARRANTS. Upon and subject to
the terms and conditions of this Agreement and in reliance upon the
representations, warranties and agreements contained herein, at the Closing the
Company will issue and sell to the Purchasers, and each Purchaser will purchase
from the Company at the Closing, (i) that number of shares of Series B Preferred
set forth opposite each such Purchaser's name on the Schedule of Purchasers, and
(ii) the Warrants. The purchase price for the Shares shall be $160.00 per share
of Series B Preferred for an aggregate purchase price for all of the Shares and
Warrants of $7,500,000.00.
1.3 CERTAIN DEFINED TERMS. Certain capitalized terms used in this
Agreement shall have the respective meanings ascribed to them in Section 9
hereof.
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<PAGE>
SECTION 2
CLOSING, PAYMENT AND DELIVERY
2.1 CLOSING.
(a) CLOSING DATE AND PLACE OF CLOSING. The closing of the purchase and
sale of the Shares and Warrants (the "CLOSING") shall be held on the date (the
"CLOSING DATE") of, and immediately following, the final execution and delivery
of at least one counterpart of this Agreement by the Company, Subsidiary and the
Purchasers listed on the Schedule of Purchasers, or such other date as shall
have been agreed to by the Company and the Purchasers. The place of the Closing
(including the place of delivery to the Purchasers by the Company of the
Warrants and certificates evidencing the Shares being purchased and the place of
payment to the Company by such Purchasers of the purchase price therefor) shall
be at the offices of Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, or
such other place as shall have been agreed to by the Company and the Purchasers
participating in such Closing.
(b) CLOSING PAYMENT AND DELIVERY. At the Closing, the Purchasers will
pay to the Company, in cash or by check or wire transfer, the amount set forth
opposite such Purchaser's name on the Schedule of Purchasers; and the Company
will deliver to such Purchaser a certificate or certificates registered in such
Purchaser's name for the number of Shares set forth opposite such Purchaser's
name on the Schedule of Purchasers and two Warrants substantially in the form of
EXHIBITS F and G for the number of shares of Common Stock as is set forth
opposite such Purchaser's name on the Schedule of Purchasers.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as expressly set forth (with reference to a paragraph in this
Section 3) on Schedule 2 (the "DISCLOSURE SCHEDULES") hereto, the Company and
Subsidiary jointly and severally represent and warrant to the Purchasers as of
the Closing Date as follows:
3.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS.
(a) The Company and Subsidiary each is a corporation duly organized,
validly existing and in good standing under the laws of its state of
organization and is qualified, licensed or domesticated as a foreign corporation
in each jurisdiction wherein the nature of its activities or properties owned or
leased by each makes such qualification, licensing or domestication necessary.
The Disclosure Schedules set forth the jurisdictions in which the Company and/or
Subsidiary is qualified, licensed or domesticated as a foreign corporation. The
Company and Subsidiary each has all requisite power, governmental licenses,
authorization consents and approvals to own the properties owned by it and to
conduct the business as it is being conducted by it and as contemplated by the
business plan (the "PLAN") prepared by the Company, a true and correct copy of
which has been given to the Purchasers and counsel for the Purchasers. The
Disclosure Schedules set forth all jurisdictions in which the Company or
Subsidiary owns or leases property or engages in any activity which under
applicable law makes qualification or license as a foreign corporation
necessary.
(b) The Company has furnished counsel for the Purchasers with true,
correct and complete copies of the Company's and Subsidiary's Certificate of
Incorporation and By-Laws, and all amendments thereto
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<PAGE>
through and including the Closing Date and copies of the minutes of all Board of
Directors, Committees of the Board of Directors and stockholders meetings of the
Company and Subsidiary. Prior to the Closing, the Company shall have properly
filed and recorded the Certificate with the Secretary of the State of Delaware.
Neither the Company nor Subsidiary is in breach of any of the provisions of its
Certificate of Incorporation or its By-Laws.
3.2 CORPORATE POWER. The Company and Subsidiary each has all requisite
corporate power to enter into this Agreement and each of the Financing Documents
to which it is a party and will have on the Closing Date all requisite corporate
power to sell the Shares and Warrants and to carry out and perform its
obligations under the terms of this Agreement and each of the Financing
Documents to which it is a party.
3.3 SUBSIDIARIES. Neither the Company nor Subsidiary has any Other
Subsidiaries and neither owns of record or beneficially any capital stock,
membership interest or equity interest or investment in any corporation, limited
liability company, partnership, association or other business entity. The
Company is the sole owner of all securities of the Subsidiary. There are no
options, warrants, or other agreements pursuant to which any Person may acquire
any of the Equity Securities of the Subsidiary; the Subsidiary has not issued
any Derivative Securities.
3.4 CAPITALIZATION.
(a) The Disclosure Schedules contain a true and correct list of (i) all
capital stock of the Company and Subsidiary (including the amounts thereof)
outstanding immediately prior to the Closing (including all Derivative
Securities, which shall be reflected on a fully diluted basis) not giving effect
to the sale and purchase of the Shares and Warrants provided for in this
Agreement but giving effect to the purchase of 14,706 shares of Series A
Preferred Stock by Ascent Venture Partners III, LLP ("Ascent"), (ii) the holders
of any interest exceeding five percent (5%) of the amount of such outstanding
issued capital stock, (iii) the number of shares of capital stock held by the
Company's management and directors and (iv) the number of shares of capital
stock held by all other shareholders as a group. All such outstanding shares of
capital stock will be duly authorized, validly issued, fully paid, and
nonassessable, and free and clear of Liens. No adjustment has previously been
made (or should have been made) nor will any adjustment be required to be made
as a result of the Company's issuance of the Shares or Warrant Shares (or the
issuance of Common Stock upon the conversion or exercise thereof) to the rate at
which shares of Series A Preferred Stock and any other capital stock or
Derivative Securities of the Company are convertible into or exercisable for
shares of Common Stock (by reason of any "anti-dilution" provisions or
agreements or otherwise).
(b) Except as set forth in the Disclosure Schedule, the Company does
not have, is not bound by, and has no obligation to grant or enter into, any (i)
outstanding subscriptions, options, warrants, calls, commitments, or agreements
of any character calling for it to issue, deliver, or sell, or cause to be
issued, delivered, or sold, any shares of its capital stock, any membership
interests or any other equity security, or any securities described in the
following clause, or (ii) securities convertible into, exchangeable for, or
representing the right to subscribe for, purchase, or otherwise acquire any
shares of its capital stock, any membership interests or any other equity
security. No adjustment has previously been made (or should have been made) nor
will any adjustment be required to be made as a result of the Company's issuance
of the Shares or Warrant Shares (or the issuance of Common Stock upon the
conversion or exercise thereof) to the number of shares of capital stock or
Derivative Securities of the Company into which any subscriptions, options,
warrants, calls, commitments or agreements are convertible (by reason of any
"anti-dilution" provisions or agreements or otherwise).
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(c) Except as set forth in the Disclosure Schedule, the Company (i) has
no outstanding obligations, contractual or otherwise, to repurchase, redeem, or
otherwise acquire any shares of capital stock or other equity securities of the
Company, (ii) is not a party to or bound by, and has no knowledge of, any
agreement or instrument relating to the voting of any of its securities, and
(iii) is not a party to or bound by any agreement or instrument under which any
person has the right to require it to effect, or to include any securities held
by such person in, any registration under the Securities Act of 1933, as amended
(the "Securities Act"). There are no other agreements, contracts, instruments or
documents, except as set forth in the Disclosure Schedule, which govern or
affect in any way the rights of the holders of securities, including any class
of capital stock, of the Company. No First Public Offering (as defined in the
Shareholders' and Rights Agreement dated as of December 30, 1999 and the Amended
and Restated Shareholders' and Rights Agreement dated of even date herewith) has
occurred.
(d) The Company has reserved, solely for the purpose of issuing the
Warrant Shares and issuance upon conversion of shares of Series B Preferred, a
number of shares of Common Stock sufficient to cover the conversion of all such
shares of Series B Preferred and issuance of the Warrant Shares.
(e) All of the outstanding shares of capital stock, membership
interests, and other securities of the Company were offered, issued, and sold,
and the Shares, Warrants and other Acquired Securities have been offered and at
the Closing will be issued and sold, in compliance with (i) all applicable
preemptive or similar rights of all persons (all of which have been waived), and
(ii) assuming the truthfulness and accuracy of the representations made by the
Purchasers in Section 4 hereof, all applicable provisions of the Securities Act
and the rules and regulations thereunder, and all applicable state securities
laws and the rules and regulations thereunder. No person has any valid right to
rescind any purchase of any shares of capital stock or other securities of the
Company.
(f) The Shares, Warrants and other Acquired Securities being issued and
sold by the Company hereunder shall, upon issuance pursuant to the terms hereof,
be duly authorized and validly issued, fully paid and non-assessable and free
and clear of any Lien, security interest, option or other charge or encumbrance.
The Conversion Shares and Warrant Shares shall be duly authorized and validly
issued, fully paid and non-assessable and free and clear of any Lien, security
interest, option or other charge or encumbrance. The issuance of the Acquired
Securities is not and will not be subject to any pre-emptive rights or similar
rights with respect to any of such Acquired Securities.
3.5 AUTHORIZATION.
(a) All action on the part of the Company, the Subsidiary and their
respective directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company and Subsidiary, as
applicable, of this Agreement and each of the Financing Documents and for the
consummation of the transactions contemplated herein and therein, and for the
authorization, issuance and delivery of any and all of the Acquired Securities
has been taken or will be taken prior to the Closing.
This Agreement and each of the Financing Documents is a valid and
binding obligation of the Company and Subsidiary parties hereto and thereto,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general application affecting enforcement of creditors' rights generally. The
execution and delivery by the Company and Subsidiary, as applicable, of this
Agreement and each of the Financing Documents, and compliance herewith and
therewith, and the issuance and sale of the Acquired Securities will not, with
or without notice or the passage of time or both, result in any violation of and
will not conflict with, or result in a breach of any
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<PAGE>
of the terms of, or constitute a default under any provision of, any state or
federal law to which the Company or Subsidiary is subject, the Certificate of
Incorporation or By-Laws of the Company or Subsidiary (in each case as amended),
or any mortgage, indenture, agreement, instrument, judgment, decree, order, rule
or regulation or other restriction to which the Company or Subsidiary is a party
or by which it or any of its property is bound, or may be affected, or result in
the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company or Subsidiary pursuant to any such term
or give any other person or entity the right to accelerate the time for
performance of any obligation of the Company or Subsidiary. Except as set forth
in the Shareholders' and Rights Agreement, no shareholder has any preemptive
rights or rights of first refusal by reason of or in connection with the
issuance of the Acquired Securities.
(b) The execution, delivery and performance of this Agreement and each
of the Financing Documents, and the consummation of the transactions
contemplated hereby and thereby require no governmental or judicial approval to
be obtained by the Company or Subsidiary, except for post-sale filings with the
Securities and Exchange Commission (the "COMMISSION") and, as required under
state law, state securities commissions, which filings the Company and/or
Subsidiary (as applicable) will effect in a prompt and timely fashion.
3.6 CONTRACTS; INSURANCE. The Disclosure Schedules set forth a true and
correct list of all material contracts, obligations, commitments, agreements,
plans and the like, whether written or oral, and all administrative, judicial
and similar orders to which the Company and/or Subsidiary is a party or by which
it or any of its properties is bound, including, without limitation, the
following:
(a) Any employment, bonus or consulting agreement, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plan, or agreement evidencing rights to
purchase securities, phantom stock or similar plan of the Company or Subsidiary
or any agreement among shareholders of the Company or Subsidiary;
(b) Any loan or other agreement, note, indenture or instrument relating
to, or evidencing, indebtedness for borrowed money, or mortgaging, pledging or
granting or creating a Lien or security interest or other encumbrance on any
property of the Company or Subsidiary or any agreement or instrument evidencing
any guaranty by the Company or Subsidiary of payment or performance by any other
party;
(c) Any material agreement with any dealer, sales representative,
broker or other distributor, jobber, advertiser or sales agency;
(d) Any agreement with any labor union or collective bargaining
organization or any other labor agreement;
(e) Any contract for the furnishing, purchase or lease of machinery,
equipment, goods or services (including, without limitation, any agreement with
processors and subcontractors) in an amount in excess of $10,000 per year;
(f) Any indenture, agreement or other document (including private
placement brochures) relating to the future sale or repurchase of securities;
(g) Any agreement to register under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), any of the securities of the Company or
Subsidiary;
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(h) Any joint venture, partnership or teaming contract or arrangement
or other agreement involving a sharing of profits or expenses;
(i) Any agreement (other than distributorship agreements or similar
agreements providing for the distribution of the Company's or Subsidiary's
products with dealers, distributors and sales representatives of the Company or
Subsidiary) limiting the freedom of the Company or Subsidiary to compete in any
line of business or in any geographic area or with any party;
(j) Any agreement providing for disposition of any line of business,
assets or securities of the Company or Subsidiary, or any agreement with respect
to the acquisition of any line of business, assets or shares of any other
business, any agreement of merger or consolidation or letter of intent with
respect to the foregoing;
(k) Any agreement requiring it to purchase all or substantially all of
its requirements for a particular product or service from a particular supplier
or suppliers, or requiring it to supply all of a particular customer's or
customers' requirements for a certain service or product;
(l) Any material agreement or other commitment pursuant to which it has
agreed to indemnify or hold harmless any other person;
(m) Any (i) employment agreement, (ii) consulting agreement, or (iii)
other agreement, in each case providing for severance payments or other
additional rights or benefits (whether or not optional) in the event of the sale
or other change in control of it;
(n) Any agreement with any current or former Affiliate, stockholder,
officer, director, employee, or consultant of the Company or Subsidiary, or with
any person in which any such Affiliate has an interest;
(o) Any agreement with any domestic or foreign government or agency or
executive office thereof or any subcontract between it and any third party
relating to a contract between such third party and any domestic or foreign
government or agency or executive office thereof;
(p) Any agreement with employees with respect to the confidentiality of
the Company's or Subsidiary's Proprietary Information and the assignment to the
Company or Subsidiary of any and all rights such employees of the Company or
Subsidiary might have to acquire with respect to technology, inventions,
developments, etc., developed in connection with their employment with the
Company or Subsidiary; and
(q) Any agreement, the performance of which is reasonably likely to
result in a loss to either the Company or the Subsidiary, which loss would be
reasonably likely to have a Material Adverse Effect.
Each of the Company and the Subsidiary has delivered or caused to be delivered
to the Purchasers correct and complete copies of all material agreements
requested by the Purchasers, including but not limited to the Company's
Certificate of Incorporation as amended (including but not limited to the
Certificate of Designation for the Series A Preferred Stock as amended), the
Bylaws, as amended, the Series A Preferred Stock Purchase Agreement dated as of
December 30, 1999, as supplemented, the Shareholders' and Rights Agreement dated
as of December 30, 1999, and the employment agreements with Keith Loris and
Jonathan Schull. Each such agreement, instrument, and commitment is a valid,
binding and enforceable obligation of
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the Company or the Subsidiary (as the case may be) and, to the Company's and/or
Subsidiary's (as the case may be) knowledge, of the other party or parties
thereto, and is in full force and effect. Each of the Company and the Subsidiary
is not or, to the Company's and/or Subsidiary's (as the case may be) knowledge,
is any other party thereto, (nor is the Company or the Subsidiary considered by
any other party thereto to be) in breach of or noncompliance with any term of
any such agreement, instrument, or commitment (nor is there any basis for any of
the foregoing), except for any breaches or noncompliances that singly or in the
aggregate would not have a Material Adverse Effect. No claim, change order,
request for equitable adjustment, or request for contract price or schedule
adjustment, between the Company or the Subsidiary and any supplier or customer,
relating to any agreement, instrument, or commitment listed in the Disclosure
Schedule is pending or, to the Company's or the Subsidiary's (as appropriate)
knowledge, threatened, nor is there any basis for any of the foregoing, except
for any claims, change orders, requests for equitable adjustment or requests for
contract price or schedule adjustment would not have a Material Adverse Effect.
No agreement, instrument, or commitment listed in the Disclosure Schedule
includes or incorporates any provision, the effect of which may be to enlarge or
accelerate any of the obligations of the Company or the Subsidiary or to give
additional rights to any other party thereto, or will terminate, lapse, or in
any other way be affected, by reason of the transactions contemplated by this
Agreement.
3.7 SEC DOCUMENTS. The Company has filed all required reports,
schedules, forms, statements and other documents with the Commission (any of the
foregoing are referred to herein as the "SEC DOCUMENTS"). As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act, or the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), as the case may be, and the rules and regulations of the
Commission promulgated thereunder applicable to such SEC Documents, and to the
Company's and Subsidiary's knowledge, none of the SEC Documents 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. Except to
the extent that information contained in any SEC Document has been revised or
superseded by a later-filed SEC Document, to the Company's and Subsidiary's
knowledge, none of the SEC Documents currently contains any untrue statement of
a material fact at the time that it was made or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein as of the date thereof, in light of the circumstances under which they
were made, not misleading. The financial statements of the Company and
Subsidiary included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-QSB of the Commission) applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company, Subsidiary and their consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). All of the SEC Documents have been provided to the
Purchasers. As used in this Agreement, "BALANCE SHEET" shall mean the unaudited,
draft consolidated balance sheet of the Company and Subsidiary as of December
31, 1999, provided to the Purchasers and "FINANCIAL STATEMENTS" shall mean the
unaudited, draft consolidated financial statements of the Company and Subsidiary
as of and for the twelve-month period ended on December 31, 1999, a true and
complete copy of which has been provided to the Purchasers.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Company nor
Subsidiary has any liabilities (whether accrued, fixed, contingent or otherwise,
including without limitation any tax liabilities due or to become due), whether
due or to become due, which, either individually or in the aggregate, are
material and not disclosed on the Balance Sheet.
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3.9 ABSENCE OF CERTAIN CHANGES. Except as set forth on the Disclosure
Schedules, since the date of the Balance Sheet, there has not been:
(a) Any change in the condition, assets, liabilities, prospects or
business of the Company or Subsidiary from that shown on the Balance Sheet
which, either individually or in the aggregate, has been or is reasonably likely
to have a Material Adverse Effect;
(b) Any damage to, or destruction or loss of, any of the properties or
assets of the Company or Subsidiary (whether or not covered by insurance) that
has a Material Adverse Effect;
(c) Any declaration, setting aside or payment of any dividend or other
distribution in respect of any of the Company's capital stock or other
securities of the Company, or any direct or indirect redemption, purchase or
other acquisition of any of such stock (or any warrant, option or other right
with respect to such stock) by the Company or Subsidiary or any repayment of
Company or Subsidiary debt held by any Related Party or by an Affiliate (in each
such case, whether in cash, stock and/or property or otherwise);
(d) Any organizational activity, collective bargaining activity, labor
dispute or labor trouble;
(e) Any event or condition of any character, which, either individually
or in the aggregate, has a Material Adverse Effect;
(f) Any action taken or entered into by the Company or Subsidiary
involving any transaction other than in the usual and ordinary course of
business, except this Agreement;
(g) Any wage or salary increase made or granted, or entered into by the
Company or Subsidiary involving any employment agreement with an officer or key
employee other than any agreement set forth in the Disclosure Schedules;
(h) Any disclosure to any person of any material trade secrets, except
for disclosures made to persons subject to valid and enforceable confidentiality
agreements;
(i) Any material disposition of assets outside the ordinary course of
business;
(j) Any issuance of any shares of the capital stock or other securities
of the Company or Subsidiary, or any direct or indirect redemption, purchase, or
other acquisition by the Company or Subsidiary of any shares of its capital
stock or other securities;
(k) Any change in the officers, directors, key employees, or key
independent contractors of the Company or Subsidiary;
(l) Any labor trouble or claim of unfair labor practices involving the
Company or the Subsidiary, any increase in the compensation or other benefits
payable or to become payable by the Company or Subsidiary to any of their
respective Affiliates, or to any of their officers, employees, or independent
contractors outside the ordinary course of business, or any bonus payments or
arrangements made to or with any of such officers, employees, or independent
contractors outside the ordinary course of business or which were not accrued
and set forth in the Financial Statements or Balance Sheet;
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(m) Any forgiveness or cancellation of any debt or claim by the Company
or the Subsidiary or any waiver by the Company or the Subsidiary of any right of
material value, other than compromises of accounts receivable in the ordinary
course of business;
(n) Any incurrence or any payment, discharge, or satisfaction by the
Company or the Subsidiary of any material Indebtedness or any material
obligations or material liabilities, whether absolute, accrued, contingent, or
otherwise (including without limitation liabilities, as guarantor or otherwise,
with respect to obligations of others);
(o) Any incurrence, discharge, or satisfaction of any Lien in excess of
$10,000 (i) by the Company or the Subsidiary, or (ii) on any of the capital
stock, other securities, properties, or assets owned or leased by the Company or
the Subsidiary;
(p) Any change in the financial or tax accounting principles,
practices, or methods of the Company or the Subsidiary; or
(q) Any agreement, understanding, or commitment by or on behalf of the
Company or the Subsidiary, whether in writing or otherwise, to do or permit any
of the things referred to in this Section 3.9.
3.10 TAXES. The Company and Subsidiary has each filed or will file
within the time prescribed by law (including extensions of time approved by any
appropriate taxing authority) all tax returns and reports required to be filed
with the United States Internal Revenue Service and with the States of Delaware,
Massachusetts and New York, and (except to the extent that the failure to file
would not have a Material Adverse Effect) with all other jurisdictions where
such filing is required by law; and the Company and Subsidiary has paid, or made
adequate provision in the Balance Sheet for the payment of, all taxes, interest,
penalties, assessments or deficiencies due in connection therewith. Neither the
Company nor Subsidiary has ever had any tax deficiency proposed or assessed
against it and neither the Company nor Subsidiary has executed any waiver of any
statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's or Subsidiary's federal income tax
returns nor any state income, sales or franchise tax returns has ever been
audited by governmental authorities. No tax audit, action, suit, proceeding,
investigation or claim is now pending nor, to the best of the Company's and
Subsidiary's knowledge after reasonable inquiry, threatened against the Company
or Subsidiary, and no issue or question has been raised (and is currently
pending) by any taxing authority in connection with any of the Company's or
Subsidiary's tax returns or reports.
The Company and Subsidiary each has withheld or collected from each
payment made to each of their employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
3.11 TRANSACTIONS WITH AFFILIATES. Except as set forth on the
Disclosure Schedule, there is no loan, lease or other continuing transaction of
any nature between the Company or Subsidiary and any Related Party and/or
Affiliate.
3.12 LITIGATION. Except as set forth on the Disclosure Schedule, there
is neither pending nor threatened any action, suit, proceeding or claim, whether
or not purportedly on behalf of the Company or Subsidiary, to which the Company,
Subsidiary or any employee of the Company or Subsidiary is or may be named as a
party or to which the Company's, Subsidiary's or any such person's property is
or may be subject.
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Except as set forth on the Disclosure Schedule, to the Company's and
Subsidiary's knowledge and belief, there is no basis for any such action, suit,
proceeding or claim, in which an unfavorable outcome, ruling or finding in any
such matter or for all such matters, taken as a whole, might have a Material
Adverse Effect. Except as set forth on the Disclosure Schedule, the Company and
Subsidiary have no knowledge of any unasserted claim, the assertion of which is
likely and which, if asserted, will seek damages, an injunction or other legal,
equitable, monetary or nonmonetary relief which if granted would have a Material
Adverse Effect.
3.13 CONSENTS. No consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority on the part
of the Company or Subsidiary, including qualification under applicable state
securities laws of the offer and sale of the Shares and of the issuance of the
Conversion Shares, is required in connection with the valid execution and
delivery of this Agreement, the offer, sale or issuance of the Shares, the
conversion of the Shares into Common Stock or the issuance of the Conversion
Shares, or the consummation of any other transaction contemplated on the Closing
Date by this Agreement or any of the Financing Documents, except the filing of
the Certificate with the Secretary of the State of Delaware, which filing has
been made and is effective as of the date hereof. Each of the Company and the
Subsidiary has complied with, and is in compliance with, (i) all laws, statutes,
governmental regulations, judicial or administrative tribunal orders, judgments,
writs, injunctions, decrees, and similar commands applicable to it and its
business, and all unwaived terms and provisions of all agreements, instruments,
and commitments to which it is a party or to which it or any of its assets or
properties is subject, except for any non-compliances that, both individually
and in the aggregate, have not had and could not reasonably be expected to have
a Material Adverse Effect, and (ii) its charter documents and by-laws, each as
amended to date. Each of the Company and the Subsidiary has not committed, been
charged with, or, to their knowledge, been under investigation with respect to,
nor does there exist, any violation by either of them of any provision of any
federal, state, or local law or administrative regulation, except for any
violations that, either singly or in the aggregate, have not had and could not
reasonably be expected to have a Material Adverse Effect. Each of the Company
and the Subsidiary has and maintains, and the Disclosure Schedule sets forth a
complete and correct list of, all such licenses, permits, and other
authorizations from all such governmental authorities as are legally required
for the conduct of its business or in connection with the ownership or use of
its properties, except for any such licenses, permits, and other authorizations,
the failure to obtain or maintain which in effect, both singly or in the
aggregate, has not had and could not reasonably be expected to have a Material
Adverse Effect, and all of which (except as specifically described in the
Disclosure Schedule) are in full force and effect in all material respects, and
true and complete copies of all of which have been delivered to the Purchasers.
3.14 TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Each of the Company
and the Subsidiary has (i) good and marketable title to all of the assets and
properties owned by it, including without limitation all assets and properties
reflected in the Balance Sheet (in each case excluding any assets and properties
sold or otherwise disposed of to persons other than Affiliates in the ordinary
course of business since the date of such Balance Sheet), free and clear of all
Liens, (ii) valid title to the lessee interest in all assets and properties
leased by them as lessee, free and clear of all Liens, and (iii) full right to
hold and use all of its assets and properties used in or necessary to its
businesses and operations, in each case all free and clear of all Liens, and in
each case subject to applicable laws and the terms of any lease under which the
Company or the Subsidiary leases such assets or properties as lessee. All such
assets and properties are in good condition and repair, reasonable wear and tear
excepted, and are adequate and sufficient to carry on the businesses of the
Company and the Subsidiary (as applicable) as presently conducted and as
proposed to be conducted.
3.15 LEASES. Set forth on the Disclosure Schedules is a correct and
complete list of all leases
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(including, with respect to each lease, the material provisions of such lease,
including the term, the amount of rent called for and a description of the
leased property) under which the Company or Subsidiary is a lessee, other than
personal property requiring rental payments of less than $10,000 per year. The
Company and Subsidiary each enjoys peaceful and undisturbed possession under all
such leases, all of such leases are valid and subsisting and none of them is in
default in any respect, and to the knowledge of the Company and Subsidiary, no
event has occurred and no condition exists which, with notice or the passage of
time or both, would constitute such a default.
3.16 FRANCHISES, LICENSES, TRADEMARKS, PATENTS AND OTHER RIGHTS.
(a) The Disclosure Schedule lists all patents, patent applications,
trademarks, trade names, service marks, logos, copyrights, and licenses (other
than licenses from governmental authorities which are covered in Section 3.13)
used in or necessary to the Issuer Entities' business as now being conducted or
as proposed to be conducted (collectively, and together with any technology,
know-how, trade secrets, processes, formulas, and techniques used in or
necessary to the Issuer Entities' business, "PROPRIETARY INFORMATION"). Except
as set forth in the Disclosure Schedules, the Issuer Entities own, or are
licensed or otherwise have the full and unrestricted exclusive right to use,
without the payment of royalties or other further consideration, all Proprietary
Information, and no other intellectual property rights, privileges, licenses,
contracts, or other agreements, instruments, or evidences of interests are
necessary to or used in the conduct of their businesses.
(b) In any instance where the Issuer Entities' rights to Proprietary
Information arise under a license or similar agreement (other than for software
programs that have not been customized for its use), this is indicated in the
Disclosure Schedule and such rights are, to the best knowledge of the Issuer
Entities, licensed exclusively to it except as indicated in the Disclosure
Schedule. No other person has an interest in or right or license to use any of
the Proprietary Information. Except as set forth in the Disclosure Schedules, to
the Issuer Entities' best knowledge, none of the Proprietary Information is
being infringed by others, or is subject to any outstanding order, decree,
judgment, or stipulation. Except as set forth in the Disclosure Schedules, no
litigation (or other proceedings in or before any court or other governmental,
adjudicatory, arbitral, or administrative body) relating to the Proprietary
Information is pending or, to the Issuer Entities' best knowledge, threatened,
nor, to the Issuer Entities' knowledge, is there any basis for any such
litigation or proceeding. The Issuer Entities use reasonable efforts to maintain
adequate and sufficient security measures for the preservation of the secrecy
and proprietary nature of the Proprietary Information.
(c) (i) Neither the Issuer Entities nor any of their employees has
infringed or made unlawful use of, or is, to the Issuer Entities' knowledge,
infringing or making unlawful use of, any proprietary or confidential
information of any Person, including without limitation any former employer of
any past or present employee or consultant of the Issuer Entities; and (ii) to
the Issuer Entities' knowledge, the activities of the Issuer Entities' employees
in connection with their employment do not violate any agreements or
arrangements that any such employees or consultants have with any former
employer or any other Person. Except as set forth in the Disclosure Schedule, no
litigation (or other proceedings in or before any court or other governmental,
adjudicatory, arbitral, or administrative body) charging the Issuer Entities
with infringement or unlawful use of any patent, trademark, copyright, or other
proprietary right is pending or, to the Issuer Entities' knowledge, threatened;
nor is there any basis for any such litigation or proceeding.
(d) To the knowledge of the Issuer Entities, no officer, director,
employee, or consultant of the Issuer Entities is presently obligated under or
bound by any agreement or instrument, or any judgment, decree, or order of any
court of administrative agency, that (i) conflicts or may conflict with his or
her
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agreements and obligations to use his or her best efforts to promote the
interests of the Issuer Entities, (ii) conflicts or may conflict with the
business or operations of the Issuer Entities as presently conducted or as
proposed to be conducted, or (iii) restricts or may restrict the use or
disclosure of any information that may be useful to the Issuer Entities.
(e) Except as set forth on the Disclosure Schedule, to the Company's
and Subsidiary's knowledge, all computer software owned, licensed or used by the
Company or Subsidiary: (i) includes Year 2000 date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, correct date sort ordering (if date sorting is an included function),
and date data interface values that reflect the century; (ii) will not cause an
abnormal abend or abort within the application on account of date data properly
entered into the application or result in the generation of incorrect values or
invalid outputs involving such date; (iii) provides that all date related user
interface functionalities and data fields include the indication of the correct
century, and (iv) include four digit year format and recognize and correctly
process dates for leap years.
3.17 ISSUANCE TAXES. All taxes imposed by any state in connection with
the issuance, sale and delivery of the Acquired Securities shall have been fully
paid, and all laws imposing such taxes shall have been fully complied with,
prior to the Closing Date.
3.18 OFFERING. Except as set forth on the Disclosure Schedule and in
the Company's SEC Documents, within the past six (6) months, the Company has
not, either directly or through any agent, offered any of the Shares, Warrants
or other Derivative Securities, or any preferred security or securities similar
to the Shares for sale to, or solicited any offers to buy the Shares, Warrants
or other Derivative Securities or any part thereof or any such similar preferred
security or securities from, or otherwise approached or negotiated in respect
thereof with, any party or parties other than the Purchasers or institutional or
other sophisticated investors, each of which was offered all or a portion of the
Shares at private sale for investment.
Subject in part to the truth and accuracy of the Purchasers'
representations set forth in this Agreement, the offer, sale and issuance of the
Acquired Securities as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act, and all state securities laws,
and neither the Company nor anyone acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
3.19 EMPLOYEES.
(a) Each of the Company's and Subsidiary's other present or former
employees who has had access to proprietary information of the Company or
Subsidiary has executed a Softlock.com Non-Disclosure And Solicitation,
Confidentiality and Assignment of Intellectual Property Agreement ("PROPRIETARY
INFORMATION AGREEMENT") to the effect and in substantially the form provided to
the Purchasers and special counsel for the Purchasers, a copy of which is set
forth in EXHIBIT B hereto. The Disclosure Schedules set forth a complete list of
the name and position of each person who has executed a Proprietary Information
Agreement. To the Company's and Subsidiary's knowledge and belief, no employee
or former employee of the Company or Subsidiary is, or to the Company's and
Subsidiary's knowledge and belief now is expected to be, in violation of the
terms of the aforesaid agreement or of any other obligation relating to the use
of confidential or proprietary information of the Company or Subsidiary. Each of
such Proprietary Information Agreements remains in full force and effect.
(b) The Disclosure Schedules set forth the current compensation of each
officer or director of the Company and Subsidiary, and of each employee being
paid (or to whom the Company or Subsidiary has
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agreed to pay) annual salary at a rate of $120,000 per year or more.
(c) To the knowledge of the Company and Subsidiary, except as set forth
on the Disclosure Schedule, no officer or key employee of the Company or
Subsidiary has any present intent of terminating such officer's or key
employee's employment with the Company or Subsidiary.
(d) The Company and Subsidiary each complies in all material respects
with all laws regarding employment, wages, hours, equal opportunity, collective
bargaining and payment of Social Security and other taxes. The Company and
Subsidiary each is in compliance in all material respects with all applicable
foreign, federal, state and local laws and regulations regarding occupational
safety and health standards and has received no complaints from any foreign,
federal, state or local agency or regulatory body alleging violations of any
such laws and regulations.
(e) Except as set forth on the Disclosure Schedules hereto, the
employment of all persons and officers employed by the Company and Subsidiary is
terminable at will without any penalty or severance obligation of any kind on
the part of the employer. All sums due for employee compensation and benefits
and all vacation time owing to any employees of the Company and Subsidiary have
been duly and adequately accrued on the accounting records of the Company. All
employees of the Company and Subsidiary are either United States citizens or
resident aliens specifically authorized to engage in employment in the United
States in accordance with all applicable laws.
(f) Neither the Company nor Subsidiary has experienced, nor does it
know or have reasonable grounds to know of any basis for, any strike, labor
troubles or strife, work stoppages, slow downs, or other interference with or
impairment of its business. Neither the Company nor Subsidiary has experienced,
nor does it know or have reasonable grounds to know of, any union or collective
bargaining organization efforts or negotiations, or requests for negotiations,
for any representation or any labor contract relating to any employees of the
Company or Subsidiary.
3.20 BUSINESS OF THE COMPANY AND SUBSIDIARY. Except as set forth on the
Disclosure Schedule, the Company and Subsidiary have no knowledge or belief that
(i) there is pending or threatened any claim or litigation against or affecting
the Company or Subsidiary contesting its right to manufacture, sell or use any
product or service presently manufactured, sold or used or planned to be
manufactured, sold or used by the Company or Subsidiary, or (ii) there exists,
or there is pending or planned, any statute, rule, law, regulation, standard or
code which would have a Material Adverse Effect. The Company and Subsidiary
currently intend to engage in the business of the general type described in the
Plan (the "BUSINESS").
3.21 USE OF PROCEEDS. The Company and Subsidiary will use the proceeds
of the offering for working capital purposes. The Company and Subsidiary will
not use the proceeds of the offering for other business purposes. None of the
transactions contemplated in this Agreement (including, without limitation, the
use of the proceeds from the sale of the Shares) will violate or result in a
violation of Section 7 of the Exchange Act, or any regulations issued pursuant
thereto, including, without limitation, Regulations G, T and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter 11. Neither the
Company nor Subsidiary owns or intends to carry or purchase any "margin
security" within the meaning of said Regulation G, including margin securities
originally issued by it. None of the proceeds from the sale of the Shares will
be used to purchase or carry (or refinance any borrowing the proceeds of which
were used to purchase or carry) any "security" within the meaning of the
Securities Act.
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3.22 APPLICABILITY OF, AND COMPLIANCE WITH, OTHER LAWS.
(a) Neither the Company nor Subsidiary has or makes contributions to
any pension plans, defined benefit plans or defined contribution plans for its
employees which are subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), except as set forth on the Disclosure Schedules.
With respect to such plans, if any, listed on the Disclosure Schedules, each of
the Company and Subsidiary is in compliance with the applicable provisions of
ERISA. Neither the Company nor Subsidiary has incurred any unremedied
accumulated funding deficiency within the meaning of ERISA or any unsatisfied
liability to the Pension Benefit Guaranty Corporation established under ERISA in
connection with any employee pension plan established or maintained by the
Company or the Subsidiary under the jurisdiction of ERISA. No Reportable Event
or Prohibited Transaction (as defined in Section 4043 of ERISA) has occurred
with respect to any plan administered by the Company or Subsidiary.
(b) The Company's and Subsidiary's employment practices and policies
comply in all material respects with (i) all applicable laws of the United
States and each applicable jurisdiction relating to equal employment
opportunity, and any rules, regulations, administrative orders and Executive
Orders relating thereto; and (ii) the applicable terms, relating to equal
opportunity, of any contract, agreement or grant the Company and Subsidiary has
with, from or relating (by way of subcontract or otherwise) to any other
contract, agreement or grant of, any federal or state governmental unit. Neither
the Company nor Subsidiary has been the subject of any charge of unfair labor
practices, employment discrimination made against it by the National Labor
Relations Board, the United States Equal Employment Opportunity Commission or
any other governmental unit, or is presently subject to any formal or informal
proceedings before, or investigations by, such Commission or governmental unit.
To the Company's and Subsidiary's knowledge, neither the Company, nor
Subsidiary, nor any employees of the Company or Subsidiary, nor any Related
Parties are presently under investigation by any commission or governmental
agency for purposes of security clearance or otherwise.
(c) To the Company's and the Subsidiary's knowledge, none of the real
properties presently owned, leased, or operated by the Company or the
Subsidiary, nor any leasehold improvements thereto, nor any business conducted
by the Company or the Subsidiary thereon, are in violation of any applicable
land use or zoning requirements, including without limitation any building line
or use or occupancy restriction, any public utility or other easement, any
limitation, condition, or covenant of record, or any zoning or building law,
code, or ordinance.
(d) Neither the Company nor Subsidiary nor any property owned or
occupied by the Company or Subsidiary is in material violation of any Federal or
State Environmental Law of any sort or in violation of any Federal or State
"OSHA" law, so-called. The Disclosure Schedules contain a list of all
environmental permits held by the Company and Subsidiary. Without limiting the
foregoing:
(i) ENVIRONMENTAL PERMITS. The Company and Subsidiary each has
obtained all environmental, health and safety permits and governmental
authorizations (collectively, the "ENVIRONMENTAL PERMITS") necessary for the
construction of their facilities or the conduct of their operations, and all
such Environmental Permits are in good standing and the Company and Subsidiary
each is in compliance with all terms and conditions of the Environmental
Permits. No notice to, approval of or authorization or consent from any
governmental or regulatory authority is necessary for the transfer of or
modification to any Environmental Permit and the consummation of the
transactions contemplated by this Agreement will not violate, alter, impair or
invalidate, in any respect, any Environmental Permit.
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(ii) ENVIRONMENTAL CLAIMS. There is no Environmental Claim
pending, threatened or likely to be threatened (a) against the Company or
Subsidiary, (b) to the Company's and Subsidiary's knowledge, against any person
or entity whose liability for any Environmental Claim the Company or Subsidiary
has or may have retained or assumed either contractually or by operation of law,
or (c) against any real or personal property or operations which are now or have
been previously owned, leased, operated or managed, in whole or in part, by the
Company or Subsidiary; PROVIDED, HOWEVER that to the extent the Environmental
Claim is based on the liability of another person or entity that the Company or
Subsidiary has or may have retained or assumed either contractually or by
operation of law such representation and warranty under this clause (c) is
limited to the knowledge of the Company and Subsidiary.
(iii) RELEASES. There have been no Releases of any Hazardous
Materials that would be likely to form the basis of any Environmental Claim
against the Company, Subsidiary or, to the Company's and Subsidiary's knowledge,
against any person or entity whose liability for any Environmental Claim the
Company or Subsidiary has or may have retained or assumed either contractually
or by operation of law.
(iv) ENVIRONMENTAL ASSESSMENTS. There are no environmental
reports, audits, investigations or assessments of the Company, Subsidiary, or
any real or personal property or operations which are now or have been
previously owned, leased, operated or managed, in whole or in part, by the
Company or Subsidiary.
(v) ENVIRONMENTAL DISCLOSURE. To the knowledge of the Company
and Subsidiary upon diligent review, the Company and Subsidiary have disclosed
to the Purchasers all relevant facts with respect to potential or actual
environmental liabilities of the Company and Subsidiary.
3.23 INDEBTEDNESS. The Disclosure Schedules contain a true and complete
list, including the names of the parties thereto and summary description of the
terms thereof, of all Indebtedness, including without limitation debt
instruments, loan agreements, indentures, guaranties or other obligations,
whether written or oral, other than (a) obligations which may be terminated
without payment or penalty by the Company or Subsidiary upon not more than
thirty (30) days notice, and (b) obligations for less than $10,000. All of the
aforesaid items were entered into in the ordinary course of business, are valid
and binding, in full force and effect and are enforceable in accordance with
their respective terms and there exists no breach or default, or any event which
with notice or lapse of time or both, would constitute a breach or default by
any party thereto. All of the Company's and Subsidiary's Indebtedness which is
required to be disclosed under generally accepted accounting principles is
disclosed on the Balance Sheet.
3.24 INSURANCE COVERAGE. Neither the Company nor Subsidiary has been
refused any insurance coverage sought or applied for, and the Company and
Subsidiary have no reason to believe that they will be unable to obtain one or
more policies of insurance issued by insurers of recognized responsibility,
insuring the Company, Subsidiary and their properties and business against such
losses and risks, and in such amounts, as are customary in the case of
corporations of established reputation engaged in the same or similar business
and similarly situated. The Disclosure Schedules set forth each insurance policy
(specifying the insurer, the amount of coverage, the type of insurance, the
policy number, and the expiration date), maintained by the Company and
Subsidiary relating to their properties, assets, business or personnel. Neither
the Company nor Subsidiary is in material default with respect to any provision
contained in any insurance policy, and neither the Company nor Subsidiary has
failed to give any notice or present any presently existing claims under any
insurance policy in due and timely fashion.
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3.25 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS. To the
Company's and Subsidiary's knowledge, neither the Company, Subsidiary nor any of
their officers, directors, employees, agents or other representatives of the
Company, Subsidiary or any other business entity or enterprise with which the
Company or Subsidiary is or has been affiliated or associated, has, directly or
indirectly, made or authorized any payment, contribution or gift of money,
property, or services, whether or not in contravention of applicable law, (a) as
a kickback or bribe to any person ,(b) to any political organization, or the
holder of or any aspirant to any elective or appointive public office except for
personal political contributions not involving the direct or indirect use of
funds of the Company or Subsidiary or (c) in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any rules or regulations thereunder.
3.26 DISCLOSURE. Neither this Agreement, the Disclosure Schedules nor
other written statement furnished to the Purchasers or their counsel in
connection with the offer and sale of the Shares, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained therein or herein not misleading in the light of the
circumstances under which they were made. The forecasts, projections, estimates
and other forward-looking matters furnished to the Purchasers were prepared on
the basis of the Company's and Subsidiary's best estimates. The Company and
Subsidiary do not have any reason to believe that any assumptions or statements
of opinion contained in such forecasts, projections, estimates or other
forward-looking matters are unreasonable or false.
3.27 POTENTIAL CONFLICTS OF INTEREST. Except as set forth on the
Disclosure Schedule, neither the Company nor the Subsidiary nor, to the best
knowledge of the Company and the Subsidiary, any of either of their officers,
directors or employees, (i) owns, directly or indirectly, any interest
(excepting passive holdings for investment purposes of not more than 1% of the
securities of any publicly held company) in, or is an officer, director,
employee, or consultant of, any person that is a competitor, lessor, lessee,
customer, or supplier of the Company or the Subsidiary; or (ii) has any cause of
action or other claim whatsoever against the Company or the Subsidiary, or owes
any amount to the Company or the Subsidiary, except for claims in the ordinary
course of business, such as for accrued vacation pay, accrued benefits under
employee benefit plans, and similar matters and agreements or under any
employment agreements.
3.28 REAL PROPERTY HOLDING CORPORATION. Neither the Company nor the
Subsidiary is a "United States real property holding corporation" within the
meaning of Section 897 of the Code, as amended, and Treasury Regulation
ss.1.897-2.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each of the Purchasers (severally and NOT jointly) represents and
warrants to the Company, as to itself only, as follows:
4.1 ORGANIZATION; GOOD STANDING; POWER AND AUTHORITY; BINDING
OBLIGATION. It has full power and authority to enter into this Agreement, and is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and all action on its part necessary for the
authorization, execution and delivery of this Agreement and the Financing
Documents, the performance of all of its obligations hereunder, including,
without limitation, the payment of the purchase price for the Shares and
Warrants contemplated by this Agreement, has been taken, and it has all the
requisite power and authority to enter into this Agreement and each of the
Financing Documents to which it is a party. This Agreement and each of the
Financing Documents to which it is a party has been duly executed and delivered
by such
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Purchasers and constitutes its valid and legally binding obligation enforceable
against it in accordance with its terms, subject to the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally, subject, as to enforceability, to the effect of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and subject to the effect of
applicable securities laws as to rights of indemnification.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT, ETC. It is acquiring the Shares
and Warrants solely for investment for its own account, not as a nominee or
agent and not with the view to, or for resale in connection with, any
distribution thereof. It has no present intention of selling, granting any
participation in, or otherwise distributing the Acquired Securities. It does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to any person with respect to the
Acquired Securities. It understands that the Acquired Securities have not been
registered under the Securities Act by reason of an exemption from the
registration provisions of the Securities Act, and that the Company's and
Subsidiary's reliance on such exemption is predicated in part upon its
representations and warranties set forth in this Section 4.
4.3. DISCLOSURE. It has received or reviewed all the information which
it has requested for the purposes of determining the merits of the purchase of
the Acquired Securities and the execution of this Agreement and the Financing
Documents. It also has received and reviewed a copy of the Financial Statements
and Balance Sheet. It has had an opportunity to ask questions and receive
answers from the Company and Subsidiary regarding such entities, their business,
operations and financial condition and the terms and conditions of the purchase
of the Shares, this Agreement and each of the Financing Documents to which it is
a party, and answers have been provided to its full satisfaction. It has fully
reviewed all corporate and governance documents of the Company and Subsidiary
provided to it, understands all relevant terms and has asked all questions and
received answers thereto to its full satisfaction. If deemed necessary by it, it
has consulted with a professional advisor who has provided it with advice
concerning these terms. IT ACKNOWLEDGES AND AGREES THAT THE PURCHASE OF THE
SHARES AND WARRANTS INVOLVES A HIGH DEGREE OF RISK, AND MAY RESULT IN A LOSS OF
THE ENTIRE AMOUNT INVESTED, AND THERE IS NO ASSURANCE THAT THE REGISTRATION
STATEMENT CONTEMPLATED IN SECTION 7.17 HEREOF WILL BE DECLARED EFFECTIVE;
PROVIDED THAT THE COMPANY ACKNOWLEDGES ITS OBLIGATION TO USE ITS REASONABLE BEST
EFFORTS TO CAUSE SUCH REGISTRATION STATEMENT TO BECOME EFFECTIVE AS PROVIDED IN
SECTION 7.17 HEREOF.
4.4 ACCREDITED INVESTOR. It is an accredited investor as defined in
Rule 501(a) of Regulation D under the Securities Act. The information provided
by it on the Statement of Accredited Investor, attached hereto as EXHIBIT E, is
true and correct in all respects. It is capable of bearing the economic risk of
an investment in the purchase of the Acquired Securities, including the possible
loss of its entire investment. It has such knowledge and experience in financial
or business matters that it is capable of evaluating the merits and risks of an
investment in the Acquired Securities offered hereby. It has not been organized
solely for the purpose of acquiring the Acquired Securities. It has not
construed the contents of this Agreement, any Financing Document or any
additional agreement with respect to the proposed purchase of the Shares and
Warrants or any prior or subsequent communications from the Company or
Subsidiary, or any of their officers, employees or representatives, as
investment, tax or legal advice or as information necessarily applicable to its
particular financial situation. It has consulted its own financial advisor, tax
advisor, legal counsel and accountant, as necessary or desirable, as to matters
concerning the purchase of the Shares and Warrants.
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4.5 RESTRICTED SECURITIES. It understands that the Acquired Securities
are "restricted securities" as defined in the Securities Act, and that under
federal and state securities laws the Acquired Securities may be resold without
registration under the Securities Act only in certain limited circumstances. It
is familiar with Rule 144 promulgated by the Commission under the Securities
Act, and understands the resale limitations imposed thereby and by the
Securities Act generally. It also acknowledges that the Acquired Securities are
subject to significant restrictions on transfer, pledge or hypothecation. It
agrees that in no event will it make a transfer or disposition of the Acquired
Securities other than in compliance with all applicable securities laws.
4.6 LEGENDS. It is understood that certificates or other evidence of
the Shares, Warrant Shares and the Conversion Shares may bear the following
legend, as well as any legend required by the laws of any relevant state:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED PURSUANT TO A
VALID EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS."
4.7 TERMINATION OF RESTRICTIONS. The restrictions imposed by this
Section 4 upon the transferability of any Acquired Securities will terminate as
to any particular Shares when such Shares have been sold pursuant to an
effective registration statement under the Securities Act, or pursuant to Rule
144 under the Securities Act or any other exemption from the registration
requirements of the Securities Act pursuant to which the transferee receives
securities that are not "restricted securities" within the meaning of that term
as defined in Rule 144(a)(3). Whenever any of such restrictions terminates as to
any Shares, the holder thereof will be entitled to receive from the Company,
upon its request and at the Company's expense, new certificates representing
such Shares, without restrictive legends.
SECTION 5
CONDITIONS TO CLOSING OF PURCHASERS
The obligation of the Purchasers to purchase the Shares to be purchased
by them at the Closing is subject to the fulfillment to their satisfaction on or
prior to the Closing Date of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company and Subsidiary in Section 3 hereof, as qualified
by the Disclosure Schedules, shall be true and correct in all respects when
made, and shall be true and correct in all respects on the Closing Date.
5.2 PERFORMANCE. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company and/or Subsidiary
on or prior to the Closing Date shall have been so performed or complied with in
all material respects.
5.3 COMPLIANCE CERTIFICATE. The Company and Subsidiary shall have
executed and delivered to the Purchasers a certificate of the President or
Executive Vice President of the Company and Subsidiary,
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dated the Closing Date, certifying to the fulfillment of the conditions
specified in Sections 5.1 and 5.2 of this Agreement and such other matters as
the Purchasers may reasonably request.
5.4 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received an
opinion of McGuire, Woods, Battle & Boothe LLP, counsel to the Company and
Subsidiary, addressed to them and dated the Closing Date, in substantially the
form set forth in EXHIBIT C and in form and substance satisfactory to the
Purchasers.
5.5 GOOD STANDING CERTIFICATES. The Company shall have delivered to the
Purchasers certificates dated not more than 5 days before the Closing Date from
the Secretary of State of the State of the Company's and Subsidiary's state of
incorporation with respect to the Company's and Subsidiary's due incorporation,
good standing, legal corporate existence, due authorization to conduct business
and the payment of all franchise taxes, and, certificates from the Secretary of
State in each jurisdiction in which the Company or Subsidiary is required to be
qualified to do business with respect to the Company's or Subsidiary's good
standing and due authorization to conduct business therein and payment of all
qualification fees.
5.6 QUALIFICATIONS. All authorizations, approvals, or permits of any
governmental authority or regulatory body that are required in connection with
the lawful issuance and sale of the Acquired Securities pursuant to this
Agreement, the conversion of the Shares into Common Stock and the issuance of
Common Stock upon such conversion and upon the exercise of the Warrants and
issuance of Warrant Shares upon such exercise shall have been duly obtained and
shall be effective on and as of the Closing Date, including, if necessary,
permits from applicable state securities authorities, qualifying the offer and
sale of the Acquired Securities.
5.7 AMENDMENT OF CERTIFICATE AND FILING OF CERTIFICATE. The Certificate
shall have been duly filed with the Secretary of the State of Delaware, evidence
of which filing the Company shall have provided to the Purchasers.
5.8 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to the Purchasers and counsel for the Purchasers.
5.9 PROVISIONS OF BY-LAWS. The By-Laws of the Company shall provide
that (a) a majority of the Directors constituting the Board shall constitute a
quorum for the transaction of any business at a meeting of the Board, and (b)
the holders of Series B Preferred which represent 15% or more of outstanding
voting shares of the Company can call special meetings of stockholders.
5.10 SHAREHOLDERS' AND RIGHTS AGREEMENT. The Company, the holders of
the Series A Preferred Stock and the Purchasers shall have executed and
delivered an Amended and Restated Shareholders' and Rights Agreement (the
"SHAREHOLDERS' AND RIGHTS AGREEMENT") to the effect and in substantially the
form set forth in Exhibit D hereto.
5.11 CERTIFICATION BY CORPORATE SECRETARY. With respect to the Company
and the Subsidiary, a certificate of their respective secretaries, dated the
Closing Date, certifying (A) the absence of any amendments to its charter
documents (or proceedings therefor) since the date of the certificate referred
to in Section 5.5, above, (B) an attached copy of their respective by-laws, (C)
an attached copy of the resolutions of their respective boards of directors,
with respect to the transactions hereby contemplated or otherwise to be
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effected at the Closing, (D) the incumbency of their respective officers and
directors, and (E) as to the membership of their respective boards of directors,
each of which shall be constituted as provided in Section 2 of the Shareholders'
and Rights Agreement.
5.12 WARRANTS. The Company shall have executed and delivered to each of
the Purchasers two Warrants (each for the purchase of that number of shares of
Common Stock specified in the Schedule of Purchasers) substantially in the form
of EXHIBITS F and G hereto, each of which shall be in form and substance
satisfactory to the Purchasers (collectively, the "WARRANTS" and each, a
"WARRANT").
5.13 LEGAL INVESTMENT. The acquisition of any Acquired Securities
hereunder shall be legally permitted at Closing by all laws and regulations to
which the Purchasers and the Issuer Entities are subject.
5.14 SIDE LETTER. The Company shall have executed and delivered to each
of Ronald Santella, Anthony Kamin, RAM Trading, Ltd., RC Capital, L.L.C. and
Ritchie Capital Management L.L.C. that certain side letter in form and substance
satisfactory to the foregoing Purchasers.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell the Shares to be purchased at the
Closing is subject to the fulfillment to its satisfaction on or prior to the
Closing Date of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Purchasers pursuant to Section 4 hereof shall be true and
correct when made and shall be true and correct in all respects on the Closing
Date and with respect thereto, after giving effect to the purchase of the Shares
at the Closing.
6.2 PERFORMANCE. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Purchasers on or prior to
the Closing Date shall have been so performed or complied with in all material
respects.
6.3 QUALIFICATIONS. All authorizations, approvals, or permits of any
governmental authority or regulatory body that are required in connection with
the lawful issuance and sale of the Acquired Securities pursuant to this
Agreement, the conversion of the Shares into Common Stock and the issuance of
such Common Stock upon such conversion, and the exercise of the Warrants and
issuance of Warrant Shares upon such exercise shall have been duly obtained and
shall be effective on and as of the Closing Date, including, if necessary,
permits from applicable state securities authorities, qualifying the offer and
sale of the Acquired Securities.
6.4 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to the Company and the Subsidiary and their counsel.
6.5 STATEMENT OF ACCREDITED INVESTOR. The Purchasers shall have
executed and delivered to the Company and the Subsidiary a Statement of
Accredited Investor to the effect and in substantially the form set forth in
EXHIBIT E hereto.
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6.6 LEGAL INVESTMENT. The sale and issuance of the Acquired Securities
hereunder shall be legally permitted at Closing by all laws and regulations to
which the Purchasers and the Issuer Entities are subject.
6.7 SHAREHOLDERS' AND RIGHTS AGREEMENT. The Company, the holders of the
Series A Preferred Stock and the Purchasers shall have executed and delivered
the Shareholders' and Rights Agreement in substantially the form of EXHIBIT D
appended hereto.
SECTION 7
AFFIRMATIVE COVENANTS
The Company and Subsidiary hereby jointly and severally covenant and
agree, for the benefit of any Purchaser who owns 2,812 (which number shall be
subject to adjustment for any stock dividends, stock split, combination or
division of shares, recapitalization, reclassification, merger, consolidation,
reorganization, or the like affecting the shares of Series B Preferred) or more
shares of the Series B Preferred which remain outstanding and which have not
been converted to Common Stock (the "Ownership Threshold"):
7.1 BASIC FINANCIAL INFORMATION. The Company will furnish to each such
Purchaser the following reports:
(a) Within seven (7) days following the filing with the Commission,
copies of its reports filed on Form 10-K, Form 10-Q, Form 8-K or any successor
form or forms, its Form of Proxy and any other reports and financial statements
sent or made available to stockholders or directors or filed with the
Commission.
(b) Each set of financial statements delivered to a Purchaser pursuant
to Section 7.1 will be accompanied by a certificate of the Chief Financial
Officer of the Company setting forth:
(i) Covenant Compliance - any information required in order to
establish whether the Company, Subsidiary and their Other Subsidiaries were in
compliance with the requirements of this Section 7 during the period covered by
the income statement then being furnished; and
(ii) Event of Default - that the signer has reviewed the
relevant terms of this Agreement, the Certificate and the other Financing
Documents and has made, or caused to be made, under their supervision, a review
of the transactions and conditions of the Company, Subsidiary and their Other
Subsidiaries, if any, from the beginning of the accounting period covered by the
income statements being delivered therewith to the date of the certificate and
that such review has not disclosed the existence during such period of any
condition or event which constitutes a breach or default under this Agreement,
the Certificate or any of the other Financing Documents or, if any such
condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Company and Subsidiary have taken or
propose to take with respect thereto.
(iii) Notice of Material Litigation and Other Material Events
- - any information regarding any litigation or other event that might have a
Material Adverse Effect.
7.2 ADDITIONAL INFORMATION AND RIGHTS.
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The Company and Subsidiary will, for any such Purchaser:
(a) Permit such Purchaser (or its designated representative) to visit
and inspect any of the properties of the Company, Subsidiary and their Other
Subsidiaries, including its books of account, and to discuss its affairs,
finances and accounts with the Company's, Subsidiary's and their Other
Subsidiaries' officers and its independent public accountants, all during
ordinary business hours upon reasonable prior written notice to the Company and
as often as any such party may reasonably request. Any such visitation or
inspection shall be performed in a reasonable manner with a minimum of
disruption to the Company's and Subsidiary's business and with due regard to the
proprietary and confidential nature of any information received by it.
(b) Deliver the reports and data described below to such Purchaser:
(i) As soon as available (but in any event before the
commencement of its fiscal year except in the case of the Annual Plan for fiscal
year 2000 which shall be delivered no later than at Closing) the Company's
consolidated capital and operating expense budgets and its operating plan (the
"ANNUAL PLAN") approved by the Board indicating, among other things, monthly
income statements, balance sheets and cash flow statements for the next fiscal
year, all itemized in reasonable detail, together with the underlying
assumptions therefor, plans for incurring indebtedness and projections regarding
other sources of funds; any material changes in such financial plan shall be
submitted as promptly as practicable after such changes have been approved by
the Board;
(ii) As soon as available, information and data on any
material adverse changes in or any event or condition which has or could have a
Material Adverse Effect;
(iii) Immediately upon becoming aware of any condition or
event which constitutes a breach of this Agreement, the Financing Documents or
any agreement contemplated hereby or thereby, written notice specifying the
nature and period of existence thereof and what action the Company is taking or
proposes to take with respect thereto;
(iv) With reasonable promptness, copies of audit response
letters, accountants' management letters and any other written reports submitted
to the Company by its independent public accountants in connection with an
annual or interim audit of the books of the Company, Subsidiary or any of their
Other Subsidiaries;
(v) Such other information and data with respect to the
Company, Subsidiary and their Other Subsidiaries as any such party may from time
to time reasonably request;
(vi) Promptly after the commencement thereof, notice of all
actions, suits, claims, proceedings, investigations and inquiries of the type
described in Section 3.12 that could have a Material Adverse Effect;
(vii) Promptly upon sending, making available or filing the
same, all press releases, reports and financial statements that the Company,
Subsidiary or any of their Other Subsidiaries sends or makes available to its
stockholders or directors or files with the Commission;
(viii) At the time of delivery to the Company's Board of
Directors, reports, minutes, consents, waivers or such other information
substantially similar to such reports, minutes, consents, waivers
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or other information delivered to the members of the Company's Board of
Directors (such obligation being satisfied by delivery to such Purchasers' board
representative, if such Purchaser has a board representative, for signature or
consent) provided that each Purchaser understands that it could be subject to
fines, penalties and other liabilities under applicable securities laws in the
event of trading in the Company's securities while in the possession of any
material, non-public information concerning the Company and agrees to abide by
these legal prohibitions on tipping and trading and each Purchaser agrees to
maintain the confidentiality of such information in accordance with its
applicable nondisclosure agreement with the Company;
(ix) Promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations, property or
affairs of the Company, Subsidiary and their Other Subsidiaries as such
Purchaser reasonably may request; and
(x) As soon as available and in any event within thirty (30)
days after the end of each fiscal quarter, commencing with the quarter ending
March 31, 2000, the Company will deliver to each Purchaser, unaudited balance
sheets and statements of income and cash flows of the Company and the Subsidiary
as of the end of each such quarter, as well as summary information as to backlog
and bookings as of such quarter-end, certified by the treasurer or chief
financial officer (or other officer acting in a similar capacity) of the Company
to be true and correct and to have been prepared in accordance with GAAP
consistently applied (except for changes in the application of such principles
that have been approved by the Company's Board of Directors), subject to the
absence of footnotes and to adjustments consisting of normal year-end accruals,
the effect of which, both individually and in the aggregate, is not material.
(c) The Company will notify the Tudor Entities of any meeting of the
Board or of any action proposed to be taken by written consent at the same time
as it notifies the directors of such meeting or consent action, such notice in
all cases to include a true and complete copies of all documents furnished to
any director in connection with such meeting or consent. One officer or
authorized representative of the Tudor Entities will be entitled to attend as an
observer at any such meeting or, if a meeting is held by telephone conference,
to participate therein.
7.3 PROMPT PAYMENT OF TAXES, ETC. The Company, Subsidiary and any Other
Subsidiary will promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Company,
Subsidiary or such Other Subsidiary; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall at the
time be contested in good faith by appropriate proceedings, and provided,
further, that unless otherwise approved by the Board, the Company, Subsidiary
and any Other Subsidiary will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien which may
have attached as security therefor. Unless otherwise approved by the Board, the
Company, Subsidiary and any Other Subsidiary will promptly pay or cause to be
paid when due, or in conformance with customary trade terms, all other
obligations incident to their operations.
7.4 MAINTENANCE OF PROPERTIES AND LEASES. The Company, Subsidiary and
each Other Subsidiary will keep their properties in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make all
needful and proper, or legally required, repairs, renewals, replacements,
additions and improvements thereto; and the Company, Subsidiary and each Other
Subsidiary will at all times comply with each provision of all leases to which
it is a party or under which it occupies, or has possession of, property if the
breach of such provision might have a Material Adverse Effect.
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7.5 INSURANCE. The Company, Subsidiary and any Other Subsidiary will
keep their assets which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by fire, extended coverage
and explosion in amounts sufficient to prevent the Company, Subsidiary or any
Other Subsidiary from becoming a co-insurer. The Company, Subsidiary and any
Other Subsidiary will maintain for themselves with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated. The Company will use its best efforts to
obtain within 60 days of the date hereof and shall thereafter maintain key-man
life insurance on the life of Keith Loris, having a death benefit of at least
$500,000 payable to the Company and providing that such insurance may not be
cancelled without at least thirty (30) days' prior written notice to the
Purchasers delivered in accordance with Section 10.5 of this Agreement, for so
long as Keith Loris continues to be employed by the Company and will maintain
with, to the best knowledge of the Company, financially sound and reputable
insurance companies, funds, or underwriters such other insurance of the kinds,
covering the risks (including without limitation directors' and officers'
liability, which the Company will use its best efforts to obtain within 90 days
of the date hereof and shall thereafter maintain) and in the relative
proportionate amounts usually carried by reasonable and prudent companies
conducting businesses similar to that of the Company (such insurance coverage at
all times to be at least as protective as the insurance currently carried by the
Company and described in the Disclosure Schedule). The Company shall not cause
or permit any assignment or change in beneficiary and shall not borrow against
any such policy.
7.6 ACCOUNTS AND RECORDS. The Company and the Subsidiary will each keep
true and accurate records and books of account in which full, true, and correct
entries will be made so as to permit the preparation of financial statements in
accordance with GAAP and maintain adequate accounts and reserves in accordance
with good accounting practice for all taxes (including income taxes), all
depreciation, depletion, obsolescence, and amortization of its properties, all
contingencies, and all other reserves.
7.7 COMPLIANCE WITH LAWS, CONTRACTS, LICENSES AND PERMITS. The Company,
Subsidiary and Other Subsidiaries shall duly observe and conform in all material
respects to all valid requirements of governmental authorities relating to their
conduct of their businesses or to their property or assets. Without limiting the
generality of the foregoing, the Company, Subsidiary and their Other
Subsidiaries will:
(a) Comply with all minimum funding requirements applicable to any
pension plans, employee benefit plans or employee contribution plans which are
subject to ERISA or to the Internal Revenue Code of 1986, as amended (the
"CODE"), and comply in all other material respects with the provisions of ERISA
and the provisions of the Code applicable to such plans; and
(b) Comply in all material respects with all applicable laws of the
United States and of each applicable jurisdiction relating to equal employment
opportunity, any rules, regulations, administrative orders and Executive Orders
relating thereto and the applicable terms, relating to equal employment
opportunity, of any contract, agreement or grant the Company, Subsidiary or any
Other Subsidiary has with, from or relating (by way of subcontract or otherwise)
to any other contract, agreement or grant of, any federal or state governmental
unit; and keep all records required to be kept, and file all reports,
affirmative action plans and forms required to be filed, pursuant to any such
applicable law or the terms of any such government contract.
(c) So conduct its business that neither the Company, Subsidiary, any
Other Subsidiaries nor any property owned or occupied by any of them is in
material violation of any Federal or State Environmental Law of any sort or in
material violation of any Federal or State "OSHA" Law so-called.
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7.8 MAINTENANCE OF CORPORATE EXISTENCE, ETC. The Company, Subsidiary
and each Other Subsidiary maintain in full force and effect its corporate
existence, rights, government approvals and franchises and all licenses and
other rights to use patents, processes, licenses, trademarks, trade names or
copyrights owned or possessed by it and deemed by it to be necessary to the
conduct of its business.
7.9 AVAILABILITY OF COMMON STOCK FOR CONVERSION. The Company will, from
time to time, in accordance with the laws of the state of its incorporation,
increase the authorized amount of Common Stock if at any time the number of
shares of Common Stock remaining unissued and available for issuance shall be
insufficient to permit the conversion of all the then outstanding shares of the
Series B Preferred and issuance of the Warrant Shares.
7.10 PROPRIETARY INFORMATION AGREEMENT, AND KEY EMPLOYEE AGREEMENT.
(a) The Company, Subsidiary and each Other Subsidiary will enter into a
Proprietary Information Agreement to the effect and in substantially the form of
EXHIBIT B hereto or as otherwise approved by the Board of Directors of the
Company with each person hereafter employed by any of them with access to
confidential information.
(b) At such time as the Board of Directors of the Company authorizes
the Company, Subsidiary or any Other Subsidiary to enter into an agreement or
other arrangement that would constitute consideration for such key employee
agreement, the Company, Subsidiary and each Other Subsidiary will require all
persons now or hereafter employed by the Company, Subsidiary or such Other
Subsidiary and designated as a "key person" by the Company's Board to execute a
key employee agreement in favor of the Company containing the non-competition
provisions approved by the Board and reasonably satisfactory to the Purchasers
as a condition to the entering into of such agreement or arrangement with the
key person.
(c) The Company, Subsidiary and each Other Subsidiary will cause all
technological developments, inventions, discoveries or improvements made by
employees of the Company, Subsidiary and such Other Subsidiary to be fully
documented in engineering notebooks in accordance with the best prevailing
industrial professional standards, and where possible and appropriate, cause all
employees to file and prosecute United States and foreign patent applications
relating to and protecting such developments.
7.11 USE OF PROCEEDS. The Company and Subsidiary will use the proceeds
from the sale of the Shares for the purposes described in Section 3.21 hereof.
7.12 COMPLIANCE BY SUBSIDIARIES. The Company and Subsidiary will each
cause any Other Subsidiary which it may now have and/or which it may organize or
acquire in the future to comply fully with all the terms and provisions of this
Section 7.
7.13 EXPENSES OF BOARD MEMBERS. The Company agrees to reimburse each of
the directors elected to the Company's Board by the Purchasers for their
reasonable and properly documented out-of-pocket travel and lodging expenses in
connection with attending Board meetings and performing their respective
obligations and responsibilities as directors of the Company upon receipt of an
itemized invoice or expense report with appropriate receipts or other evidence
in support of such expenses.
7.14 SECURITIES LAW FILINGS. Based on the Purchaser's representations
and warranties made pursuant to this Agreement, the Company will make any
filings necessary to perfect in a timely fashion exemptions from (i) the
registration and prospectus delivery requirements of the Securities Act and (ii)
the
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registration or qualification requirements of all applicable securities or
blue sky laws of any state or other jurisdiction, for the issuance of the Shares
to the Purchasers.
7.15 REGISTRATION AND TRANSFER OF SECURITIES.
(a) TRANSFER AND EXCHANGE OF CAPITAL STOCK. The Company has retained
and will continue to retain a transfer agent to maintain a register of names and
addresses of the holders of the Common Stock and handle other record-keeping
matters regarding the Common Stock. The Company will maintain at its principal
executive office a register in which will be entered the names and addresses of
the holders of the capital stock (other than Common Stock) and the particulars
(including without limitation the class thereof) of the respective capital stock
(other than Common Stock) held by them and of all transfers of shares of capital
stock (other than Common Stock) or conversions of shares of capital stock from
one class to another. Upon surrender at such office of any certificate
representing shares of capital stock (other than Common Stock) for registration
of conversion, exchange, or (subject to compliance with applicable federal and
state securities laws) transfer, the Company will issue, at its expense, one or
more new certificates, in such denomination or denominations as may be
requested, for shares of such capital stock (other than the Common Stock) and
registered as such holder may request. Any certificate representing shares of
capital stock surrendered for registration of transfer will be duly endorsed, or
accompanied by a written instrument of transfer duly executed by the holder of
such certificate or his attorney duly authorized in writing. The Company will
pay shipping and insurance charges, from and to each holder's principal office,
upon any transfer, exchange, or conversion provided for in this Section 7.15(a).
(b) REPLACEMENT OF SHARES. In the case of any loss, theft, destruction,
or mutilation of the certificate representing any Shares or Warrant Shares, or
of any Warrant, upon receipt of evidence thereof reasonably satisfactory to the
Company, and (i) in the case of any such loss, theft, or destruction, upon
delivery of an indemnity bond in such reasonable amount as the Company may
determine, or (ii) in the case of any such mutilation, upon the surrender to the
Company at its principal office of such mutilated certificate for cancellation,
the Company will execute and deliver, in lieu thereof, new certificates (or
Warrants, as the case may be) of like tenor. Any old stock certificate (or
Warrants, as the case may be) in lieu of which any such new stock certificate
(or Warrants, as the case may be) has been so executed and delivered by the
Company will not be deemed to be outstanding for any purpose of this Agreement
or otherwise.
7.16 INDEMNIFICATION.
(a) All covenants, agreements, representations, and warranties made
herein or in the other Financing Documents or any other document referred to
herein or delivered to the Purchasers pursuant hereto will be deemed to have
been relied on by the Purchasers, notwithstanding any investigation made by or
on behalf of the Purchasers, and will survive the Closing. The Company and the
Subsidiary will jointly and severally indemnify, defend, and hold harmless each
Purchaser, and each of such Purchaser's partners, stockholders, officers,
directors, employees, agents, and representatives, from and against any and all
Damages incurred by any of them in any capacity and resulting from or relating
to the breach by the Company of any of its representations, warranties,
covenants, or agreements contained in this Agreement or in the Financing
Documents or any other document referred to herein or delivered to the
Purchasers pursuant hereto, (i) for two (2) years after the Closing Date in the
case of any breach by the Company of any of its representations and warranties
set forth in this Agreement and (ii) for two (2) years after the date of any
breach by the Company of any covenant or agreement contained in this Agreement
or in any of the other Financing Documents.
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(b) The obligations of the Company and the Subsidiary under this
Section 7.16 will survive transfer of the Acquired Securities and the
termination of this Agreement.
7.17 REGISTRATION REQUIREMENTS.
(a) No later than April 15, 2000, the Company shall (i) file with the
Commission one or more registration statements on Form S-1 or Form S-3, as
determined by the Company in its discretion, (together with any prospectus
included therein, a "REGISTRATION STATEMENT") pursuant to Rule 415 of the
Securities Act in order to register with the Commission the continuous resale by
the Purchasers, from time to time, of all Warrant Shares and shares of Common
Stock of the Company that may be acquired by the Purchasers through any exchange
or conversion of the Shares, through the Nasdaq SmallCap Market or the
facilities of any national securities exchange on which the Common Stock is then
traded, or in privately-negotiated transactions, and (ii) file an application
for listing of such Common Stock on the Nasdaq SmallCap Market. The Company
shall use its reasonable best efforts to (i) cause such Registration Statement
to be declared effective on or before July 15, 2000, and (ii) cause a Nasdaq
application covering shares of Common Stock of the Company to become effective
on or before July 15, 2000. Each Purchaser agrees to furnish promptly to the
Company in writing all information required from time to time to be disclosed in
order to make the information previously furnished to the Company by such holder
not misleading.
(b) The Company shall pay all Registration Expenses (as defined below)
in connection with any registration, qualification or compliance hereunder, and
each Purchaser shall pay all Selling Expenses (as defined below) and other
expenses that are not Registration Expenses relating to the Common Stock resold
by such Purchaser. "REGISTRATION EXPENSES" shall mean all expenses, except for
Selling Expenses, incurred by the Company in complying with the registration
provisions herein described, including without limitation, all registration,
qualification and filing fees (including all Commission and Nasdaq fees),
printing expenses, escrow fees, fees and disbursements of counsel for the
Company and for any underwriter (unless paid by such underwriter), blue sky fees
and expenses, the expense of any special audits incident to or required by any
such registration and the fees, not to exceed $20,000, and disbursements of one
counsel to all selling Purchasers. "SELLING EXPENSES" shall mean only selling
commissions, underwriting fees and stock transfer taxes applicable to the Common
Stock sold by each Purchaser and all fees and disbursements of counsel for any
Purchaser in excess of $20,000 for the one counsel to all selling Purchasers.
(c) In the case of the registration effected by the Company pursuant to
these registration provisions, the Company will use its best efforts to:
(1) keep such registration statement on Form S-1 or Form S-3
effective until the earlier of (A) the second anniversary of the date on which
the Registration Statement first becomes effective, (B) such date as all of the
Common Stock has been resold or (C) such time as all of the Conversion Shares
and Warrant Shares can be sold within a given three-month period without
compliance with the registration requirements of the Securities Act pursuant to
Rule 144;
(2) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by the
Registration Statement;
(3) furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Purchaser from time to time may reasonably request;
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(4) cause all Common Stock registered as described herein to
be listed on each securities exchange and quoted on each quotation service on
which the common equity securities of the Company are then listed or quoted;
(5) provide a transfer agent and registrar for all Common
Stock registered pursuant to the Registration Statement and a CUSIP number for
all such Common Stock;
(6) otherwise use its best efforts promptly to comply with all
applicable rules and regulations of the Commission;
(7) file the documents required of the Company and otherwise
use its best efforts promptly to obtain, if applicable, and maintain requisite
blue sky clearance in (A) all jurisdictions in which any of the Acquired
Securities are originally sold, and (B) all other states specified in writing by
a Purchaser, provided as to clause (B), however, that the Company shall not be
required to qualify to do business or consent to service of process in any state
in which it is not now so qualified or has not so consented; and
(8) with respect to the initial filing of the Registration
Statement as of the date of declaration of effectiveness, obtain an opinion of
counsel to the Company in customary form and reasonably acceptable to each
Purchaser addressed to each Purchaser selling registrable securities pursuant to
the Registration Statement. The Company shall use its best efforts to qualify
for use of Form S-1 or Form S-3 under the Securities Act to register the resale
of the Common Stock issuable upon the conversion of the Shares and to maintain
such qualification during the periods described in subsection (c)(i) hereof and
to be listed on the Nasdaq Small Cap market and maintain such listing unless
listed on NASDAQ NMS or another national exchange.
(d) The Company shall furnish to each Purchaser upon request a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary in order to facilitate the public sale or other
disposition of all or any of the Common Stock held by the Purchaser.
(e) With a view to making available to the Purchasers the benefits of
Rule 144 and any other rule or regulation of the Commission that may at any time
permit a Purchaser to sell Common Stock to the public without registration or
pursuant to registration, the Company covenants and agrees to: (i) make and keep
public information available, as those terms are understood and defined in Rule
144, until the earlier of (A) the second anniversary of the Closing Date or (B)
such date as all of the Common Stock shall have been resold: (ii) file with the
Commission in a timely manner all reports and other documents required of the
Company under the Exchange Act; and (iii) furnish to any Purchaser upon request,
as long as the Purchaser owns any Common Stock, (A) a written statement by the
Company that it has complied with the reporting requirements of the Exchange
Act, (B) a copy of the most recent annual or quarterly report of the Company,
and (C) such other information as may be reasonably requested in order to avail
any Purchaser of any rule or regulation of the Commission that permits the
selling of any such Common Stock without registration.
(f) The Company may, at any time, refuse to permit a Purchaser to
resell any Common Stock pursuant to the Registration Statement; PROVIDED,
HOWEVER, that in order to exercise this right at any time the Company does not
qualify for either Form S-1 or Form S-3, the Company must deliver a certificate
in writing to the Purchasers to the effect that suspension of the sale of shares
under the Registration Statement, until such time as the Company can make an
appropriate filing with the Commission, is necessary because a sale pursuant to
the Registration Statement, in its then-current form, could constitute a
violation of the federal securities laws. In such an event, each Purchaser
agrees to immediately suspend any sale of Common Stock under the Registration
Statement, and the Company shall use its best efforts to amend the Registration
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Statement if necessary and take all other actions necessary to allow such sale
under the federal securities laws, and shall notify the Purchasers promptly
after it has determined that such sale has become permissible under the federal
securities laws. Notwithstanding the foregoing, the Company shall not under any
circumstances be entitled to exercise its right to suspend sales under the
Registration Statement more than two (2) times in any twelve (12) month period,
and the period during which such Registration Statement may be withdrawn shall
not exceed thirty (30) days or sixty (60) days if the Company has suspended
sales of the Common Stock to permit the Company to negotiate a strategic
acquisition, disposition, merger or other significant transaction.
(g) The Purchasers agree not to sell or otherwise transfer any Acquired
Securities covered by the Registration Statement until the EARLIER of (i)
November 1, 2000, and (ii) the date that is four (4) months after the date on
which such Registration Statement became effective; PROVIDED, HOWEVER, that the
Purchasers shall remain free from time to time to transfer Acquired Securities
to or among their Affiliates (including without limitation the Tudor Entities)
and otherwise in sales exempt from registration.
7.18 INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Purchaser
and its Affiliates from and against any losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) to which such Purchaser may
become subject (under the Securities Act, state law, common law or otherwise)
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement of a material fact contained in, or omission of a material fact from,
the Registration Statement, or arise out of any failure by the Company to
fulfill any undertaking included in the Registration Statement or this
Agreement, and the Company will, as incurred, reimburse such Purchaser for any
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim; PROVIDED HOWEVER, that
the Company shall not be liable in any such case (i) to the extent that such
loss, claim, damage or liability arises out of, or is based upon, an untrue
statement made in such Registration Statement in reliance upon and in conformity
with information furnished to the Company in writing by or on behalf of such
Purchaser specifically for use in preparation of the Registration Statement or
(ii) to any particular Purchaser or its Affiliate to the extent that any such
claim, loss, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
any final, preliminary or summary prospectus if such untrue statement or alleged
untrue statement or omission or alleged omission is completely corrected in an
amendment or supplement to such prospectus provided to, and which the relevant
Purchaser or its Affiliates fails to deliver prior to or concurrently with the
sales of the Common Stock to the person or entity asserting such claim, loss,
damage or liability. The Company will reimburse the Purchasers for any legal or
other expenses reasonably incurred and documented in investigating, defending or
preparing to defend any such action, proceeding or claim notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the obligations under this section and the possibility that such payments might
later be held to be improper, provided, that to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them.
(b) Each Purchaser, severally and not jointly, agrees to indemnify and
hold harmless the Company and its Affiliates from and against any losses,
claims, damages or liabilities (or actions or proceedings in respect thereof) to
which the Company or its Affiliates may become subject (under the Securities
Act, state law, common law or otherwise) insofar as such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) arise out of, or
are based upon, an untrue statement made in or omission of a material fact from
such Registration Statement in reliance upon and in conformity with information
furnished to the Company in writing by or on behalf of such Purchaser
specifically for use in preparation of the Registration Statement; PROVIDED,
HOWEVER, that no Purchaser shall be liable in any such
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case for any untrue statement included in or any omission of a material fact
from any Registration Statement which statement has been corrected, in writing,
by such Purchaser and delivered to the Company before the sale from which such
loss occurred and in no event shall any Purchaser be liable for any amount in
excess of the net proceeds received for the sale of its Common Stock pursuant to
such Registration Statement.
(c) Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 7.18, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and the indemnifying person shall have been notified thereof,
the indemnifying person shall be entitled to participate therein, and, to the
extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified person. After notice from the
indemnifying person to such indemnified person of the indemnifying person's
election to assume the defense thereof, the indemnifying person shall not be
liable to such indemnified person for any legal expenses subsequently incurred
by such indemnified person in connection with the defense thereof; PROVIDED,
HOWEVER, that if there exists or shall exist a conflict of interest that would
make it inappropriate in the reasonable judgment of the indemnified person for
the same counsel to represent both the indemnified person and such indemnifying
person or any affiliate or associate thereof, the indemnified person shall be
entitled to retain its own counsel at the expense of such indemnifying person.
No indemnifying person, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified person, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified person
of a release from all liability in respect to such claim or litigation. If the
defense of any claim or resulting litigation is not assumed by the indemnifying
person, the indemnifying person will not be subject to any liability for any
settlement made without its consent, but such consent may not be unreasonably
withheld; provided that an indemnifying person shall not be deemed unreasonable
in withholding consent to any settlement involving the imposition of equitable
remedies or involving the imposition of any material obligations on such
indemnifying person other than financial obligations for which such indemnified
person will be indemnified hereunder.
(d) If the indemnification provided for in this Section 7.18 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) hereof in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the Purchasers
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or a Purchaser on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Purchasers agree that it would not be just and equitable if
contribution pursuant to this subsection (d) were determined by pro rata
allocation (even if the Purchasers were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, or liabilities (or actions in respect thereof) referred to above in
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Purchaser shall be required to contribute any amount in
excess of the amount, if any, by which the amount received by the
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Purchaser from the sale of the Common Stock to which such loss relates exceeds
the amount of any damages which such Purchaser has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Purchasers' obligations in this subsection (d) to contribute are several in
proportion to their respective sales of Common Stock.
7.19 "MARKET STAND-OFF" AGREEMENT. If at the time of any underwritten
offering a Purchaser has not sold all the Acquired Securities owned by it
pursuant to the Registration Statement, each such Purchaser agrees, if requested
by the managing underwriter of any public offering of the Common Stock, to enter
into an agreement pursuant to which such Purchaser agrees not to sell or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by it during a period specified by such underwriter, not to exceed
one hundred eighty (180) days following the effective date of the registration
statement of the Company filed under the Securities Act in connection with any
underwritten offering; provided that all shareholders having registration rights
and all officers and directors of the Company enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of such period and shall remove such stop-transfer instructions
effective immediately upon the expiration of such period.
SECTION 8
NEGATIVE COVENANTS
The Company and Subsidiary jointly and severally agree, for the benefit
of any Purchaser who meets the Ownership Threshold, that so long as less than
75% of the shares of Series B Preferred have been converted into Common Stock
each of the Company, Subsidiary and each of their Other Subsidiaries (unless the
context otherwise requires) will not after the date hereof do (a) any of the
following set forth in Section 8.1 through 8.9 unless the holders of a majority
(which majority shall include one or more of the Tudor Entities or their
Affiliates provided that at such time the Tudor Entities and/or their Affiliates
(if any) meet the Ownership Threshold as determined in accordance with Section
10.4(c)) of such outstanding shares of Series B Preferred held by holders who
continue to meet the Ownership Threshold approve or consent in writing or (b)
any of the following set forth in Sections 8.10 through 8.21 without the
approval of a majority of the Board:
8.1 SALE/PURCHASE OF ASSETS; MERGER.
(a) Sell or otherwise dispose of the capital stock of
Subsidiary or any Other Subsidiary or of all or a substantial part of the
Company's assets or business or of all or a substantial part of the assets or
business of Subsidiary or any Other Subsidiary (whether by sale of assets,
exclusive license or otherwise);
(b) Purchase or otherwise acquire all or substantially all of
the capital stock of any corporation or equity interest in any other entity or
lend money to any person or entity, or purchase a substantial part of the
operating assets of any person or entity for a purchase price in excess of the
lower of (i) $5,000,000, and (ii) 20% of the Company's and Subsidiary's
consolidated net revenues for the twelve month period immediately preceding such
purchase; or
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(c) Consolidate with or merge into or with any other person or
entity or permit any other person or entity to consolidate with or merge into it
(except that Subsidiary may merge into the Company, and a 100% Other Subsidiary
may consolidate with or merge into Subsidiary or the Company or into another
100% Other Subsidiary); provided that the foregoing restriction does not apply
to the merger of another corporation into the Company or Subsidiary, if:
(i) either (x) in the case of a merger into the Company, the
Company is the surviving corporation and more than 50% of the outstanding common
stock of the surviving corporation is owned by persons who prior to such merger
owned Common Stock of the Company; or (y) in the case of a merger into
Subsidiary, Subsidiary is the surviving corporation, remains a 100% subsidiary
of the Company and more than 50% of the outstanding Common Stock of the Company
after the merger is owned by persons who prior to such merger owned Common Stock
of the Company; and
(ii) After giving effect to the proposed merger or
consolidation the surviving corporation will be engaged in substantially the
same lines of business; and
(iii) Immediately after the consummation of the transaction,
and after giving effect thereto, no default under this Agreement, the
Certificate or any other Financing Document would exist.
8.2 FUTURE REGISTRATION RIGHTS. Except as set forth in the
Shareholders' and Rights Agreement and except for an underwriting agreement
between the Company and one or more professional underwriters of securities, the
Company shall not agree to register any Equity Securities under the Securities
Act that will provide such other Equity Securities with registration rights
which are preferential to or inconsistent with those granted to Purchasers under
this Agreement.
8.3 CHANGES IN TYPE OF BUSINESS. Make any substantial change in the
character of its business. Any business activities related to repetitive locking
techniques or the distribution of electronic content will not constitute a
substantial change in the character of its business.
8.4 DIVIDENDS AND DISTRIBUTIONS. Directly or indirectly declare or pay
any dividends or make any distributions upon any of its Equity Securities other
than (i) the dividend amount set forth in the Certificate of Designation of the
Series A Preferred Stock payable on the Series A Preferred Stock and (ii)
dividends and distributions on the Series A Preferred Stock and the Series B
Preferred made, together as a single class for this purpose, PRO RATA in
proportion to the number of shares of Series A Preferred Stock and Series B
Preferred.
8.5 PURCHASE OF EQUITY SECURITIES. Directly or indirectly redeem,
purchase or otherwise acquire, any of the Company's, Subsidiary's or any Other
Subsidiary's Equity Securities except (a) as permitted by this Agreement, the
Shareholders' and Rights Agreement, and the Certificate, (b) as required by the
Certificate of Designation for the Series A Preferred Stock or (b) from any
employee upon termination of employment, but subject to Board approval.
8.6 CONFLICTING AGREEMENTS. Become subject to any agreement or
instrument, which by its terms would (under any circumstances) restrict the
Company's, Subsidiary's or any Other Subsidiary's right to perform any of its
obligations pursuant to the terms of this Agreement or any agreement
contemplated hereby, the Certificate, the Financing Documents, or the Company's
By-laws (including, without limitation, all obligations relating to payment of
dividends on and making redemptions of the Series B Preferred and conversions of
the Series B Preferred).
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8.7 AMENDMENT OF CHARTER DOCUMENTS. Except as contemplated by this
Agreement, make any amendment to the By-laws that has not been approved by
action of the Board of Directors or any amendment to the Company's, Subsidiary's
or any Other Subsidiary's Certificate of Incorporation, including but not
limited to the Certificate.
8.8 RELATED PARTY TRANSACTIONS. Enter into any transaction with any
Related Party or Affiliate, except as otherwise expressly contemplated by this
Agreement or referred to in Section 3.11 hereto.
8.9 ISSUANCE OF EQUITY SECURITIES. Issue, sell, grant or award or enter
into any agreement or adopt any plan to issue, sell, grant or award any Equity
Security (other than 36,765 shares of Series A Preferred Stock issued as of the
date hereof and any shares of Series A Preferred Stock issued hereafter to Apex
Investment Fund IV, L.P., Apex Strategic Partners IV, LLC, Ascent, RSA Security
Inc., SI Venture Fund II, L.P. or any affiliate of such entities) or option to
acquire any Equity Security (other than the warrants to purchase 1,964 shares of
Series A Preferred Stock granted to SI Venture Fund II, L.P.) with rights
ranking senior or pari passu to the Series B Preferred as to liquidation
preference, voting rights, registration rights, dividends or any other matters
or rights.
8.10 SUBSIDIARIES. Establish or acquire (a) any Other Subsidiaries
other than wholly-owned Other Subsidiaries or (b) any Other Subsidiaries
organized outside of the United States and its territorial possessions.
8.11 FISCAL YEAR. Change its fiscal year.
8.12 BUSINESS PLAN. Make any material changes in the Plan or the
Company's, Subsidiary's and their Other Subsidiaries' operation of the Business.
8.13 EMPLOYEE STOCK PLANS. Issue, sell, grant or award any Equity
Security or any option to acquire any Equity Security to officers, directors,
employees, consultants or advisors to the Company; provided, however that this
provision shall not limit the ability of the Board of Directors to delegate
authority to issue, sell, grant or award Equity Securities or options to the
Compensation Committee.
8.14 LIENS. Create, assume or permit, any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, except (a) Liens
existing as of the date hereof as disclosed in Section 3.14 hereof, (b) any Lien
on any asset of a corporation existing at the time such corporation is merged
into or consolidated with the Company, Subsidiary or any Other Subsidiary and
not created in contemplation of such event, (c) any Lien existing on any asset
prior to the acquisition thereof by the Company, Subsidiary or any Other
Subsidiary and not created in contemplation of such event, (d) any Lien created
on any real property or equipment in connection with the leasing of such real
property or equipment, (e) Liens contemplated by the Annual Plan and (f)
Permitted Liens.
8.15 INVESTMENTS. Own, purchase or acquire any stock, obligations or
securities of, or any interest in, or make any capital contribution to, any
other Person, or own, purchase or acquire any property not used in the usual and
ordinary course of business, except that the Company, Subsidiary or any Other
Subsidiary may (a) own, purchase or acquire certificates of deposit in or
repurchase agreements from United States commercial banks having capital
resources in excess of $100,000,000 and obligations of the United States
Government or any agency thereof and obligations guaranteed by the United States
Government, (b) invest in commercial paper rated at least Prime 1 by Moody's
Industrial Manual, (c) deposit funds in money market
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accounts in financial institutions having capital resources in excess of
$100,000,000 and (d) make such investments as are approved by a majority of the
Board.
8.16 PURCHASES AND SALES. Except as contemplated by the Annual Plan:
(a) other than normal operating expenditures made as a part of the
ordinary course of business, purchase, directly or indirectly, any item (or
group of items) of real or personal property which has a purchase price in
excess of $75,000 or enter into any other transaction with respect to such item
(or group of items) which, under generally accepted accounting principles is or
should be treated as a purchase or capital expenditure for accounting purposes;
or
(b) (i) Pay or provide annual salary in excess of $120,000, or (ii)
increase the compensation of any person listed in part 3.19(b) of the Disclosure
Schedules and will not compensate any other officer, director or employee at an
annual salary of $120,000 per year or more.
8.17 LEASES. Enter into any leases or other rental agreements
(excluding capitalized leases) that are not within the scope of an Annual Plan
unless entered into in the ordinary course of business.
8.18 INDEBTEDNESS. Create, incur, issue, assume, guarantee or otherwise
become or remain directly or indirectly liable for any Indebtedness other than
as contemplated by the Annual Plan.
8.19 LOANS, GUARANTEES. Make any loan or advance to any person or
entity, including, without limitation, any employee or director of the Company,
Subsidiary or any Other Subsidiary, except advances for travel and entertainment
expenses, relocation costs and similar expenditures in the ordinary course of
business, as contemplated by the Annual Plan or under the terms of an employee
stock option plan or stock purchase agreement approved by the Board; or
guarantee, directly or indirectly, any Indebtedness except for trade accounts or
personal property leases of the Company, Subsidiary or any Other Subsidiary
arising in the ordinary course of business.
8.20 LICENSE OF LISTED RIGHTS OR INTELLECTUAL PROPERTY. Not transfer,
assign or license any Proprietary Information now owned or hereafter acquired by
it (except for licenses to Company's or Subsidiary's customers in the ordinary
course of business).
8.21 COMPLIANCE BY SUBSIDIARIES. The Company and Subsidiary will cause
any Other Subsidiary which either of them may now have and/or which either of
them may organize or acquire in the future to comply with all the terms and
provisions of this Section 8.
SECTION 9
DEFINITIONS
As used in this Agreement or in the Financing Documents, capitalized
terms shall have the respective meanings set forth in this Agreement or set
forth below or in the Section of this Agreement referred to below:
ACQUIRED SECURITIES means, collectively, the Shares (including without
limitation Conversion Shares), Warrants and Warrant Shares.
AFFILIATE means any other person directly or indirectly controlling,
controlled by, or under direct or
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indirect common control with the Company (or other referenced person) and
includes without limitation, (a) any person who is an officer, director, or
direct or indirect beneficial holder of at least 5% of the then outstanding
capital stock of the Company (or other referenced person), and any of the Family
Members of any such person, (b) any person of which the Company (or other
referenced person) and/or its Affiliates (as defined in clause (a) above),
directly or indirectly, either beneficially own(s) at least 5% of the then
outstanding equity securities or constitute(s) at least a 5% equity participant,
(c) in the case of a specified person who is an individual, Family Members of
such person, and (d) in the case of the Purchasers, any entities for which a
Purchaser or any of its Affiliates serve as general partner and/or investment
adviser or in a similar capacity, and all mutual funds or other pooled
investment vehicles or entities under the control or management of such
Purchaser or the general partner or investment adviser thereof, or any Affiliate
of any of them, or any Affiliates of any of the foregoing. For purposes hereof,
"FAMILY MEMBERS" means, as applied to any individual, any parent, spouse, child,
spouse of a child, brother or sister of the individual sharing the same
household as such individual, and each trust created for the benefit of one or
more of such persons and each custodian of a property of one or more such
persons and the estate of any such persons.
AFFILIATED GROUP has the meaning given to it in Section 1504 of the
Code, and in addition includes any analogous combined, consolidated, or unitary
group, as defined under any applicable state, local, or foreign income tax law.
ANNUAL PLAN shall have the meaning ascribed to it in Section 7.2
hereof.
ASCENT shall have the meaning ascribed to it in Section 3.4(a) hereof.
BALANCE SHEET shall have the meaning ascribed to it in Section 3.7
hereof.
BUSINESS shall have the meaning ascribed to it in Section 3.20 hereof.
BOARD shall mean the entire Board of Directors of the Company.
CLOSING shall have the meaning ascribed to it in Section 2.1 hereof.
CLOSING DATE shall have the meaning ascribed to it in Section 2.1
hereof.
CODE shall have the meaning ascribed to it in Section 7.7 hereof.
COMMISSION shall have the meaning ascribed to it in Section 3.5 hereof.
COMMON STOCK means the Common Stock, par value $0.01 per share, of the
Company.
CONVERSION SHARES shall mean at any time, shares of Common Stock (a)
issued and then outstanding upon the conversion of the Series B Preferred, (b)
issuable upon the conversion of the Series B Preferred, and (c) issued and then
outstanding or issuable in respect of the Common Stock referred to in clause (a)
of this definition upon any stock dividend, stock split, combination or division
of shares, recapitalization, reclassification, merger, consolidation,
reorganization, or the like.
DAMAGES means all damages, losses, claims, demands, actions, causes of
action, suits, litigations, arbitrations, liabilities, costs, and expenses,
including without limitation court costs and the fees and expenses of counsel
and experts.
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DERIVATIVE SECURITIES means (a) all shares of stock and other
securities that are convertible into or exchangeable for shares of Common Stock,
and (b) all options, warrants, and other rights to acquire shares of Common
Stock or any class of stock or other security or securities convertible into or
exchangeable for shares of Common Stock or any class of stock of other security.
ENVIRONMENTAL CLAIM shall mean any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of compliance or violation (written or
oral) by any person or entity (including any governmental authority) alleging
potential liability (including, without limitation, potential liability for
enforcement, investigatory costs, cleanup costs, governmental response costs,
removal costs, remedial costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from (a)
the presence, or Release or threatened Release into the environment, of any
Hazardous Material at any location, whether owned, operated, leased or managed
by the Company, Subsidiary or any Other Subsidiary; or (b) circumstances forming
the basis of any violation, or alleged violation, of any Environmental Law; or
(c) any and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
the presence or Release of any Hazardous Materials.
ENVIRONMENTAL LAWS shall mean all laws or orders relating to the
regulation or protection of human health, safety or the environment (including,
without limitation, ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata), including, without limitation, laws and regulations
relating to Releases or threatened Releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, recycling or handling of Hazardous Materials.
ENVIRONMENTAL PERMITS shall have the meaning ascribed to it in Section
3.22 hereof.
EQUITY SECURITIES shall mean any stock or similar security, including
without limitation securities containing equity features and securities
containing profit participation features, or any security convertible or
exchangeable, with or without consideration, into any stock or similar security,
or any security carrying any warrant or right to subscribe to or purchase any
stock or similar security, or any such warrant or right.
ERISA shall have the meaning ascribed to it in Section 3.22 hereof.
EXCHANGE ACT shall have the meaning ascribed to it in Section 3.7
hereof.
FINANCING DOCUMENTS shall mean, collectively, this Agreement, the
Certificate, the Shareholders' and Rights Agreement, and all other documents set
forth in any other schedules or exhibits hereto under which, upon its execution
thereof, the Company, Subsidiary, any Other Subsidiary, or any Related Party
shall have an obligation to any Purchaser, all in the respective forms thereof
as executed and as amended from time to time.
FINANCIAL STATEMENTS shall have the meaning ascribed to it in Section
3.7 hereof.
GAAP means generally accepted accounting principles that are (a)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, (b) applied on a basis
consistent with prior periods, and (c) such that, insofar as the use of
accounting principles is pertinent, a certified public accountant could deliver
an unqualified opinion with respect to financial statements in which such
principles have been properly applied.
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HAZARDOUS MATERIALS shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
above ground or underground storage tanks and compressors or other equipment
that contain polychlorinated biphenyls ("PCBS"); and (b) any chemicals,
materials or substances which are now defined as or included in the definition
of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "pollutants," "contaminants" or words of similar import, under any
Environmental Law; and (c) any other chemical, material, substance or waste,
exposure to which is now prohibited, limited or regulated under any
Environmental Law.
INDEBTEDNESS means, with respect to the Company, Subsidiary or any
Other Subsidiary, (a) all indebtedness for borrowed money, whether current or
long-term, or secured or unsecured, (b) all indebtedness for the deferred
purchase price of property or services represented by a note or security
agreement, (c) all indebtedness created or arising under any conditional sale or
other title retention agreement (even though the rights and remedies of the
seller or lender under such agreement in the event of default may be limited to
repossession or sale of such property), (d) all indebtedness secured by a
purchase money mortgage or other lien to secure all or part of the purchase
price of property subject to such mortgage or lien, (e) all obligations under
leases that have been or must be, in accordance with GAAP, recorded as capital
leases in respect of which it is liable as lessee, (f) any liability in respect
of banker's acceptances or letters of credit, and (g) all indebtedness of any
person that is directly or indirectly guaranteed by the Company or the
Subsidiary or that it has agreed (contingently or otherwise) to purchase or
otherwise acquire or in respect of which it has otherwise assured a creditor
against loss. Any obligation secured by a Lien on, or payable out of the
proceeds of or production from, property of the Company, Subsidiary or any Other
Subsidiary shall be deemed to be Indebtedness even though such obligation is not
assumed by the Company, Subsidiary or Other Subsidiary.
ISSUER ENTITIES means, collectively, the Company and the Subsidiary.
LIEN(S) means any and all liens, claims, mortgages, security interests,
charges, encumbrances, and restrictions on transfer of any kind, except: (a) in
the case of references to securities, any of the same arising (i) pursuant to
the Financing Documents, or (ii) under applicable securities laws solely by
reason of the fact that such securities were issued pursuant to exemptions from
registration under such securities laws, (b) real estate taxes not yet due and
payable, (c) any lien in favor of any landlord or lessor for unpaid rent,
additional rent, or other charges, which lien is created by statute or under any
lease under which the Company is lessee and (d) Permitted Liens.
MATERIAL ADVERSE EFFECT means, with reference to the Company or the
Subsidiary, a material adverse effect on the condition (financial or otherwise),
operations, business, assets, or prospects of the Company or the Subsidiary, or
on its ability to consummate the transactions hereby contemplated.
OTHER SUBSIDIARY shall mean any corporation, partnership, joint
venture, association or other business entity at least fifty percent (50%) of
the outstanding equity interests of which is at the time owned or controlled,
directly or indirectly, by the Company (other than with respect to the
Subsidiary), or by Subsidiary, or by one or more of such Other Subsidiary
entities or both.
OWNERSHIP THRESHOLD shall have the meaning set forth in the first
paragraph of Section 7.
PERMITTED LIENS shall mean (a) Liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which the
validity thereof shall currently be contested in good faith by
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appropriate proceedings conducted with due diligence and for the payment of
which the Company, Subsidiary or Other Subsidiary has furnished adequate
security; (b) Liens in respect of pledges or deposits under workers'
compensation laws or similar legislation, carriers', warehousemen's, mechanics',
laborers' and materialmen's and similar Liens, if the obligations secured by
such Liens are not then delinquent or are being contested in good faith by
appropriate proceedings conducted with due diligence and for the payment of
which the Company, Subsidiary or Other Subsidiary has furnished adequate
security; and (c) statutory Liens incidental to the conduct of the business of
the Company, Subsidiary or any Other Subsidiary which were not incurred in
connection with the borrowing of money or the obtaining of advances or credits
and which do not in the aggregate materially detract from the value of its
property or materially impair the use thereof in the operation of its business;
and (d) purchase money liens or security interests securing the cost of
acquisition of assets subject to such liens or security interests.
PERSON shall include all natural persons, corporations, business
trusts, associations, companies, partnerships, joint ventures and other entities
and governments, agencies and political subdivisions.
PLAN shall have the meaning ascribed to it in Section 3.1 hereof.
PROPRIETARY INFORMATION shall have the meaning ascribed thereto in
Section 3.16, above.
PROPRIETARY INFORMATION AGREEMENT shall have the meaning ascribed to it
in Section 3.19 hereof.
QUALIFIED PUBLIC OFFERING shall mean an underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offering and sale of Common Stock for the account of the Company,
on a firm commitment basis, yielding aggregate proceeds to the Company of
$20,000,000 at a public offering price that is at least $6.40 per share of
common stock (as adjusted for stock splits, dividends, recapitalizations and the
like).
RAM shall mean RAM Trading, Ltd.
RAPTOR shall mean the Raptor Global Portfolio.
REGISTRATION EXPENSES shall have the meaning ascribed thereto in
Section 7.17(c), above.
RELATED PARTY shall mean any officer, director, employee or consultant
of the Company, Subsidiary or any Other Subsidiary or any holder of five percent
(5%) or more of any class of capital stock of the Company, Subsidiary or any
Other Subsidiary or any member of the immediate family of any such officer,
director, employee, consultant or shareholder or any Person controlled by any
such officer, director, employee, consultant or shareholder or a member of the
immediate family of any such officer, director, employee, consultant or
shareholder.
RELEASE shall mean any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, ground water or property.
SECURITIES ACT shall have the meaning ascribed to it in Section 3.4(c)
hereof.
SELLING EXPENSES shall have the meaning ascribed thereto in Section
7.17(c), above.
SERIES B PREFERRED shall have the meaning ascribed to it in Section 1.1
hereof.
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SHAREHOLDERS' AND RIGHTS AGREEMENT shall have the meaning ascribed to
it in Section 5.10 hereof.
SHARES shall have the meaning ascribed to it in Section 1.1 hereof.
TUDOR ENTITY or TUDOR ENTITIES means each of the following: Tudor
Private Equity Fund, L.P., Tudor Arbitrage Partners, L.P., Tudor BVI Futures,
Ltd., Raptor Global Fund, L.P., Raptor Global Portfolio, Ltd. and Raptor Global
Fund Ltd., or any funds or other investment vehicles or entities of which any of
the foregoing entities are Affiliates, or any Affiliate or Affiliated Group of
Tudor Investment Corporation and/or Tudor Global Trading, Inc.
WARRANT(S) shall have the meaning ascribed thereto in Section 5.12
hereof.
WARRANT SHARES means, at any time, shares of Common Stock (a) issued
and then outstanding upon exercise of the Warrants, and (b) issued and
outstanding or issuable in respect of the Common Stock referred to in clause (a)
of this definition upon any stock dividend, stock split, combination or division
of shares, recapitalization, reclassification, merger, consolidation,
reorganization, or the like.
SECTION 10
MISCELLANEOUS
10.1 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Massachusetts,
provided however that matters related to the construction, interpretation and
enforcement of the Certificate of Incorporation (including but not limited to
any certificates of designation of preferred stock), Bylaws and other internal
corporate documents of the Company, Subsidiary and any Other Subsidiary shall be
governed by the Delaware General Corporation Law. The parties agree that any
legal or equitable suit, action or proceeding arising out of this Agreement may
be instituted and prosecuted in any state or federal court in the State of
Massachusetts and for the purposes of this Agreement, irrevocably submit to the
jurisdiction of any such court in any such suit, action or proceeding.
10.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
shall survive the Closing.
10.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, transferees, heirs, executors and administrators
of the parties hereto; provided, however, that neither the Company nor the
Subsidiary may assign its rights hereunder. Without limiting the generality of
the foregoing, all representations, covenants and agreements benefiting the
Purchasers shall inure to the benefit of any and all subsequent holders from
time to time of the Shares. Notwithstanding any other provision of this
Agreement, this Agreement and the rights and obligations hereunder and the
Acquired Securities may be transferred by each of the Purchasers in their sole
discretion at any time, in whole or in part, including without limitation
transfers to Affiliates or Affiliated Groups of the transferor, without the
consent of any other party hereto; provided that such transferees agree in
writing with the Company and the Subsidiary to be bound by all of the provisions
contained herein.
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10.4 ENTIRE AGREEMENT; AMENDMENT.
(a) This Agreement (including the Schedules and Exhibits hereto) and
the other documents (including each of the other Financing Documents) delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof. Except as
otherwise expressly provided herein, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated, except by a written instrument
signed by the Company and the holders of two-thirds or more of the shares of
Series B Preferred which have not been converted to Common Stock, but in no
event shall this paragraph be amended or the obligation of any Purchaser
hereunder increased, except upon the written consent of such Purchaser.
(b) For purposes of determining whether a Purchaser has met the
Ownership Threshold, a Purchaser shall be deemed to hold the number of shares of
Series B Preferred owned by such Purchaser and any of its Affiliates.
(c) For purposes of determining whether, for any provision hereof, the
number of shares of Common Stock, Warrant Shares, Conversion Shares or Shares
held by a Tudor Entity is sufficient to meet a required threshold, such Tudor
Entity shall be deemed to hold the number of Shares, Warrant Shares, or
Conversion Shares, as the case may be, held by such Tudor Entity AND any of its
Affiliates AND other Tudor Entities; provided however for purposes of
determining whether a Tudor Entity has met the Ownership Threshold, such Tudor
Entity shall be deemed to hold only the number of shares of Series B Preferred
(without including in such calculation any Warrants, Warrant Shares, Conversion
Shares or other Common Stock) held by such Tudor Entity AND any of its
Affiliates AND other Tudor Entities.
10.5 NOTICES, ETC.
(a) All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first-class, registered or
certified mail, postage prepaid, or delivered either by hand, overnight delivery
service, or by messenger, or sent via telex, telecopier, computer mail or other
electronic means, addressed (a) if to a Purchaser, at the address shown on the
Schedule of Purchasers, or at such other address as such Purchaser shall have
furnished to the Company in writing, or (b) if to any other holder of any
Acquired Securities, at such address as such holder shall have furnished to the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (c) if to the Company or Subsidiary,
Five Clock Tower Place, Suite 440, Maynard, Massachusetts 01754, or at such
other address as the Company shall have furnished to the Purchasers and each
such other holder in writing.
(b) Any notice or other communications so addressed and mailed, postage
prepaid, by registered or certified mail (in each case, with return receipt
requested) shall be deemed to be given when so mailed. Any notice so addressed
and otherwise delivered shall be deemed to be given when actually received by
the addressee.
10.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any holder of Acquired Securities, upon any breach
or default of the Issuer Entities under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character
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on the part of any holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. No course of dealing between the Company
and/or the Subsidiary and any of the Purchasers will operate as a waiver of any
of the Company's, the Subsidiary's or any Purchaser's rights under this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
10.7 RIGHTS; SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
10.8 AGENT'S FEES AND SERVICES.
(a) The Company represents and warrants that it has retained no finder
or broker or other person or firm in connection with the transactions
contemplated by this Agreement. The Company hereby agrees to indemnify and to
hold the Purchasers harmless of and from any liability for any commission or
compensation in the nature of an agent's fee to any broker, finder or other
person or firm (and the costs and expenses of defending against such liability
or asserted liability) arising from any act by the Company or any of its
employees or representatives.
(b) Each Purchaser represents and warrants as to itself only that it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement. Each Purchaser hereby agrees to indemnify and to
hold the Company harmless of and from any liability for any commission or
compensation in the nature of an agent's fee to any broker, finder or other
person or firm (and the costs and expenses of defending against such liability
or asserted liability) arising from any act by such Purchaser or any of its
members, employees or representatives.
10.9 LEGAL FEES AND EXPENSES. The Company and Subsidiary each shall
bear its own expenses and legal fees incurred on its behalf with respect to this
Agreement and the transactions contemplated hereby. At the Closing (or if the
Closing shall not take place, within thirty (30) days of receiving any statement
or invoice therefor), the Company will pay the reasonable legal fees and
out-of-pocket expenses actually incurred for the services of (i) Bingham Dana
LLP, special counsel to the Purchasers (which fees and expenses shall not exceed
$25,000 without the prior, written consent of the Company) and (ii) Katten
Muchin Zavis, special counsel to the RAM Trading Ltd. and its affiliates (which
fees and expenses shall not exceed $10,000), with respect to this Agreement and
the transactions contemplated hereby.
10.10 TITLES AND SUBTITLES. The titles of the Sections and subsection's
of this Agreement are for convenience or reference only and are not to be
considered in construing this Agreement.
10.11 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which when so executed and delivered shall constitute a complete and
original instrument but all of which together shall constitute one and the same
agreement, and it shall not be necessary when making proof of this Agreement or
any counterpart thereof to account for any other counterpart.
10.12 CONSTRUCTION. The language used in this Agreement is the language
chosen by the parties to express their mutual intent, and no rule of strict
construction will be applied against either party.
10.13 FURTHER ASSURANCES. From time to time on and after the Closing
Date, the Company and the
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Subsidiary will each promptly execute and deliver all such further instruments
and assurances, and will promptly take all such further actions, as the
Purchasers or any of them may reasonably request in order more effectively to
effect or confirm the transactions contemplated by this Agreement and/or any of
the other Financing Documents and to carry out the purposes hereof and thereof.
10.14 EQUITABLE RELIEF. Each of the parties acknowledges that any
breach by such party of his, her, or its obligations under this Agreement would
cause substantial and irreparable damage to one or more of the other parties and
that money damages would be an inadequate remedy therefor. Accordingly, each
party agrees that the other parties or any of them will be entitled to an
injunction, specific performance, and/or other equitable relief to prevent the
breach of such obligations.
10.15 PUBLICITY. The Purchasers or any of them will have the right to
publicize their investment in the Company as contemplated hereby by means of a
"tombstone" advertisement or other customary advertisement in newspapers and
other media. The Company may issue a press release or other form of public
announcement as soon as practicable after the Closing announcing the issuance
and sale of the Shares, provided that each Purchaser shall have approved the
form of such press release or other public announcement, such approval not to be
unreasonably withheld.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first written above.
SOFTLOCK COM., INC.
By: /s/ Douglas R. Johnson
------------------------------------------
Name: Douglas R. Johnson
Title: Executive Vice President and Chief Financial Officer
SOFTLOCK SERVICES., INC.
By: /s/ Douglas R. Johnson
------------------------------------------
Name: Douglas R. Johnson
Title: Executive Vice President and Chief Financial Officer
RAPTOR GLOBAL PORTFOLIO, LTD.
By: TUDOR INVESTMENT CORPORATION,
as Investment Advisor
By: /s/ William T. Flaherty
------------------------------------------
William T. Flaherty
Vice President
ALTAR ROCK FUND, L.P.
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By: Tudor Investment Corporation, as General Partner
By: /s/ William T. Flaherty
------------------------------------------
William T. Flaherty
Vice President
/s/ Ronald A. Santella
---------------------------------------------
Ronald A. Santella
/s/ Anthony Kamin
---------------------------------------------
Anthony Kamin
RC CAPITAL, L.L.C.
By: Ritchie Capital Investments, L.L.C., its manager
By: Ritchie Capital Management, L.L.C., its manager
By: THR, Inc.
By: /s/ A. R. Thane Ritchie
---------------------------------------
A.R. Thane Ritchie, its President
RAM TRADING, LTD.
By: Ritchie Capital Management, L.L.C., its investment
manager
By: THR, Inc.
By: /s/ A. R. Thane Ritchie
-----------------------------------------
A.R. Thane Ritchie, its President
RITCHIE CAPITAL MANAGEMENT, L.L.C.
By: THR, Inc.
By: /s/ A. R. Thane Ritchie
------------------------------------------
A.R. Thane Ritchie, its President
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APEX INVESTMENT FUND IV, L.P.
By: Apex Management IV, L.L.C., its General Partner
By: /s/ George M. Middlemas
------------------------------------------
George M. Middlemas
APEX STRATEGIC PARTNERS IV, LLC
By: Apex Management IV, LLC, Manager
By: /s/ George M. Middlemas
------------------------------------------
George M. Middlemas, Managing Member
SI VENTURE FUND II, L.P.
By: SI VENTURE MANAGEMENT II, L.L.C.,
its General Partner
By: /s/ N. Adam Rin
------------------------------------------
its Managing Member
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Exhibit 99.5
CERTIFICATE OF CORRECTION
TO
CERTIFICATE OF DESIGNATION OF POWERS,
PREFERENCES AND RIGHTS OF THE SERIES B PREFERRED STOCK
OF
SOFTLOCK.COM, INC.
---------
SOFTLOCK.COM, INC., a Delaware corporation (the "Corporation certifies
that:
FIRST: A Certificate of Designation of the Series B Preferred Stock
(the "Certificate") was filed with the Delaware Secretary of State on February
10, 2000 and this Certificate requires correction as permitted by subsection (f)
of Section 103 of the General Corporation Law of the State of Delaware.
SECOND: The defects in the Certificate are as follows:
A. The clause " provided that at such time the Tudor Entities and/or
their Affiliates (if any) meet the Ownership Threshold determined in
accordance with Section 7(c)" shall be added to the parenthetical
phrase in Sections 7(a) and 7(b) that reads "which majority shall
include one or more of the Tudor Entities or their Affiliates".
B. The following shall be added to the end of Section 8: "(vi) the
2,812 figure set forth in Section 7(a)."
THIRD: Appendix 1 to the Certificate is corrected to read in its
entirety as set forth in the attached revised Appendix 1.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Douglas R. Johnson, its Executive Vice President and Chief Financial
Officer, this 11th day of February, 2000.
/s/ Douglas R. Johnson
------------------------------------
Douglas R. Johnson
Executive Vice President and
Chief Financial Officer
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APPENDIX I
WHEREAS, the Amended and Restated Certificate of Incorporation (the
"Restated Certificate") of this Corporation provides for a class of its
authorized shares known as preferred stock, comprising 5,000,000 shares,
issuable from time to time in one or more series;
WHEREAS, the Board of Directors is authorized to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including any sinking fund provisions), redemption price or
prices and liquidation preferences of any wholly unissued series of preferred
stock, and the number of shares constituting any such series and the designation
thereof, or all or any of them; and
WHEREAS, the Board of Directors, pursuant to its authority as
aforesaid, has fixed the powers, preferences and rights of a series of preferred
stock designated the "Series A Preferred Stock" (the "Series A Preferred")
pursuant to a Certificate of Designation of Powers, Preferences and Rights of
the Series A Preferred Stock (the "Series A Certificate") filed with the
Secretary of State of the State of Delaware on December 28, 1999 and amended on
January 13, 2000.
WHEREAS, it is now the desire of the Board of Directors, pursuant to
its authority as aforesaid, to fix the powers, preferences and rights of another
series of preferred stock designated the "Series B Preferred Stock."
WHEREAS, the Corporation has obtained the necessary consents of the
holders of Series A Preferred to permit the issuance and sale of the Series B
Preferred Stock with the powers, preferences and rights set forth herein.
NOW, THEREFORE, BE IT RESOLVED that the Board of Directors does hereby
provide for the issuance of a series of preferred stock of the Corporation,
consisting of 46,875 shares designated as "Series B Preferred Stock," and does
hereby fix and determine the relative powers, preferences and rights relating to
said Series B Preferred Stock as follows:
1. DESIGNATION. The series of Preferred Stock shall be designated the
"Series B Preferred Stock" ("Series B Preferred"). The Series A Preferred, the
Series B Preferred and any other series of Preferred Stock authorized by the
Board of Directors of this Corporation are hereinafter referred to as "Preferred
Stock" or "Preferred." The number of shares constituting the Series B Preferred
shall be 46,875.
2. DIVIDEND RATE AND RIGHTS.
Each holder of shares of Series B Preferred shall be entitled to
receive, out of funds legally available for the declaration of dividends, for
each share of Series B Preferred
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registered in his, her or its name on the stock transfer books of the
Corporation, dividends if, when and as declared by the Corporation's Board of
Directors.
Except for the Dividend Rate (as defined in the Series A Certificate)
payable on the Series A Preferred under the Series A Certificate, each holder of
shares of Series B Preferred and Series A Preferred shall be entitled to receive
dividends on a pari passu basis. This provision is for the benefit of the Series
A Preferred and the Series B Preferred and shall be deemed a preference, right
and power of the Series A Preferred.
Dividends paid on the Series B Preferred in an amount less than the
total amount of such dividends at the time declared and payable on the Series B
Preferred shall be allocated pro rata on a share-by-share basis among all such
shares of Series B Preferred then outstanding.
The holders of the Corporation's Common Stock shall be entitled to
dividends when, as, and if declared by the Board of Directors, pro rata among
the holders thereof based upon the number of shares of Common Stock held by such
holder, subject to the dividend preference set forth in the Series A Certificate
and to the declaration of a pro-rata dividend with respect to all outstanding
shares of the Series B Preferred on an as converted basis.
3. CONVERSION INTO COMMON STOCK.
The holders of the Series B Preferred shall have conversion rights as follows
(the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series B Preferred shall be
convertible, without the payment of any additional consideration by the holder
thereof, at the option of the holder thereof, at the office of the Corporation
or any transfer agent for the Series B Preferred, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing $160.00
(as adjusted from time to time in accordance with Section 8 hereof) by the
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. If more than one share of the Series B Preferred shall be
surrendered for conversion at the same time by the same holder of record, the
number of full shares that shall be issuable upon the conversion thereof shall
be computed on the basis of the total number of shares of the Series B Preferred
so surrendered. Each share of Series B Preferred shall be so convertible at any
time after the date of issuance of such share. The price at which shares of
Common Stock shall be deliverable upon conversion of Series B Preferred without
the payment of any additional consideration by the holder thereof (the
"Conversion Price") shall initially be $1.60 per share of Common Stock. Such
initial Conversion Price shall be subject to adjustment, in order to adjust the
number of shares of Common Stock into which the Series B Preferred is
convertible, as hereinafter provided.
(b) AUTOMATIC CONVERSION. Each share of Series B Preferred shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon the
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first to occur of the following: (i) the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Corporation to the public at an aggregate
offering price resulting in gross proceeds to the Corporation and the holders of
the Series B Preferred as sellers of not less than $20,000,000, before deducting
underwriting commissions, provided that the offering price per share of Common
Stock is not less than $6.40 (as adjusted from time to time in accordance with
Section 8) (a "Qualified Public Offering"), or (ii) election by holders of at
least two-thirds of the outstanding shares of Series B Preferred. In the event
of an automatic conversion of Series B Preferred pursuant to this Section 3(b),
the party or parties entitled to receive the Common Stock issuable upon such
conversion of the Series B Preferred shall not be deemed to have converted their
Series B Preferred until (i) immediately prior to the closing of a Qualified
Public Offering, or (ii) the receipt by the Secretary of the Corporation of a
written election by the holders of at least two-thirds of the then outstanding
shares of Series B Preferred, as applicable.
If the holders of shares of Series B Preferred are required to convert
the outstanding shares of Series B Preferred pursuant to this Section 3(b) at a
time when there are any declared but unpaid dividends or other amounts due on or
in respect of such shares, such dividends and other amounts shall be paid in
full in cash by the Corporation in connection with such conversion.
(c) MECHANICS OF CONVERSION. No fractional shares of Common Stock shall
be issued upon conversion of the Series B Preferred. In lieu of any fractional
share to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the then effective Conversion Price.
Except in the case of a conversion pursuant to Section 3(b), before any holder
of Series B Preferred shall be entitled to convert the same into full shares of
Common Stock, he, she or it shall surrender the certificate or certificates
therefor, duly endorsed (or if such certificates have been lost, stolen, or
destroyed, such holder executes and delivers an agreement, in a form
satisfactory to the Corporation and its transfer agent to indemnify them from
any loss incurred by it in connection therewith), at the office of the
Corporation or of any transfer agent for the Series B Preferred, and shall give
written notice to the Corporation at such office that he, she or it elects to
convert the same. Upon the date of a conversion pursuant to Section 3(b), any
party entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date and all rights of such party as a holder of Series
B Preferred shall cease, whether or not such holder has surrendered the
certificate or certificates for such holder's shares of Series B Preferred. A
holder surrendering his, her or its certificate or certificates shall notify the
Corporation of his, her or its name or the name or names of his, her or its
nominees in which he, she or it wishes the certificate or certificates for
shares of Common Stock to be issued. If the person or persons in whose name any
certificate for shares of Common Stock issuable upon such conversion shall be
other than the registered holder or holders of the Series B Preferred being
converted, the Corporation's obligation under this Section 3(c) shall be subject
to the payment and satisfaction by such registered holder or holders of any and
all
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transfer taxes in connection with the conversion and issuance of such Common
Stock. The Corporation shall, as soon as practicable thereafter (and, in any
event, within ten (l0) days of such surrender), issue and deliver at such office
to such holder of Series B Preferred, or to his, her or its nominee or nominees,
a certificate or certificates for the number of shares of Common Stock to which
he, she or it shall be entitled as aforesaid, together with cash in lieu of any
fraction of a share. Except in the case of a conversion pursuant to Section
3(b), such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of Series B
Preferred to be converted, and the party or parties entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Section
3(d), the following definitions shall apply:
(1) "OPTION" shall mean options, warrants or other
rights to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(2) "CONVERTIBLE SECURITIES" shall mean any evidences
of indebtedness, shares (other than Common Stock, 36,765
shares of Series A Preferred issued as of the date hereof and
any shares of Series A Preferred subsequently issued to Apex
Investment Fund IV, L.P., Apex Strategic Partners IV, LLC,
Ascent Venture Partners III, L.P., RSA Security Inc., SI
Venture Fund II, L.P. or any affiliate ("SI") or any affiliate
of such entities (collectively, the "Series A Purchasers"),
warrants to purchase 1,964 shares of Series A Preferred issued
to SI or the Series B Preferred) of capital stock or other
securities directly or indirectly convertible into or
exchangeable for Common Stock.
(3) "ADDITIONAL SHARES OF COMMON Stock" shall mean
any or all shares of Common Stock issued (or, pursuant to
Section 3(d)(iii), deemed to be issued) by the Corporation
after the Initial Issuance Date, other than shares of Common
Stock issued or issuable:
(A) upon conversion of the 36,765 shares of Series A
Preferred issued as of the date hereof, any shares of
Series A Preferred issued to the Series A Purchasers
after the date hereof and the warrants to purchase
1,964 shares of the Series A Preferred issued to SI;
or
(B) upon conversion of shares of Series B Preferred; or
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(C) to employees, officers or directors of, or
consultants to, the Corporation pursuant to the
Corporation's 1998 Stock Plan (the "Plan"), provided
that the number of shares so issued or issuable shall
not exceed 5,000,000 (as adjusted from time to time
in accordance with Section 8) (the "Reserved Employee
Shares"); or
(D) to financial institutions in connection with
borrowing or lease financing arrangements of the
Corporation made with the approval of the entire
Board of Directors"), provided that the number of
shares so issued or issuable shall not exceed 500,000
(as adjusted from time to time in accordance with
Section 8); or
(E) to strategic partners or licensors of the Corporation
in transactions approved by the Board of Directors;
provided that the number of shares so issued or
issuable shall not exceed 1,500,000 (as adjusted from
time to time in accordance with Section 8).
(ii) NO ADJUSTMENT OF CONVERSION PRICE. Subject to the
provisions of Section 3(d)(iii)(2) and Section 3(d)(vi) below, no
adjustment in the number of shares of Common Stock into which any
series of the Series B Preferred is convertible shall be made, by
adjustment in the Conversion Price of the Series B Preferred in respect
of the issuance of Additional Shares of Common Stock or otherwise,
unless the consideration per share for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price in effect on the date of, and immediately prior to,
the issue of such Additional Share of Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES
OF COMMON STOCK.
(1) OPTIONS AND CONVERTIBLE SECURITIES. In the event
the Corporation at any time or from time to time after the
Initial Issuance Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for
a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been
fixed, as of the close of business on such record date,
provided that such Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per
share (determined pursuant to Section 3(d)(v) hereof) of such
Additional Shares of Common Stock would be less
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than the Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the
case may be, and provided further that in any such case in
which Additional Shares of Common Stock are deemed to be
issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of
such Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time, pursuant to
any provisions designed to protect against dilution,
or otherwise, for any increase or decrease in the
consideration payable to the Corporation, or increase
or decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion or exchange
thereof, the applicable Conversion Price computed
upon the original issue thereof (or upon the
occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the
rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible
Securities which shall not have been exercised, the
Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments
based thereon, shall, upon such expiration, be
recomputed as if such Options or Convertible
Securities, as the case may be, were never issued;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion
Price to an amount which exceeds the lower of (i) the
Conversion Price on the original date on which an
adjustment was made pursuant to this Section
3(d)(iii)(l), or (ii) the Conversion Price that would
have resulted from any issuance of Additional Shares
of Common Stock between such original adjustment date
and the date on which a readjustment is made pursuant
to clause (B) or (C) above;
(E) in the case of any Options which expire by their
terms not more than 30 days after the date of issue
thereof, no adjustment of the Conversion Price shall
be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in
the
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same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on
the date fixed therefor, the adjustment previously
made in the Conversion Price which became effective
on such record date shall be cancelled as of the
close of business on such record date, and thereafter
the Conversion Price shall be adjusted pursuant to
this Section 3(d)(iii) as of the actual date of their
issuance.
(2) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND
SUBDIVISIONS. In the event the Corporation at any time or from
time to time after the Initial Issuance Date for the Series B
Preferred shall declare or pay any dividend or make any other
distribution on the Common Stock payable in Common Stock, or
effect a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a
dividend in Common Stock), then and in any such event,
Additional Shares of Common Stock shall be deemed to have been
issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record
date for the determination of holders of any class of
securities entitled to receive such dividend or
distribution, or
(B) in the case of any such subdivision, at the close of
business on the date immediately prior to the date
upon which such corporate action becomes effective.
If such record date shall have been fixed and such
dividend shall not have been fully paid on the date fixed for
the payment thereof, the adjustment previously made in the
Conversion Price which became effective on such record date
shall be cancelled as of the close of business on such record
date, and thereafter the Conversion Price shall be adjusted
pursuant to this Section 3(d)(iii) as of the time of actual
payment of such dividend.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall
issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 3(d)(iii)(1), but
excluding Additional Shares of Common Stock deemed to be issued
pursuant to Section 3(d)(iii)(2), which event is dealt with in Section
3(d)(vi) hereof) without consideration or for a consideration per share
less than the Conversion Price in effect on the date of and immediately
prior to such issue, then such Conversion Price shall be reduced,
concurrently with such issue, to the price determined as follows:
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(1) ADJUSTMENT PRIOR TO EFFECTIVENESS OF REGISTRATION
STATEMENT AND ACCEPTANCE OF LISTING APPLICATION. If such
issuance occurs during the period either prior to the
effectiveness of the registration statement for the Series B
Preferred (the "Series B Registration Statement") required by
Section 7.17(a) of the Series B Purchase Agreement dated as of
February 10, 2000 (the "Purchase Agreement") or prior to the
acceptance for listing and trading by Nasdaq of the
Corporation's SmallCap Market Listing Application required by
Section 7.17(a) of the Purchase Agreement (the "Listing
Application"), then the Conversion Price shall be reduced to
equal the price at which such Additional Shares of Common
Stock were issued.
(2) ADJUSTMENT AFTER EFFECTIVENESS OF REGISTRATION
STATEMENT AND ACCEPTANCE OF LISTING APPLICATION. If such
issuance occurs after both of (x) the effectiveness of the
Series B Registration Statement and (y) the acceptance by
Nasdaq of the Listing Application, then the Conversion Price
shall be reduced by dividing (a) the sum of (i) the product
derived by multiplying the Conversion Price in effect
immediately prior to such issue or sale by the number of
shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, plus (ii) the
consideration, if any, received by the Corporation upon such
issue or sale, by (b) the number of shares of Common Stock
Deemed Outstanding immediately after such issue or sale.
"Common Stock Deemed Outstanding" means, at any given time,
the number of shares of Common Stock actually outstanding at
such time, plus the number of shares of Common Stock deemed to
be outstanding assuming exercise and/or conversion of the
Series A Preferred and the Series B Preferred, and the
conversion, exchange or exercise of all outstanding warrants,
options and other convertible securities, whether or not such
options, warrants or convertible securities are actually
exercisable at such time. As an example to illustrate the
adjustment of the Conversion Price under this Section
3(d)(iv)(2) and assuming that the Corporation issues
Additional Shares of Common Stock in the amount of 3,000,000
shares of Common Stock for total cash consideration of
$2,250,000, the Conversion Price in effect immediately prior
to such issue or sale is $1.00, the number of shares of Common
Stock actually outstanding immediately prior to such issue or
sale is 15,000,000, the number of shares deemed outstanding
assuming exercise or conversion of the conversion of the
Series A Preferred, the Series B Preferred, and the
conversion, exchange or exercise of all outstanding warrants,
options and other convertible securities Convertible
Securities is 5,000,000, the Conversion Price (rounded to two
decimal places) would be reduced as follows:
($1.00 X 20,000,000) + $2,250,000
---------------------------------
23,000,000 = $.97
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(v) DETERMINATION OF CONSIDERATION. For purposes of this
Section 3(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as
follows:
(1) CASH AND PROPERTY: Such consideration shall:
(A) insofar as it consists of cash, be the aggregate
amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or
accrued dividends;
(B) insofar as it consists of property other than cash,
be deemed to have the same value as is recorded on
the books of the Corporation with respect to receipt
of such property so long as such recorded value was
determined reasonably and in good faith and with due
care by the Board of Directors of the Corporation and
shall otherwise be deemed to have a value equal to
its fair market value; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares of securities or
other assets of the Corporation for a single
undivided consideration, be the proportion of such
consideration so received allocable to such
Additional Shares of Common Stock, computed as
provided in clauses (A) and (B) above, as determined
in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued
pursuant to Section 3(d)(iii)(l) shall be determined by
dividing
(A) the total amount, if any, received or
receivable by the Corporation as
consideration for the issue of such Options
or Convertible Securities, plus the minimum
aggregate amount of additional consideration
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein for a subsequent
adjustment of such consideration) payable to
the Corporation upon the exercise of such
Options or the conversion or exchange of
such Convertible Securities, or in the case
of Options for Convertible Securities, the
exercise of such Options for Convertible
Securities and the conversion or exchange of
such Convertible Securities, by
(B) the maximum number of shares of Common Stock
(as set forth in the instruments relating
thereto, without regard to any
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provision contained therein for a subsequent
adjustment of such number) issuable upon the
exercise of such Options or the conversion
or exchange of such Convertible Securities.
(VI) ADJUSTMENT FOR STOCK DIVIDENDS, STOCK DISTRIBUTIONS,
SUBDIVISIONS, COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK.
(1) STOCK DIVIDENDS, STOCK DISTRIBUTIONS OR
SUBDIVISIONS. In the event the Corporation shall issue
Additional Shares of Common Stock pursuant to Section
3(d)(iii)(2) in a stock dividend, other stock distribution or
subdivision, the Conversion Price in effect immediately prior
to such stock dividend, stock distribution or subdivision
shall, concurrently with the effectiveness of such stock
dividend, stock distribution or subdivision, be
proportionately decreased to adjust equitably for such
dividend, distribution or subdivision.
(2) COMBINATIONS OR CONSOLIDATIONS. In the event the
outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, the Conversion Price in
effect immediately prior to such combination or consolidation
shall, concurrently with the effectiveness of such combination
or consolidation, be proportionately increased to adjust
equitably for such combination or consolidation.
(vii) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case
of any consolidation or merger of the Corporation with or into another
corporation or the conveyance of all or substantially all of the assets
of the Corporation to another corporation, or any proposed
reorganization or reclassification of the Corporation (except a
transaction for which provision for adjustment is otherwise made in
this Section 3), each share of Series B Preferred shall thereafter be
convertible into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of
the Corporation deliverable upon conversion of such Series B Preferred
would have been entitled upon such consolidation, merger, conveyance,
reorganization or reclassification; and, in any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made in
the application of the provisions herein set forth with respect to the
rights and interest thereafter of the holders of the Series B
Preferred, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series B Preferred.
The Corporation shall not effect any such consolidation, merger or sale
unless prior to or simultaneously with the consummation thereof the
successor corporation or purchaser, as the case may be, shall assume by
written instrument the obligation to deliver to the holder of the
Series
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B Preferred such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder is entitled to
receive.
Upon the occurrence of a consolidation or merger of the
Corporation with or into another corporation, or the conveyance of all
or substantially all of the assets of the Corporation to another
corporation (unless upon consummation thereof the holders of voting
securities of the Corporation own directly or indirectly more than
fifty percent (50%) of the voting power to elect directors of the
consolidated or surviving or acquiring corporation), each holder of
Series B Preferred shall have the option of electing treatment of its
shares of Series B Preferred under this Section 3(d)(vii) in lieu of
Section 4(d) hereof.
(viii) NO ADJUSTMENT IN CERTAIN CIRCUMSTANCES. Notwithstanding
anything to the contrary contained herein, there shall be no adjustment
pursuant to this Section 3(d)):
(1) APPROVAL OF SERIES B PREFERRED. if prior to the
issuance of Additional Shares of Common Stock, Options or
Convertible Securities, the Corporation receives written
notice from the holders of two-thirds of the then outstanding
shares of Series B Preferred agreeing that no such adjustment
shall be made as the result of such issuance; or
(2) CERTAIN DISTRIBUTIONS. with respect to shares of
Common Stock issued or issuable (x) as a dividend or
distribution on both Series A Preferred and Series B Preferred
pro rata on an as converted basis or (y) by reason of a
dividend, stock split, split-up or other distribution on
shares of Common Stock described in the foregoing clause (x).
(e) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series B Preferred a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series B Preferred, furnish or cause to be furnished to such holder a like
certificate
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setting forth (i) all such adjustments and readjustments theretofore made, (ii)
the Conversion Price at the time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at such time would
be received upon the conversion of Series B Preferred.
(g) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is in the same amount per share as
cash dividends paid in previous quarters) or other distribution, the Corporation
shall mail to each holder of Series B Preferred at least ten (l0) days prior to
the date thereof, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution.
(h) COMMON STOCK RESERVED. The Corporation shall reserve and at all
times keep available out of its authorized but unissued Common Stock, free from
preemptive or other preferential rights, restrictions, reservations,
dedications, allocations, options, other warrants and other rights under any
stock option, conversion option or similar agreement, such number of shares of
Common Stock as shall from time to time be sufficient to effect conversion of
the Series B Preferred.
7. (i) NO REISSUANCE OF SERIES B PREFERRED. Shares of Series B Preferred
that are converted into shares of Common Stock as provided herein shall
not be reissued.
8. (j) ISSUE TAX. The issuance of certificates for shares of Common Stock
upon conversion of Series B Preferred shall be made without charge to the
holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series B
Preferred which is being converted.
9.
10. (k) CLOSING OF BOOKS. The Corporation will at no time close its
transfer books against the transfer of any Series B Preferred or of any
shares of Common Stock issued or issuable upon the conversion of any shares
of Series B Preferred in any manner which interferes with the timely
conversion of such Series B Preferred, except as may otherwise be required
to comply with applicable securities laws.
11.
12. (l) DEFINITION OF COMMON STOCK. As used in this Section 3, the term
"Common Stock" shall mean and include the Corporation's authorized Common
Stock, par value $0.01 per share, as constituted on the date of filing of
this Certificate of Designation, and shall also include any capital stock
of any class of the Corporation thereafter authorized which shall neither
be limited to a fixed sum or percentage of par value in respect of the
rights of the holders thereof to participate in dividends nor entitled to a
preference in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; provided that
the shares of Common Stock receivable
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upon conversion of shares of Series B Preferred shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
Certificate of Designation.
4. LIQUIDATION PREFERENCE.
(a) LIQUIDATION. In the event of any liquidation, dissolution or
winding up of the Corporation, each holder of shares of Series B Preferred shall
be entitled to receive, on a pari passu basis with holders of the Series A
Preferred and prior and in preference to any distribution of any of the assets
or surplus funds of the Corporation to the holders of the Common Stock and any
other series of preferred stock which is junior to the Series B Preferred, by
reason of his, her or its ownership thereof, an amount per share of the Series B
Preferred equal to $160.00 (as adjusted from time to time in accordance with
Section 8) (plus any dividends which, pursuant to Section 2 hereof, have been
declared but remain unpaid at such time). After the payment to such holders of
such preferential amount and payment to the holders of the Series A Preferred of
the preferential amount set forth in the Series A Certificate, any remaining
assets shall be distributed to the holders of Common Stock. Notwithstanding the
foregoing, if the amount that the holders of Series B Preferred would receive in
value if converted to Common Stock in connection with a liquidation or deemed
liquidation is greater than $160.00 (as adjusted from time to time in accordance
with Section 8) per share of Series B Preferred (plus any dividends which,
pursuant to Section 2 hereof, have been declared but remain unpaid at such
time), then the holders of Series B Preferred shall receive such greater amount
in lieu of such liquidation amount together with holders of the Series A
Preferred if required by the Series A Certificate and the holders of the
Corporation's Common Stock.
(b) PRO RATA DISTRIBUTION. If the assets or surplus funds to be
distributed to the holders of (i) the Series A Preferred under the Series A
Certificate, (ii) the Series B Preferred under Section 4(a) and (iii) any other
series of Preferred Stock ranking on a parity with the Series A Preferred and
Series B Preferred are insufficient to permit the payment to such holders of
their full preferential amount, the assets and surplus funds legally available
for distribution shall be distributed ratably among (i) the holders of the
Series A Preferred (to the extent provided under the Series A Certificate), (ii)
the holders of the Series B Preferred (to the extent provided in Section 4(a)
hereof) and (iii) the holders of such other series of Preferred Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive.
(c) SERIES B PREFERRED PRIORITY. All of the preferential amounts to be
paid to the holders of (i) the Series A Preferred under the Series A
Certificate, (ii) the Series B Preferred under this Section 4 and (iii) the
holders of any other series of Preferred Stock ranking on a parity with the
Series B Preferred shall be paid or set apart for payment before the payment or
setting apart for payment of any amount for, or the distribution of any assets
of the Corporation to, the holders of the Common Stock and any other series of
Preferred Stock which is junior to the Series B Preferred in connection with
such liquidation, dissolution or winding up.
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(d) CONSOLIDATION, MERGER, SALE OF ASSETS. Upon the written election of
the holders of a majority of the outstanding shares of the Series B Preferred, a
consolidation or merger of the Corporation with or into another corporation, or
a conveyance of all or substantially all of the assets of the Corporation, shall
be regarded as a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of Section 4(a) unless, upon consummation of such
consolidation or merger or sale of assets, the holders of voting securities of
the Corporation own directly or indirectly more than fifty percent (50%) of the
voting power to elect directors of the consolidated or surviving or acquiring
corporation, provided, however, that each holder of Series B Preferred shall
have the right to elect the benefits of the provisions of Section 3(d)(vii)
hereof in lieu of receiving payment in such liquidation, dissolution or winding
up of the Corporation pursuant to this Section 4.
(i) VALUATION OF CONSIDERATION OTHER THAN CASH. Any
consideration other than cash to be delivered to the holders of the
Series B Preferred Stock upon the closing of any such consolidation,
merger or sale shall be valued as follows:
(A) For securities not subject to restrictions on
transfer an investment letter or other similar
restrictions on free marketability:
(x) If traded on a securities exchange, the value
shall be deemed to be the average of the closing
prices of such securities on such exchange over the
30-day period ending three (3) days prior to such
closing;
(y) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid
or sale prices (whichever are applicable) over the
30-day period ending three (3) days prior to such
closing.
(B) If the securities are subject to investment letter or
other restrictions on free marketability, the Board
of Directors shall make an appropriate discount from
the market value determined as described above and
shall notify all holders of shares of the Series B
Preferred of such valuation. If there is no active
public market for the securities to be delivered or
if the consideration is not cash or securities, the
Board of Directors shall first determine in good
faith and with due care the value of such assets for
such purpose and shall notify all holders of the
Series B Preferred of such determination. The value
of such assets for purposes of the distribution under
this Section 4(c) shall be the value as so determined
by the Board of Directors, unless the holders of a
majority of the outstanding shares of Series B
Preferred shall object thereto in writing within 15
days after the date of such notice.
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(ii) DISPUTE RESOLUTION. In the event of such objection, the
valuation of such assets for purposes of such distribution shall be
determined by an arbitrator mutually agreed upon and selected by the
objecting holders of Series B Preferred and the Board of Directors, or
in the event a single arbitrator cannot be agreed upon within 10 days
after the written objection sent by the objecting holders in
accordance with subsection (c), the valuation of such assets shall be
determined by an arbitration in which (i) the objecting holders shall
name in their notice of objection one arbitrator, (ii) the Board of
Directors shall name a second arbitrator within 15 days from the
receipt of such notice, (iii) the two arbitrators thus selected shall
select a third arbitrator within 15 days thereafter, and (iv) the
three arbitrators thus selected shall determine by majority vote the
valuation of such assets within 15 days thereafter for purposes of
such distribution. In the event the third arbitrator is not selected
as provided herein, then such arbitrator shall be selected by the
President of the American Arbitration Association ("AAA"). The costs
of such arbitration shall be borne by the Corporation or by the
holders of Series B Preferred (on a pro rata basis out of the assets
otherwise distributable to them) as follows: (i) if the valuation as
determined by the arbitrators is greater than 90% of the valuation as
determined by the Board of Directors, the holders of the Series B
Preferred shall pay the costs of the arbitration, and (ii) otherwise,
the Corporation shall bear the costs of the arbitration. The
arbitration shall be held in Boston, Massachusetts, in accordance with
the rules of the AAA. The award made by the arbitrators shall be
binding upon the Corporation and the holders of the Series B
Preferred, no appeal may be taken from such award, and judgment
thereon may be entered in any court of competent jurisdiction.
5. VOTING RIGHTS.
(a) NUMBER OF VOTES. Except as otherwise required by law, in any
relevant agreement and the provisions of Section 5 of the Series A Certificate
which gives the holders of the Series A Preferred the right to elect one member
of the Board of Directors, the holders of Series A Preferred, the holders of
Series B Preferred and the holders of the Common Stock shall be entitled to
notice of any shareholders' meeting and to vote together as a single class of
capital stock upon any matter submitted to shareholders of the Corporation for a
vote, on the following basis:
(i) Holders of Common Stock shall have one vote per
share; and
(ii) Holders of Series A Preferred shall have that number
of votes per share as is equal to the number of whole shares of Common
Stock into which each such share of Series A Preferred held by such
holder is convertible at the time of such vote.
(iii) Holders of Series B Preferred shall have that number
of votes per share
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as is equal to the number of whole shares of Common Stock into which
each such share of Series B Preferred held by such holder is
convertible at the time of such vote.
(b) QUORUMS. Except as otherwise required by law and for the election
of the Series A director in accordance with the Series A Certificate and so long
as shares of the Series B Preferred remain outstanding, the presence in person,
by teleconference or by proxy of the holders of shares constituting a majority
of the votes entitled to vote thereat, calculated in accordance with Section
5(a) hereof, shall constitute a quorum for the purpose of transaction of
business at all meetings of shareholders.
6. REDEMPTIONS
(a) CONDITIONS.
(i) REDEMPTION CONDITIONS. If, on or after May 31, 2001, there
remain outstanding shares of Series B Preferred that have not been
converted to Common Stock and the Series B Registration Statement
covering the Common Stock issuable upon conversion of the Series B
Preferred has not been declared effective or the shares of Common Stock
(including the shares of Common Stock issuable upon conversion of the
Series B Preferred) have not been accepted for listing on the Nasdaq
SmallCap Market or Nasdaq National Market System, the holders of a
majority of the then outstanding shares of Series B Preferred may elect
to have the Corporation redeem all (but not less than all) of the
outstanding shares of Series B Preferred, at the Redemption Price (as
defined in Section 6(b) below), payable in cash in accordance with the
schedule set forth in paragraph (ii) below.
(ii) REDEMPTION TIMING. Redemptions pursuant to this paragraph
(a) shall be made in two (2) equal installments on May 31, 2001 and May
31, 2002; provided that if the election to redeem is not made at least
thirty (30) days prior to May 31, 2001 or if the valuation necessary
for such redemption is not completed at least thirty (30) days prior to
May 31, 2001, then the Corporation shall pay such first redemption
installment thirty (30) days after the date of such election or
completion of the valuation and the second redemption installment one
(1) year thereafter. The date that any installment is due pursuant to
the foregoing is referred to herein as a "Redemption Date". The number
of shares of Series B Preferred Stock required to be redeemed on any
Redemption Date shall be equal to the amount determined by dividing (x)
the aggregate number of shares of Series B Preferred Stock outstanding
immediately prior to the Redemption Date by (y) the number of remaining
Redemption Dates (including the Redemption Date to which such
calculation applies). Any redemption effected pursuant to this Section
6(a) shall be made on a pro rata basis among the holders of the Series
B Preferred Stock based on the number of shares of Series B Preferred
Stock then held by them. A notice of redemption from the Corporation
shall state the number of shares of Series B Preferred to be redeemed.
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(iii) INSUFFICIENT FUNDS. Redemptions shall only be permitted
to the extent permitted under the General Corporation Law of Delaware.
The Corporation shall, to the fullest extent permitted by law, do all
things necessary to redeem the Series B Preferred and make the payments
therefor required by this Section 6. If in any given year in which
redemption is requested sufficient funds are not legally available for
such redemption on the Redemption Date to redeem all of the shares of
Series B Preferred then due to be redeemed, any and all such unredeemed
shares shall be carried forward and redeemed together with other shares
of Series B Preferred which are due to be redeemed, at such time and to
the extent that funds of the Corporation are legally available
therefor. The shares of Series B Preferred which are subject to
redemption but which have not been redeemed and as to which the
Redemption Price is not paid or set aside due to insufficient legally
available funds shall continue to be entitled to the dividend,
conversion and other rights, preferences and privileges of the Series B
Preferred until such shares have been redeemed and the Redemption Price
has been paid or otherwise set aside with respect thereto.
(b) REDEMPTION PRICE.
(i) REDEMPTION PRICE. The price at which the shares of Series B
Preferred shall be redeemed (the "Redemption Price") shall be greater
of the (A) $160 (as adjusted from time to time in accordance with
Section 8) per share plus declared but unpaid dividends due on the
Series B Preferred or (B) the then current fair market value per share,
based on a valuation of the Corporation as finally determined in
accordance with Sections 6(b)(ii)-(iv) below as of the applicable
Redemption Date, plus all declared and unpaid dividends thereon.
(ii) INITIAL VALUATION METHODOLOGY. Promptly upon receipt of a
notice of redemption, the Corporation and the holders of a majority of
the shares of Series B Preferred shall mutually agree on the valuation
of the Corporation. In the event such an agreement cannot be reached
within fifteen (15) days after delivery of a notice of redemption, the
Corporation shall retain a nationally recognized, reputable investment
banking firm reasonably acceptable to the holders of a majority of the
shares of Series B Preferred, the cost of which shall be split evenly
between the Corporation and the holders of Series B Preferred Stock
(pro rata in proportion to the relative number of shares held by each
of them). As promptly as is practicable, such investment banking firm
shall deliver to the Corporation a written report as to the fair market
value of the Corporation as a whole, on a going-concern basis, using
customary and appropriate valuation methods, as of the date of the most
recent unaudited financial statements of the Corporation filed with the
Securities and Exchange Commission (and not taking into account any
discount for minority ownership or restrictions on transfer of the
capital stock of the Corporation). Upon receipt of such report, the
Corporation shall promptly send a copy thereof to each holder of Series
B Preferred.
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(iii) PROCEDURE UPON OBJECTION TO FIRST VALUATION. The
valuation set forth in such report (the "First Valuation") shall be
conclusive and binding on the Corporation and each holder of Series B
Preferred unless within 14 days after receipt of such report, the
holders of a majority of the outstanding shares of Series B Preferred
notify the Corporation in writing that they disagree with such
valuation. If such holders do so notify the Corporation, they shall
promptly engage another nationally recognized, reputable investment
banking firm, at the expense of the holders of Series B Preferred, pro
rata in proportion to the relative number of shares held by each of
them, to render another written report as to the fair market value of
the Corporation (but without regard to any discount for minority
ownership or restrictions on transfer of the capital stock of the
Corporation) as of the appropriate valuation date, a copy of which
shall be promptly delivered to the Corporation.
(iv) PROCEDURE UPON OBJECTION TO SECOND VALUATION If the
Corporation does not agree with the valuation of the Corporation set
forth in the second investment banking firm's report (the "Second
Valuation"), then either (i) the Corporation and the holders of a
majority of the outstanding shares of Series B Preferred Stock shall
agree on the fair market value or (ii) in the absence of such
agreement, the Redemption Price shall be the arithmetic average of the
First Valuation and the Second Valuation, unless the difference between
the First Valuation and Second Valuation is greater than an amount
equal to 5% of the higher of the two valuations, in which case a third
investment banking firm shall be appointed by the two prior investment
banking firms to render a written report as to fair market value (but
without regard to any discount for minority ownership or restrictions
on transfer of the capital stock of the Corporation), the cost of which
shall be split between the Corporation and the holders of Series B
Preferred (pro rata among them in proportion to the relative number of
shares held by each of them) equally, and the fair market value shall
be equal to the arithmetic average of the two (2) closest valuations,
unless the third valuation equals the arithmetic average of the First
Valuation and the Second Valuation, in which case the fair market value
shall be equal to the third valuation.
(c) NOTICE. Notice of any requested redemption shall be given by
certified or registered mail (return receipt requested), postage prepaid. Any
notice given by the Corporation shall be addressed to each holder at the address
as it appears on the stock transfer books of the Corporation and shall specify
the Redemption Date and the number of shares requested to be redeemed. On or
after the Redemption Date as specified in any notice, the holder shall surrender
such holder's certificate for the number of shares to be redeemed as stated in
the notice to or from the Corporation. If less than all of the shares
represented by such certificates are redeemed, a new certificate shall forthwith
be issued for the unredeemed shares. Such certificates, if required, shall be
properly stamped for transfer and duly endorsed in blank or accompanied by
proper instruments of assignment and transfer thereof duly executed in blank. If
any holder of Series B Preferred shall fail to tender its shares of Series B
Preferred as provided above, the Corporation shall have the right to cancel said
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shares upon its books and pay to such holder the Redemption Price for such
shares. Any such cancelled shares shall for all purposes be considered to have
been redeemed as provided herein.
(d) DIVIDENDS AND CONVERSION AFTER REDEMPTION. From and after the
Redemption Date, no shares of the Series B Preferred to be redeemed on the
Redemption Date shall be entitled to any further right to any dividends declared
pursuant to Section 2 hereof or to the conversion provisions set forth in
Section 3 hereof, provided, however, that if the shares of Series B Preferred
are unable to be redeemed pursuant to Section 6(a)(iii) and continue to be
outstanding, such shares shall continue to be entitled to the declared dividends
and to the conversion provisions set forth in Section 3.
(e) REDEMPTION RANKING WITH SERIES A PREFERRED. If at any time the
Series B Preferred has not been fully redeemed and at such time redemption of
the Series A Preferred is required under the Series A Certificate, the Series A
Preferred and Series B Preferred shall be redeemed on a pari passu basis. This
Section 6(e) is for the benefit of both the Series A Preferred and Series B
Preferred and shall be deemed a preference, right and power of the Series A
Preferred.
7. COVENANTS
(a) MATTERS REQUIRING VOTE OR CONSENT. Without limiting the rights of
the holders of the Series B Preferred to vote as a class as required by law, so
long as a holder of the Series B Preferred continues to hold at least 2,812 (as
adjusted from time to time in accordance with Section 8 hereof) shares of Series
B Preferred and such shares have been not converted to Common Stock (the
"Ownership Threshold"), the Corporation shall not, without first obtaining the
affirmative vote or written consent of not less than a majority (which majority
shall include one or more of the Tudor Entities or their Affiliates provided
that at such time the Tudor Entities and/or their Affiliates (if any) meet the
Ownership Threshold determined in accordance with Section 7(c)) of such
outstanding shares of Series B Preferred held by holders who continue to meet
such Ownership Threshold:
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or Bylaws that would
amend or change the rights, preferences, powers and privileges of the
Series B Preferred; or
(ii) reclassify any Common Stock into shares having any
preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of the Series B Preferred.
(b) ADDITIONAL MATTERS REQUIRING VOTE OR CONSENT. The Corporation
shall, for the benefit of any holder of Series B Preferred who meets the
Ownership Threshold, for so long as less than 75% of the shares of Series B
Preferred have been converted into Common Stock, not do any of the following
unless the holders of a majority (which majority shall
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include one or more of the Tudor Entities or their Affiliates provided that at
such time the Tudor Entities and/or their Affiliates (if any) meet the Ownership
Threshold determined in accordance with Section 7(c)) of the shares of Series B
Preferred held by holders who meet the Ownership Threshold have approved or
otherwise agreed in writing;
(i) SALE/PURCHASE OF ASSETS; MERGER.
(1) Sell or otherwise dispose of the capital stock of
SoftLock Services, Inc. ("Subsidiary") or any Other Subsidiary
(as defined in the Purchase Agreement) or of all or a
substantial part of the Corporation's assets or business or of
all or a substantial part of the assets or business of
Subsidiary or any Other Subsidiary (whether by sale of assets,
exclusive license or otherwise);
(2) Purchase or otherwise acquire all or
substantially all of the capital stock of any corporation or
equity interest in any other entity or lend money to any
person or entity, or purchase a substantial part of the
operating assets of any person or entity for a purchase price
in excess of the lower of (i) $5,000,000, and (ii) 20% of the
Corporation's and Subsidiary's consolidated net revenues for
the twelve month period immediately preceding such purchase;
or
(3) Consolidate with or merge into or with any other
person or entity or permit any other person or entity to
consolidate with or merge into it (except that Subsidiary may
merge into the Corporation, and a 100% Other Subsidiary may
consolidate with or merge into Subsidiary or the Corporation
or into another 100% Other Subsidiary); provided that the
foregoing restriction does not apply to the merger of another
corporation into the Corporation or Subsidiary, if:
(A) either (x) in the case of a merger into the
Corporation, the Corporation is the surviving
corporation and more than 50% of the outstanding
common stock of the surviving corporation is owned by
persons who prior to such merger owned Common Stock
of the Corporation; or (y) in the case of a merger
into Subsidiary, Subsidiary is the surviving
corporation, remains a 100% subsidiary of the
Corporation and more than 50% of the outstanding
Common Stock of the Corporation after the merger is
owned by persons who prior to such merger owned
Common Stock of the Corporation; and
(B) After giving effect to the proposed merger or
consolidation the surviving corporation will be
engaged in substantially the same lines of business;
and
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(C) Immediately after the consummation of the
transaction, and after giving effect thereto, no
default under the Purchase Agreement, this
Certificate or any other Financing Document (as
defined in the Purchase Agreement) would exist.
(ii) FUTURE REGISTRATION RIGHTS. Except as set forth in the
Amended and Restated Shareholders' and Rights Agreement dated as of
February 10, 2000 (the "Shareholders Agreement") and except for an
underwriting agreement between the Corporation and one or more
professional underwriters of securities, the Corporation shall not
agree to register any Equity Securities (as defined in the Purchase
Agreement) under the Securities Act of 1933, as amended that will
provide such other Equity Securities with registration rights which are
preferential to or inconsistent with those granted to holders of the
Series B Preferred under the Purchase Agreement.
(iii) CHANGES IN TYPE OF BUSINESS. Make any substantial change
in the character of its business. Any business activities related to
repetitive locking techniques or the distribution of electronic content
will not constitute a substantial change in the character of its
business.
(iv) DIVIDENDS AND DISTRIBUTIONS. Directly or indirectly
declare or pay any dividends or make any distributions upon any of its
Equity Securities other than (i) the dividend amount set forth in the
Series A Certificate payable on the Series A Preferred and (ii)
dividends and distributions on the Series A Preferred and the Series B
Preferred, together as a single class for this purpose, pro rata in
proportion to the number of shares of Series A Preferred and Series B
Preferred.
(v) PURCHASE OF EQUITY SECURITIES. Directly or indirectly
redeem, retire, purchase or otherwise acquire, any of the
Corporation's, Subsidiary's or any Other Subsidiary's Equity Securities
except (a) as permitted by the Purchase Agreement, the Shareholders
Agreement, and this Certificate, (b) as required by the Series A
Certificate or (c) from any employee upon termination of employment,
but subject to Board approval.
(v) CONFLICTING AGREEMENTS. Become subject to any agreement or
instrument, which by its terms would (under any circumstances) restrict
the Corporation's, Subsidiary's or any Other Subsidiary's right to
perform any of its obligations pursuant to the terms of the Purchase
Agreement, this Certificate, the Shareholders Agreement, or the
Corporation's By-laws (including, without limitation, all obligations
relating to payment of dividends on and making redemptions of the
Series B Preferred and conversions of the Series B Preferred).
(vi) AMENDMENT OF CHARTER DOCUMENTS. Except as contemplated
by the Purchase Agreement, make any amendment to the Corporation's
By-laws that has not been approved by action of the Board of Directors
or any amendment to the Corporation's,
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Subsidiary's or any Other Subsidiary's Certificate of Incorporation,
including but not limited to this Certificate.
(vii) RELATED PARTY TRANSACTIONS. Enter into any transaction
with any Related Party (as defined in the Purchase Agreement) or
Affiliate, except as otherwise expressly contemplated by the Purchase
Agreement.
(ix) ISSUANCE OF EQUITY SECURITIES. Issue, sell, grant or
award or enter into any agreement or adopt any plan to issue, sell,
grant or award any Equity Security (other than 36,765 shares of Series
A Preferred Stock issued as of the date hereof and any shares of Series
A Preferred Stock issued hereafter to the Series A Purchasers) or
option to acquire any Equity Security (other than the warrants to
purchase 1,964 shares of Series A Preferred granted to SI) with rights
ranking senior or pari passu to the Series B Preferred as to
liquidation preference, voting rights, registration rights, dividends
or any other matters or rights.
(c) DETERMINATION OF OWNERSHIP THRESHOLD. For purposes of determining
whether a holder has met the Ownership Threshold, a person or entity shall be
deemed to hold the number of shares of Series B Preferred owned by such person
and any of its Affiliates (as defined in the Purchase Agreement) and in the case
of any Tudor Entity (as defined in the Purchase Agreement), such Tudor Entity
shall be deemed to hold the number of shares of Series B Preferred held by such
Tudor Entity and any of its Affiliates and other Tudor Entities.
8. STOCK DIVIDENDS, STOCK DISTRIBUTIONS, SUBDIVISIONS, COMBINATIONS AND
CONSOLIDATIONS
The following amounts and/or figures set forth hereinabove shall each be subject
to appropriate adjustment for any stock dividends, stock split, combination or
division of shares, recapitalization, reclassification, merger, consolidation,
reorganization or the like affecting the shares of Common Stock or Series B
Preferred (as the case may be and as appropriate) of the Corporation: (i) the
dollar amount set forth in the first sentence of Section 3(a) hereof, (ii) the
dollar amounts set forth in Section 4(a) hereof, (iii) the dollar amount set
forth in Section 6(b)(i)(A) hereof, (iv) the $6.40 figure set forth in the first
paragraph of Section 3(b) hereof, and (v) the number of shares set forth in
Sections 3(d)(i)(3)(C), 3(d)(i)(3)(D) and 3(d)(i)(3)(E) hereof and (vi) the
2,812 figure set forth in Section 7(a).
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Exhibit 99.6
SUPPLEMENT TO
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SUPPLEMENT (this "Supplement") TO THE SERIES A PREFERRED STOCK
PURCHASE AGREEMENT is made and entered into as of the 10th day of February,
2000, by and among SoftLock.com, Inc. (the "Company"), a Delaware corporation
having offices at Five Clock Tower Place, Suite 440, Maynard, Massachusetts,
SoftLock Services, Inc. ("Subsidiary") a Delaware corporation having offices at
Five Clock Tower Place, Suite 440, Maynard, Massachusetts, and Ascent Venture
Partners III, L.P.("Ascent").
WHEREAS, the Company has entered into a Series A Preferred Stock
Purchase Agreement (the "Agreement") dated as of December 30, 1999 (the "First
Closing Date") by and among the Company, Subsidiary, and certain parties listed
on Schedule 1 thereto (the "Schedule of Purchasers"). All capitalized terms used
herein without definition shall have the meaning given in the Agreement.
WHEREAS, Section 2.1(b) of the Agreement contemplates that the purchase
and sale of additional Shares (as defined in the Agreement) to additional
Purchaser(s) shall be held on dates (each a "Subsequent Closing Date") following
the First Closing Date, by execution of a supplement to the Agreement evidencing
the agreement of any such additional Purchaser to be bound by this Agreement and
the addition of such Purchaser's name, address, facsimile number, number of
Shares purchased and Purchase Price therefor to the Schedule of Purchasers.
WHEREAS, the Company has entered into a Supplement to Series A
Preferred Stock Purchase Agreement (the "First Supplement") dated as of January
7, 2000 (the "Second Closing Date") by and among the Company, Subsidiary, and
RSA Security Inc. and has thereby added RSA Security Inc. to the Schedule of
Purchasers.
WHEREAS, the Company desires to issue and sell additional Shares under
the Agreement to Ascent, and Ascent desires to purchase the Shares and become a
Purchaser under the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the Company, Subsidiary and Ascent
hereby agree as follows:
1. Upon and subject to the terms and conditions of the Agreement and in
reliance upon the representations, warranties and agreements contained therein,
as of the date of this Supplement the Company will issue and sell to Ascent, and
Ascent will purchase from the Company that number of Shares set forth opposite
Ascent's name on the attached revised Schedule of Purchasers.
2 Ascent agrees to be bound by the Agreement and shall be deemed a
"Purchaser" under the Agreement.
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3. Ascent further agrees to become a party to the Amended and Restated
Shareholders and Rights Agreement dated as of February 10, 2000 as a Series A
Shareholder thereunder (the "Shareholders Agreement").
4. Ascent acknowledges that immediately prior to this consummation of
the issuance and sale of Series A Preferred Stock to Ascent, the Company has
issued and sold 46,875 shares of its Series B Preferred Stock. As a condition to
Ascent's purchase of the Series A Preferred Stock and the Company's issuance and
sale thereof, Ascent has consented to the Company's issuance of such shares of
its Series B Preferred Stock and related warrants and waives, releases and
agrees not to enforce any right it may have as a holder of Series A Preferred
Stock to affect, restrict or hinder in any manner the Company's ability to issue
such Series B Preferred Stock and warrants on such terms and conditions as the
Company has deemed appropriate. This consent, waiver and release includes but is
not limited to Ascent's rights under Sections 8 of the Agreement, Section 4 of
the Shareholders Agreement and Section 7 of the Certificate of Designation of
the Series A Preferred Stock and its rights under Sections 7.5, 7.6, 7.8 and
7.11 of the Shareholders Agreement including but not limited to its rights to be
included in the registration statement for the Series B Preferred Stock
contemplated by the Series B Preferred Stock and Warrant Purchase Agreement
dated as of the date hereof.
5. Ascent further acknowledges and agrees that the Disclosure Schedule
to the Agreement will be deemed revised to disclose the issuance of the Series B
Preferred Stock and the terms and conditions of such issuance to the extent such
disclosure is necessary to make the Company's and Subsidiary's representations
and warranties under Section 3 of the Agreement true and correct as of the date
hereof.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered by their proper and duly authorized officers as of the day and
year first written above.
SOFTLOCK COM., INC.
By: __/S/ DOUGLAS R. JOHNSON ________________________________
Name: Douglas R. Johnson
Title: Executive Vice President and Chief Financial Officer
SOFTLOCK SERVICES., INC.
By: ____/S/ DOUGLAS R. JOHNSON ______________________________
Name: Douglas R. Johnson
Title: Executive Vice President and Chief Financial Officer
ASCENT VENTURE PARTNERS III, L.P.
By: ASCENT VENTURE MANAGEMENT III, LLC,
its General Partner
By:___/S/ LEIGH MICHL ____________________________
Name: Leigh E. Michl
Title: Manager
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Exhibit 99.7
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE
SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN JURISDICTION. THIS WARRANT
AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT CAN BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND IN THE ABSENCE OF COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS AND APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION, OR, IF THE CORPORATION SO REQUESTS, AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION, ACTING REASONABLY, THAT SUCH REGISTRATION IS
NOT REQUIRED AND SUCH FOREIGN JURISDICTION LAWS HAVE BEEN SATISFIED.
W-B1-0__- Dated: February 10, 2000
SOFTLOCK.COM, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY THAT, for value received, [NAME OF TUDOR ENTITY, RAM
ENTITY, APEX ENTITY OR SI ENTITY, AS APPLICABLE] (the "INITIAL WARRANT HOLDER")
and its successors and permitted assigns are entitled, subject to the terms and
conditions set forth below, to purchase from SOFTLOCK.COM, INC., a Delaware
corporation (the "Corporation"), at any time and from time to time after 9:00
A.M., Boston, Massachusetts time on the Initial Exercise Date (as defined in
Section 1 below) and on or prior to 5:00 P.M., Boston, Massachusetts time on the
Expiration Date (as defined in Section 1 below), all or any portion of the
Warrant Shares (as defined in Section 1 below), at a purchase price per share
equal to the Exercise Price (as defined in Section 1 below). The number and
character of the Warrant Shares and the Exercise Price are subject to adjustment
as provided herein.
This Common Stock Purchase Warrant (the "WARRANT") evidences the right
of the
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Holder to purchase shares of Common Stock issued by the Corporation to the
Purchasers (as defined in and pursuant to that certain Series B Preferred Stock
and Warrant Purchase Agreement, dated as of the date hereof (the "STOCK PURCHASE
AGREEMENT"), by and among the Corporation and the persons listed therein).
1. DEFINITIONS. As used in this Warrant, the following terms shall have
the respective meanings set forth below or elsewhere in this Warrant as referred
to below:
"CERTIFICATE OF INCORPORATION" shall mean the Amended and Restated
Certificate of Incorporation of the Corporation, as amended from time to time
and including, without limitation, the Certificate of Designation of Powers,
Preferences and Rights of the Series B Preferred Stock.
"COMMISSION" means the Securities and Exchange Commission or its
successor entity.
"COMMON STOCK" shall mean shares of the Common Stock of the
Corporation, $0.01 par value per share of the Corporation.
"CORPORATION" shall mean SoftLock.com, Inc. and/or any Person that
shall succeed to, or assume the obligations hereunder of, SoftLock.com, Inc.
"EXERCISE DATE" shall have the meaning set forth in Section 2.2 hereof.
"EXERCISE PRICE" shall mean, as of the Initial Exercise Date, the
Initial Exercise Price and after the Initial Exercise Date, the Initial Exercise
Price as adjusted from time to time pursuant to the terms of this Warrant.
"EXPIRATION DATE" shall mean February 10, 2005, unless terminated
earlier pursuant to Section 2.1(b) hereof.
"FAIR MARKET VALUE" shall mean (i) the last sale price per share of
Stock reported by Nasdaq SmallCap Market or any national securities exchange on
which such Stock is quoted or listed, as the case may be, on the date
immediately preceding the Exercise Date or, if no such sale price is reported on
such date, such price on the next preceding business day in which such price was
reported, or (ii) if such Stock is not at the time quoted or listed by Nasdaq
SmallCap Market or on any national securities exchange, the average of the last
reported bid and asked prices as reported by The National Quotation Bureau
Incorporated or any similar reputable quotation and reporting service on the
date immediately preceding the Exercise Date or if no such bid and asked prices
are reported on such date, such price on the next preceding business day on
which such prices were reported, provided such date is not more than ten (10)
days prior to the Exercise Date or (iii) if such Stock is not quoted or listed
by Nasdaq SmallCap Market or on any national securities exchange or reported on
a reputable quotation and reporting service within the ten (10) day period prior
to the Exercise
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Date, the fair market value of a share of such Stock, as determined in good
faith by the Board of Directors of the Corporation and based upon the fair
market value of the Corporation as a whole, on a going concern basis, using
customary and appropriate valuation methods and the unaudited financial
statements for the most recently ended fiscal quarter of the Corporation in
addition to the most recent fiscal year end audited financial statements of the
Corporation, in each case, as filed with the Commission and NOT taking into
account any discount for minority ownership or restrictions on transfer of the
capital stock of the Corporation.
"HOLDER" shall mean, as applicable, (i) the Initial Warrant Holder,
(ii) any successor of the Initial Warrant Holder, or (iii) any other holder of
record of this Warrant or any portion thereof to whom this Warrant or any
portion thereof shall have been transferred in accordance with the provisions of
Section 9 hereof.
"INITIAL EXERCISE DATE" shall mean the date on which this Warrant first
becomes exercisable in accordance with the provisions of Section 2.1(b) hereof.
"INITIAL EXERCISE PRICE" shall mean an amount equal to $0.90 per share.
"INITIAL WARRANT HOLDER" shall have the meaning set forth in the first
paragraph of this Warrant.
"INITIAL WARRANT SHARES" shall mean [__________] shares of Common
Stock.
"ISSUE DATE" shall mean the date hereof.
"PERSON" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"PREFERRED STOCK" shall mean the Series A Preferred Stock, the Series B
Preferred Stock and all other capital stock of the Corporation having a
preference on dissolution or liquidation of the Corporation.
"PURCHASER" shall have the meaning ascribed to it in the Stock Purchase
Agreement.
"QUALIFIED PUBLIC OFFERING" shall have the meaning ascribed to it in
the Stock Purchase Agreement.
"REGISTRABLE SECURITIES" shall mean all shares of Stock that may be
acquired by the Holder through any exchange or conversion of the Series B
Preferred Stock or upon exercise of this Warrant.
"REGISTRATION STATEMENT" means any registration statement of the
Corporation which covers any of the Registrable Securities pursuant to the
provisions of the Stock Purchase
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Agreement, including the prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such registration statement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" shall mean the Series A Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"SERIES B CERTIFICATE" shall mean the Certificate of Designation of
Powers, Preferences and Rights of the Series B Preferred Stock.
"SERIES B PREFERRED STOCK" shall mean the Series B Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"SHAREHOLDERS' AND RIGHTS AGREEMENT" shall mean that certain Amended
and Restated Shareholders' and Rights Agreement, dated as of the date hereof, by
and among the Corporation and the persons listed therein.
"STOCK" shall mean (i) Common Stock, (ii) capital stock of the
Corporation (other than Common Stock) or of any other Person or any other
securities of the Corporation or of any other Person that the Holder is entitled
to receive, or receives, upon exercise of this Warrant, in lieu of or in
addition to Common Stock, and/or (iii) capital stock of the Corporation (other
than Common Stock) or of any other Person or any other securities of the
Corporation or of any other Person that may be issued in replacement of,
substitution, exchange or redemption for, or upon reclassification or conversion
of, Common Stock or any other Stock, in each case whether as a result of a
reorganization, reclassification, merger, consolidation or sale of substantially
all of the assets of the Corporation.
"STOCK PURCHASE AGREEMENT" shall have the meaning set forth in the
second paragraph of this Warrant.
"WARRANT" shall have the meaning set forth in the second paragraph of
this Warrant.
"WARRANT SHARES" shall mean, at any time, the number and type of shares
of Stock purchasable hereunder, which shall be the Initial Warrant Shares after
giving effect to the number of shares of Stock previously purchased by the
Holder pursuant to any and all exercises of this Warrant prior to such time and
after giving effect to all adjustments with respect to the number and type of
Warrant Shares purchasable hereunder as provided for herein, including, without
limitation, those set forth in the definition of "Stock" and in Section 4
hereof, prior to such time.
2. EXERCISE OF WARRANT; VESTING.
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2.1(a) METHOD OF EXERCISE. Subject to and upon all of the terms
and conditions set forth in this Warrant (including the limitation set forth in
the next paragraph), the Holder may exercise this Warrant, in whole or in part
with respect to any Warrant Shares, at any time and from time to time during the
period commencing on the Initial Exercise Date and ending on the Expiration
Date, by giving prior written notice to the Corporation that the Holder intends
to exercise this Warrant (the "EXERCISE NOTICE"), which Exercise Notice shall
indicate the number of shares for which the Holder intends to exercise this
Warrant, and upon presentation and surrender of this Warrant to the Corporation
at its principal office, together with (a) a properly completed and duly
executed subscription form, in the form attached hereto, which subscription form
shall specify the number of Warrant Shares for which this Warrant is then being
exercised, and (b) payment of the aggregate Exercise Price payable hereunder in
respect of the number of Warrant Shares being purchased upon exercise of this
Warrant. Payment of such aggregate Exercise Price shall be made (i) in cash or
by money order, certified or bank cashier's check or wire transfer (in each case
in lawful currency of the United States of America), (ii) cancellation of
indebtedness owing from the Corporation to the Holder, (iii) by the Holder
surrendering a number of Warrant Shares having a Fair Market Value on the
Exercise Date equal to or greater than (but only if by a fractional share) the
required aggregate Exercise Price, in which case the Holder would receive the
number of Warrant Shares to which it would otherwise be entitled upon such
exercise, less the surrendered shares, or (iv) any combination of the methods
described in the foregoing clauses (i), (ii) and (iii).
2.1(b) VESTING SCHEDULE. This Warrant will become exercisable
in full on and as of 9:00 a.m. (Boston time) on August 15, 2000 ("INITIAL
EXERCISE DATE"); PROVIDED, HOWEVER, that if there is a Liquidity Event (as
defined below) before the Initial Exercise Date, this Warrant shall terminate
automatically and without further action. The term "LIQUIDITY EVENT" shall mean
the occurrence of both of the following events: (y) a Registration Statement
covering all of the Registrable Securities shall have been filed with the
Commission in compliance with the Securities Act and shall have been declared
effective by the Commission and (z) a listing application relating to the Common
Stock, including all of the Registrable Securities, shall have been filed with
NASDAQ and shall have been declared effective such that the Corporation's Common
Stock is listed for trading on the Nasdaq SmallCap Market.
2.2 EFFECTIVENESS OF EXERCISE; OWNERSHIP. Each exercise of
this Warrant by the Holder shall be deemed to have been effected immediately
prior to the close of business on the date upon which all of the requirements of
Section 2.1 hereof with respect to such exercise shall have been complied with
in full (each such date, an "EXERCISE DATE"). On the applicable Exercise Date
with respect to any exercise of this Warrant by the Holder, the Corporation
shall be deemed to have issued to the Holder, and the Holder shall be deemed to
have become the holder of record and legal owner of, the number of Warrant
Shares being purchased upon such exercise of this Warrant, notwithstanding that
the stock transfer books of the Corporation shall then be closed or that
certificates representing such number of Warrant Shares being purchased shall
not then be actually delivered to the Holder.
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2.3 DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as
practicable after the exercise of this Warrant, and in any event within ten (10)
days thereafter, the Corporation, at its expense, and in accordance with
applicable securities laws, will cause to be issued in the name of and delivered
to the Holder, or as the Holder may direct (subject in all cases, to the
provisions of Section 9 hereof), a certificate or certificates for the number of
Warrant Shares purchased by the Holder on such exercise, PLUS, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash equal to
such fraction multiplied by the Fair Market Value.
2.4 SHARES TO BE FULLY PAID AND NONASSESSABLE. All Warrant
Shares issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable, free of all liens, taxes, charges and other encumbrances
or restrictions on sale (other than those set forth herein) and free and clear
of all preemptive rights.
2.5 FRACTIONAL SHARES. No fractional shares of Stock or
scrip representing fractional shares of Stock shall be issued upon the exercise
of this Warrant. With respect to any fraction of a share of Stock called for
upon any exercise hereof, the Corporation shall make a cash payment to the
Holder as set forth in Section 2.3 hereof.
2.6 ISSUANCE OF NEW WARRANTS; CORPORATION ACKNOWLEDGMENT.
Upon any partial exercise of this Warrant, the Corporation, at its expense, will
forthwith and, in any event, within ten (10) days after partial exercise, issue
and deliver to the Holder a new warrant or warrants of like tenor, registered in
the name of the Holder, exercisable, in the aggregate, for the balance of the
Warrant Shares. Moreover, the Corporation shall, at the time of any exercise of
this Warrant, upon the request of the Holder, acknowledge in writing its
continuing obligation to afford to the Holder any rights to which the Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant; PROVIDED, HOWEVER, that if the Holder shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Corporation to afford to the Holder any such rights.
2.7 PAYMENT OF TAXES AND EXPENSES. The Corporation shall pay
any recording, filing, stamp or similar tax which may be payable in respect of
any transfer involved in the issuance of, and the preparation and delivery of
certificates (if applicable) representing, (i) any Warrant Shares purchased upon
exercise of this Warrant and/or (ii) new or replacement warrants in the Holder's
name or the name of any transferee. The Holder shall pay any transfer tax due as
a result of the transfer of all or any portion of this Warrant to a transferee.
2.8 EXPIRATION. This Warrant and the Holder's rights
hereunder, to the extent not previously exercised, shall expire as of 5:00 P.M.,
Boston, Massachusetts time, on the Expiration Date.
3. REGISTRATION AND OTHER RIGHTS. The Holder of this Warrant shall have
the right
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to cause the Corporation to register any and all Warrant Shares under the
Securities Act and under any blue sky or securities laws of any jurisdictions
within the United States, at the time and in the manner specified and as
provided for in the Stock Purchase Agreement.
4. ADJUSTMENTS.
4.1 ADJUSTMENTS FOR STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
(a) In the event that, at any time and from time to time
after the Issue Date, the Corporation shall (A) issue any additional shares of
Stock as a dividend or distribution on its outstanding Stock or options,
warrants or other rights to purchase, directly or indirectly, Stock as a
dividend or distribution on its outstanding Stock or securities convertible,
directly or indirectly, into Stock as a dividend or distribution on its
outstanding Stock (other than shares of Stock issued upon exchange, exercise or
conversion of the Preferred Stock or upon exercise of this Warrant), (B)
subdivide its outstanding shares of Stock into a greater number of shares of
Stock or (C) combine its outstanding shares of Stock into a smaller number of
shares of Stock, then and in each such event, (x) the Exercise Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
then current Exercise Price by a fraction, (i) the numerator of which shall be
the number of shares of Stock outstanding immediately prior to such event, and
(ii) the denominator of which shall be the number of shares of Stock outstanding
immediately after such event, each in accordance with their terms, and the
product so obtained shall thereafter be the Exercise Price then in effect, and
(y) the number of Warrant Shares shall be adjusted by increasing or decreasing,
as the case may be, the number of shares of Stock included within the Warrant
Shares immediately prior to such event by the percentage increase or decrease in
the total number of shares of Stock outstanding immediately after such event as
compared to the total number of shares of Stock outstanding immediately prior to
such event and the result so obtained shall be the number of Warrant Shares then
in effect.
(b) The Exercise Price and the number of Warrant Shares,
as so adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 4.1
4.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION OR MERGER. In the
event that, at any time or from time to time after the Issue Date, the
Corporation shall (a) effect a reorganization, (b) consolidate with or merge
into any other Person, or (c) sell or transfer all or substantially all of its
properties or assets or more than 50% of the voting capital stock of the
Corporation (whether issued and outstanding, newly issued, from treasury, or any
combination thereof) to any other Person under any plan or arrangement
contemplating the reorganization, consolidation or merger, sale or transfer, or
dissolution of the Corporation, then, in each such case, the Holder, upon the
exercise of this Warrant as provided in Section 2 hereof at any time or from
time to time after the consummation of such reorganization, consolidation,
merger or sale or the effective date of such dissolution (subject to the
limitation contained in Section 4.6, if applicable), as the case may be, shall
receive, in lieu of
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the Warrant Shares issuable on such exercise immediately prior to such
consummation or such effective date, as the case may be, the Stock and property
(including cash) to which the Holder would have been entitled upon the
consummation of such reorganization, consolidation or merger, or sale or
transfer, or in connection with such dissolution, as the case may be, if the
Holder had so exercised this Warrant immediately prior thereto (assuming the
payment by the Holder of the Exercise Price therefor as required hereby in a
form permitted hereby, which payment shall be included in the assets of the
Corporation for the purposes of determining the amount available for
distribution), all subject to successive adjustments thereafter from time to
time pursuant to, and in accordance with, the provisions of this Section 4.
4.3 ADJUSTMENTS FOR RECLASSIFICATIONS. If the Common Stock issuable
upon the conversion of this Warrant shall be changed into the same or a
different number of shares of any class(es) or series of stock, whether by
reclassification or otherwise (other than an adjustment under Section 4.1 or a
merger, consolidation, or sale of assets provided for under Section 4.2), then
and in each such event, the Holder hereof shall have the right thereafter to
convert each Warrant Share into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, or other change
by holders of the number of shares of Common Stock into which such Warrant
Shares would have been convertible immediately prior to such reclassification,
or change, all subject to further adjustment as provided herein.
4.4 DISTRIBUTIONS. In the event that, at any time or from time to time
after the Issue Date, the Corporation shall make or issue, or shall fix a record
date for the determination of eligible holders entitled to receive, a dividend
or other distribution with respect to Common Stock payable in (i) shares of its
capital stock (other than a stock dividend provided for in Section 4.1), (ii)
other securities of the Corporation or any other Person, (iii) evidences of
indebtedness issued by the Corporation or any other Person, (iv) options,
warrants or rights to subscribe for or purchase any of the foregoing, or (v)
assets (excluding cash dividends) then, in each such case, the Holder of this
Warrant shall receive, in addition to the shares of Stock issuable upon the
exercise of this Warrant prior to such date, and without the payment of
additional consideration therefor, the shares of capital stock, other
securities, evidence of indebtedness, options, warrants or other rights or
assets, as the case may be, to which such Holder would have been entitled upon
such date as if such Holder had exercised this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the date
of the actual exercise of this Warrant, retained such shares and/or all other
additional stock available to it as aforesaid during such period, giving effect
to all adjustments pursuant to this Section 4. The Corporation shall reserve and
set aside, for the life of this Warrant or until exercised in full, all such
distributions to which the Holder is entitled to receive pursuant to the this
Section 4.4.
4.5 CONTINUATION OF TERMS. Upon any reorganization, reclassification,
sale, consolidation, merger or other transfer (and any liquidation, dissolution
or winding up of the Corporation following any such transfer) referred to in
this Section 4, this Warrant shall
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continue in full force and effect and the terms hereof shall be applicable to
the shares of Stock and property (including cash, where applicable) receivable
upon the exercise of this Warrant after the consummation of such reorganization,
reclassification, sale, consolidation, merger or other transfer or the effective
date of liquidation, dissolution or winding up of the Corporation following any
such transfer, as the case may be, and shall be binding upon the issuer of any
such Stock, including, in the case of any such transfer, the Person acquiring
all or substantially all of the properties or assets or more than 50% of the
voting capital stock of the Corporation (whether issued and outstanding, newly
issued or from treasury or any combination thereof), whether or not such Person
shall have expressly assumed the terms of this Warrant.
4.6 DISSOLUTION. Subject to Section 4.5 hereof, in the event of any
dissolution of the Corporation following the transfer of all or substantially
all of its properties or assets at any time after the Issue Date, the
Corporation shall retain for a period of at least ninety (90) days after the
effective date of such dissolution the Stock and property (including cash, where
applicable) receivable by the Holder pursuant to Section 4.2 hereof upon
exercise of this Warrant at any time after the effective date of such
dissolution (assuming the payment by the Holder of the Exercise Price therefor
as required hereby in a form permitted hereby). If the Holder fails to exercise
this Warrant within the sixty (60) day period following the effective date of
such dissolution, then such Stock and property (including cash, where
applicable) shall be distributed PRO RATA to those Persons who were stockholders
of record of the Corporation on the effective date of such dissolution or as
otherwise required by law or the Certificate of Incorporation of the
Corporation.
5. OFFICER'S CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the number and kind of Warrant Shares, or
property, issuable hereunder from time to time, or the Exercise Price, the
Corporation, at its expense, will promptly cause an officer of the Corporation
to compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing the facts upon which such adjustment or readjustment is based. The
Corporation will forthwith send a copy of each such certificate to the Holder in
accordance with Section 10.5 below.
6. NOTICES OF RECORD DATE, ETC. In the event of:
(a) any taking by the Corporation of a record of the holders of Stock
for the purpose of determining the holders thereof who are entitled to receive
any shares of Stock as a dividend or other distribution or pursuant to a stock
split, or
(b) any reorganization of the Corporation, or any sale or transfer, in
a single transaction or a series of related transactions, of all or
substantially all the assets of the Corporation to, or the consolidation or
merger of the Corporation with or into, any other Person, or
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<PAGE>
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Corporation, or
(d) any sale, in a single transaction or a series of related
transactions, of more than fifty percent (50%) of the Corporation's voting
capital stock (whether issued and outstanding, newly issued, from treasury, or
any combination thereof), then and in each such event the Corporation will mail
or cause to be mailed to the Holder a notice specifying (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
stock split, and stating the amount and character of such dividend, distribution
or stock split, or (ii) the date on which any such reorganization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of any
one or more classes of Stock shall be entitled to exchange their shares of Stock
for securities or other property deliverable on such reorganization, transfer,
consolidation, merger, dissolution, liquidation or winding-up, or (iii) the date
on which any such sale of more than fifty percent (50%) of the Corporation's
voting capital stock is to take place and the material terms thereof , as the
case may be. Such notice shall be mailed at least ten (10) days prior to the
date specified in such notice on which any such action is to be taken.
7. EXCHANGE OF WARRANT. Subject to the provisions of Section 9 hereof
(if and to the extent applicable), this Warrant shall be exchangeable, upon the
surrender hereof by the Holder at the principal office of the Corporation, for
new warrants of like tenor, each registered in the name of the Holder or in the
name of such other Persons as the Holder may direct. Each of such new warrants
shall be exercisable for such number of Warrant Shares as the Holder shall
direct, PROVIDED that all of such new warrants shall represent, in the
aggregate, the right to purchase the same number of Warrant Shares and cash,
securities or other property, if any, which may be purchased by the Holder upon
exercise of this Warrant at the time of its surrender.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of a customary affidavit of the Holder and an indemnity
agreement or, in the case of any such mutilation, on surrender and cancellation
of this Warrant, the Corporation at its expense will execute and deliver, in
lieu thereof, a new warrant of like tenor.
9. TRANSFER PROVISIONS, ETC.
9.1 LEGENDS.
(a) Each certificate representing any Warrant Shares
issued upon exercise of this Warrant shall bear the following legend:
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<PAGE>
"THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE TRANSFERRED ONLY PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED."
(b) Each certificate representing any shares of Stock issued
from time to time upon exercise of this Warrant shall also bear any legend
required under any applicable state securities or blue sky laws.
9.2 MECHANICS OF TRANSFER. Any transfer of all or any portion of this
Warrant, or of any interest therein, that is otherwise in compliance with
applicable law shall be effected by surrendering this Warrant to the Corporation
at its principal office, together with (i) a duly executed form of assignment,
in the form attached hereto, (ii) payment of any applicable transfer taxes and
(iii) unless there is in effect a registration statement under the Securities
Act covering the proposed transfer or the proposed transfer is to Affiliates or
Affiliated Groups (as such terms are defined in the Stock Purchase Agreement) of
the Holder, if the Corporation so requests (except in transactions in compliance
with Rule 144) a written opinion of legal counsel reasonably satisfactory to the
Corporation addressed to the Corporation and satisfactory in form and substance
to the Corporation's counsel, acting reasonably, to the effect that the proposed
transfer of the Warrant or the Warrant Shares may be effected without
registration under the Securities Act. In the event of any such transfer of this
Warrant, in whole, the Corporation shall issue a new warrant of like tenor to
the transferee, representing the right to purchase the same number of Warrant
Shares, and cash, securities or other property, if any, which were purchasable
by the Holder upon exercise of this Warrant at the time of its transfer. In the
event of any such transfer of any portion of this Warrant, (i) the Corporation
shall issue a new warrant of like tenor to the transferee, representing the
right to purchase the same number of Warrant Shares, and cash, securities or
other property, if any, which were purchasable by the Holder upon exercise of
the transferred portion of this Warrant at the time of such transfer, and (ii)
the Corporation shall issue a new warrant of like tenor to the Holder,
representing the right to purchase the number of Warrant Shares, and cash,
securities or other property, if any, purchasable by the Holder upon exercise of
the portion of this Warrant not transferred to such transferee. Until this
Warrant or any portion thereof is transferred on the books of the Corporation,
the Corporation may treat the Holder as the absolute holder of this Warrant and
all right, title and interest therein for all purposes, notwithstanding any
notice to the contrary.
9.3. RESTRICTIONS ON TRANSFER. Subject to Section 9.2 hereof and
compliance with applicable securities laws, this Warrant, and any portion
hereof, and the Warrant Shares may be transferred by the Holder in its sole
discretion at any time and to any Person, including without limitation transfers
to Affiliates or Affiliated Groups (as such terms are defined in
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<PAGE>
the Stock Purchase Agreement), without the consent of the Corporation.
10. GENERAL.
10.1 STATEMENT ON WARRANT. Irrespective of any adjustments in the
Exercise Price or the number or kind of Warrant Shares, this Warrant may
continue to express the same kind of Warrant Shares as are stated on the front
page hereof.
10.2 AUTHORIZED SHARES; RESERVATION OF SHARES FOR ISSUANCE. At all
times while this Warrant is outstanding, the Corporation shall maintain its
corporate authority to issue, and shall have authorized and reserved for
issuance upon exercise of this Warrant, such number of shares of Stock as shall
be sufficient to perform its obligations under this Warrant (after giving effect
to any and all adjustments to the number and kind of Warrant Shares purchasable
upon exercise of this Warrant).
10.3 NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, sale or
other transfer of any of its assets or properties, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder hereunder against
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of Stock receivable upon the
exercise of this Warrant above the amount payable therefor on such exercise, and
(b) will take all action that may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Stock on the exercise of this Warrant.
10.4 NO RIGHTS AS STOCKHOLDER. The Holder shall not be entitled to vote
or to receive dividends or to be deemed the holder of Stock that may at any time
be issuable upon exercise of this Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holder any of the
rights of a stockholder of the Corporation until the Holder shall have exercised
this Warrant and been issued Warrant Shares in accordance with the provisions
hereof.
10.5 NOTICES. All notices, demands, requests, certificates or other
communications under this Warrant shall be in writing and shall be either mailed
by certified mail, postage prepaid, in which case such notice, demand, request,
certificate or other communications shall be deemed to have been given three (3)
days after the date on which it is first deposited in the mails, or hand
delivered or sent by facsimile transmission, by tested or otherwise
authenticated telex or cable or by private expedited courier for overnight
delivery with signature required, in each such case, such notice, demand,
request, certificate or other communications being deemed to have been given
upon delivery or receipt, as the case may be:
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<PAGE>
(i) if to the Corporation, SoftLock.com, Inc., Five Clock Tower Place,
Suite 440, Maynard, Massachusetts 01754, Attention: President, or at such other
address as the Corporation may have furnished in writing to the Holder; and
(ii) if to the Holder, at the Holder's address appearing in the books
maintained by the Corporation.
10.6 AMENDMENT AND WAIVER. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and only
with) the written consent of the Corporation and the Holder.
10.7 GOVERNING LAW. This Warrant shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
10.8 COVENANTS TO BIND SUCCESSOR AND ASSIGNS. All covenants,
stipulations, promises and agreements in this Warrant shall be binding on and
inure to the benefit of the Corporation and the Holder and their respective
successors, assigns and transferees, whether so expressed or not.
10.9 SEVERABILITY. In case any one or more of the provisions contained
in this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
10.10 CONSTRUCTION. The definitions of this Warrant shall apply equally
to both the singular and the plural forms of the terms defined. Wherever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The section and paragraph headings used herein are
for convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
10.11 REMEDIES. The Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Corporation agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby agrees
to waive the defense in any action for specific performance
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<PAGE>
that a remedy at law would be adequate. In any action or proceeding brought to
enforce any provision of this Warrant or where any provision hereof is validly
asserted as a defense, the successful party to such action or proceeding shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
10.12 COUNTERPARTS; DELIVERY BY FACSIMILE. This Warrant may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. Delivery of this
Warrant may be effected by facsimile.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Common Stock
Purchase Warrant to be executed as an instrument under seal in its corporate
name by one of its officers thereunto duly authorized, all as of the day and
year first above written.
SOFTLOCK.COM, INC.
[Corporate Seal]
By:__________________________
Name:
Title:
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<PAGE>
FORM OF SUBSCRIPTION
(To be executed upon exercise of Warrant)
To: SOFTLOCK.COM, INC.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant for, and to exercise thereunder,
_______ shares of Common Stock, $0.001 par value per share ("COMMON STOCK"), of
SoftLock.com, Inc., a Delaware corporation, and tenders herewith payment of
$__________, representing the aggregate purchase price for such shares based on
the price per share provided for in such Warrant. Such payment is being made in
accordance with [Section 2.1(a)(i)] [Section 2.1(a)(ii)] [Section 2.1(a)(iii)]
of the attached Warrant.
Please issue a certificate or certificates for such shares of Common
Stock in the following name or names and denominations and deliver such
certificate or certificates to the person or persons listed below at their
respective addresses set forth below:
Dated:
--------------- ------------------------------
------------------------------
(Address)
If said number of shares of Common Stock shall not be all the shares of
Common Stock issuable upon exercise of the attached Warrant, a new Warrant is to
be issued in the name of the undersigned for the balance remaining of such
shares of Common Stock less any fraction of a share of Common Stock paid in
cash.
Dated: ____________, 19__ ------------------------------------
NOTE: The above signature should
correspond exactly with the name on
the face of the attached Warrant or
with the name of the assignee
appearing in the assignment form
below.
FORM OF ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _____________________________________ hereby sells,
assigns and transfers unto _________________ the attached Warrant [__% of the
attached
<PAGE>
Warrant], together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint ___________________________ attorney to
transfer said Warrant [said percentage of said Warrant] on the books of
SoftLock.com, Inc., a Delaware corporation, with full power of substitution in
the premises.
If not all of the attached Warrant is to be so transferred, a new
Warrant is to be issued in the name of the undersigned for the balance of said
Warrant.
Dated: ____________, 19__
--------------------------------------------
NOTE:The above signature should correspond
exactly with the name on the face of the
attached Warrant.
<PAGE>
Exhibit 99.8
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE
SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN JURISDICTION. THIS WARRANT
AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND NEITHER THIS
WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT CAN BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND IN THE ABSENCE OF COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS AND APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION, OR, IF THE CORPORATION SO REQUESTS, AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION, ACTING REASONABLY, THAT SUCH REGISTRATION IS
NOT REQUIRED AND SUCH FOREIGN JURISDICTION LAWS HAVE BEEN SATISFIED.
W-B1-0__- Dated: February ___, 2000
SOFTLOCK.COM, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY THAT, for value received, [NAME OF TUDOR ENTITY, RAM
ENTITY, APEX ENTITY OR SI ENTITY, AS APPLICABLE] (the "INITIAL WARRANT HOLDER")
and its successors and permitted assigns are entitled, subject to the terms and
conditions set forth below, to purchase from SOFTLOCK.COM, INC., a Delaware
corporation (the "CORPORATION"), at any time and from time to time after 9:00
A.M., Boston, Massachusetts time on the Initial Exercise Date (as defined in
Section 1 below) and on or prior to 5:00 P.M., Boston, Massachusetts time on the
Expiration Date (as defined in Section 1 below), all or any portion of the
Warrant Shares (as defined in Section 1 below), at a purchase price per share
equal to the Exercise Price (as defined in Section 1 below). The number and
character of the Warrant Shares and the Exercise Price are subject to adjustment
as provided herein.
This Common Stock Purchase Warrant (the "WARRANT") evidences the right
of the
<PAGE>
Holder to purchase shares of Common Stock issued by the Corporation to the
Purchasers (as defined in and pursuant to that certain Series B Preferred Stock
and Warrant Purchase Agreement, dated as of the date hereof (the "STOCK PURCHASE
AGREEMENT"), by and among the Corporation and the persons listed therein).
1. DEFINITIONS. As used in this Warrant, the following terms shall have
the respective meanings set forth below or elsewhere in this Warrant as referred
to below:
"CERTIFICATE OF INCORPORATION" shall mean the Amended and Restated
Certificate of Incorporation of the Corporation, as amended from time to time
and including, without limitation, the Certificate of Designation of Powers,
Preferences and Rights of the Series B Preferred Stock.
"COMMISSION" means the Securities and Exchange Commission or its
successor entity.
"COMMON STOCK" shall mean shares of the Common Stock of the
Corporation, $0.01 par value per share of the Corporation.
"CORPORATION" shall mean SoftLock.com, Inc. and/or any Person that
shall succeed to, or assume the obligations hereunder of, SoftLock.com, Inc.
"EXERCISE DATE" shall have the meaning set forth in Section 2.2 hereof.
"EXERCISE PRICE" shall mean, as of the Initial Exercise Date, the
Initial Exercise Price and after the Initial Exercise Date, the Initial Exercise
Price as adjusted from time to time pursuant to the terms of this Warrant.
"EXPIRATION DATE" shall mean February __, 2005, unless terminated
earlier pursuant to Section 2.1(b) hereof.
"FAIR MARKET VALUE" shall mean (i) the last sale price per share of
Stock reported by Nasdaq SmallCap Market or any national securities exchange on
which such Stock is quoted or listed, as the case may be, on the date
immediately preceding the Exercise Date or, if no such sale price is reported on
such date, such price on the next preceding business day in which such price was
reported, or (ii) if such Stock is not at the time quoted or listed by Nasdaq
SmallCap Market or on any national securities exchange, the average of the last
reported bid and asked prices as reported by The National Quotation Bureau
Incorporated or any similar reputable quotation and reporting service on the
date immediately preceding the Exercise Date or if no such bid and asked prices
are reported on such date, such price on the next preceding business day on
which such prices were reported, provided such date is not more than ten (10)
days prior to the Exercise Date or (iii) if such Stock is not quoted or listed
by Nasdaq SmallCap Market or on any national securities exchange or reported on
a reputable quotation and reporting service within the ten (10) day period prior
to the Exercise Date, the fair market value of a share of such Stock, as
determined in good faith by the Board
<PAGE>
of Directors of the Corporation and based upon the fair market value of the
Corporation as a whole, on a going concern basis, using customary and
appropriate valuation methods and the unaudited financial statements for the
most recently ended fiscal quarter of the Corporation in addition to the most
recent fiscal year end audited financial statements of the Corporation, in each
case, as filed with the Commission and NOT taking into account any discount for
minority ownership or restrictions on transfer of the capital stock of the
Corporation.
"HOLDER" shall mean, as applicable, (i) the Initial Warrant Holder,
(ii) any successor of the Initial Warrant Holder, or (iii) any other holder of
record of this Warrant or any portion thereof to whom this Warrant or any
portion thereof shall have been transferred in accordance with the provisions of
Section 9 hereof.
"INITIAL EXERCISE DATE" shall mean the date on which this Warrant first
becomes exercisable in accordance with the provisions of Section 2.1(b) hereof.
"INITIAL EXERCISE PRICE" shall mean an amount equal to $0.90 per share.
"INITIAL WARRANT HOLDER" shall have the meaning set forth in the first
paragraph of this Warrant.
"INITIAL WARRANT SHARES" shall mean [__________] shares of Common
Stock.
"ISSUE DATE" shall mean the date hereof.
"PERSON" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"PREFERRED STOCK" shall mean the Series A Preferred Stock, the Series B
Preferred Stock and all other capital stock of the Corporation having a
preference on dissolution or liquidation of the Corporation.
"PURCHASER" shall have the meaning ascribed to it in the Stock Purchase
Agreement.
"QUALIFIED PUBLIC OFFERING" shall have the meaning ascribed to it in
the Stock Purchase Agreement.
"REGISTRABLE SECURITIES" shall mean all shares of Stock that may be
acquired by the Holder through any exchange or conversion of the Series B
Preferred Stock or upon exercise of this Warrant.
"REGISTRATION STATEMENT" means any registration statement of the
Corporation which covers any of the Registrable Securities pursuant to the
provisions of the Stock Purchase Agreement, including the prospectus, amendments
and supplements to such registration
<PAGE>
statement, including post-effective amendments, all exhibits and all material
incorporated by reference in such registration statement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" shall mean the Series A Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"SERIES B CERTIFICATE" shall mean the Certificate of Designation of
Powers, Preferences and Rights of the Series B Preferred Stock.
"SERIES B PREFERRED STOCK" shall mean the Series B Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"SHAREHOLDERS' AND RIGHTS AGREEMENT" shall mean that certain Amended
and Restated Shareholders' and Rights Agreement, dated as of the date hereof, by
and among the Corporation and the persons listed therein.
"STOCK" shall mean (i) Common Stock, (ii) capital stock of the
Corporation (other than Common Stock) or of any other Person or any other
securities of the Corporation or of any other Person that the Holder is entitled
to receive, or receives, upon exercise of this Warrant, in lieu of or in
addition to Common Stock, and/or (iii) capital stock of the Corporation (other
than Common Stock) or of any other Person or any other securities of the
Corporation or of any other Person that may be issued in replacement of,
substitution, exchange or redemption for, or upon reclassification or conversion
of, Common Stock or any other Stock, in each case whether as a result of a
reorganization, reclassification, merger, consolidation or sale of substantially
all of the assets of the Corporation.
"STOCK PURCHASE AGREEMENT" shall have the meaning set forth in the
second paragraph of this Warrant.
"WARRANT" shall have the meaning set forth in the second paragraph of
this Warrant.
"WARRANT SHARES" shall mean, at any time, the number and type of shares
of Stock purchasable hereunder, which shall be the Initial Warrant Shares after
giving effect to the number of shares of Stock previously purchased by the
Holder pursuant to any and all exercises of this Warrant prior to such time and
after giving effect to all adjustments with respect to the number and type of
Warrant Shares purchasable hereunder as provided for herein, including, without
limitation, those set forth in the definition of "Stock" and in Section 4
hereof, prior to such time.
2. EXERCISE OF WARRANT; VESTING.
2.1(a) METHOD OF EXERCISE. Subject to and upon all of the
terms and conditions set forth in this Warrant (including the limitation set
forth in the next paragraph),
<PAGE>
the Holder may exercise this Warrant, in whole or in part with respect to any
Warrant Shares, at any time and from time to time during the period commencing
on the Initial Exercise Date and ending on the Expiration Date, by giving prior
written notice to the Corporation that the Holder intends to exercise this
Warrant (the "EXERCISE NOTICE"), which Exercise Notice shall indicate the number
of shares for which the Holder intends to exercise this Warrant, and upon
presentation and surrender of this Warrant to the Corporation at its principal
office, together with (a) a properly completed and duly executed subscription
form, in the form attached hereto, which subscription form shall specify the
number of Warrant Shares for which this Warrant is then being exercised, and (b)
payment of the aggregate Exercise Price payable hereunder in respect of the
number of Warrant Shares being purchased upon exercise of this Warrant. Payment
of such aggregate Exercise Price shall be made (i) in cash or by money order,
certified or bank cashier's check or wire transfer (in each case in lawful
currency of the United States of America), (ii) cancellation of indebtedness
owing from the Corporation to the Holder, (iii) by the Holder surrendering a
number of Warrant Shares having a Fair Market Value on the Exercise Date equal
to or greater than (but only if by a fractional share) the required aggregate
Exercise Price, in which case the Holder would receive the number of Warrant
Shares to which it would otherwise be entitled upon such exercise, less the
surrendered shares, or (iv) any combination of the methods described in the
foregoing clauses (i), (ii) and (iii).
2.1(b) VESTING SCHEDULE. This Warrant will become exercisable
in full on and as of 9:00 a.m. (Boston time) on November 15, 2000 ("INITIAL
EXERCISE DATE"); PROVIDED, HOWEVER, that if there is a Liquidity Event (as
defined below) before the Initial Exercise Date, this Warrant shall terminate
automatically and without further action. The term "LIQUIDITY EVENT" shall mean
the occurrence of both of the following events: (y) a Registration Statement
covering all of the Registrable Securities shall have been filed with the
Commission in compliance with the Securities Act and shall have been declared
effective by the Commission and (z) a listing application relating to the Common
Stock, including all of the Registrable Securities, shall have been filed with
NASDAQ and shall have been declared effective such that the Corporation's Common
Stock is listed for trading on the Nasdaq SmallCap Market.
2.2 EFFECTIVENESS OF EXERCISE; OWNERSHIP. Each exercise of
this Warrant by the Holder shall be deemed to have been effected immediately
prior to the close of business on the date upon which all of the requirements of
Section 2.1 hereof with respect to such exercise shall have been complied with
in full (each such date, an "EXERCISE DATE"). On the applicable Exercise Date
with respect to any exercise of this Warrant by the Holder, the Corporation
shall be deemed to have issued to the Holder, and the Holder shall be deemed to
have become the holder of record and legal owner of, the number of Warrant
Shares being purchased upon such exercise of this Warrant, notwithstanding that
the stock transfer books of the Corporation shall then be closed or that
certificates representing such number of Warrant Shares being purchased shall
not then be actually delivered to the Holder.
2.3 DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as
practicable
<PAGE>
after the exercise of this Warrant, and in any event within ten (10) days
thereafter, the Corporation, at its expense, and in accordance with applicable
securities laws, will cause to be issued in the name of and delivered to the
Holder, or as the Holder may direct (subject in all cases, to the provisions of
Section 9 hereof), a certificate or certificates for the number of Warrant
Shares purchased by the Holder on such exercise, PLUS, in lieu of any fractional
share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the Fair Market Value.
2.4 SHARES TO BE FULLY PAID AND NONASSESSABLE. All Warrant
Shares issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable, free of all liens, taxes, charges and other encumbrances
or restrictions on sale (other than those set forth herein) and free and clear
of all preemptive rights.
2.5 FRACTIONAL SHARES. No fractional shares of Stock or scrip
representing fractional shares of Stock shall be issued upon the exercise of
this Warrant. With respect to any fraction of a share of Stock called for upon
any exercise hereof, the Corporation shall make a cash payment to the Holder as
set forth in Section 2.3 hereof.
2.6 ISSUANCE OF NEW WARRANTS; CORPORATION ACKNOWLEDGMENT. Upon
any partial exercise of this Warrant, the Corporation, at its expense, will
forthwith and, in any event, within ten (10) days after partial exercise, issue
and deliver to the Holder a new warrant or warrants of like tenor, registered in
the name of the Holder, exercisable, in the aggregate, for the balance of the
Warrant Shares. Moreover, the Corporation shall, at the time of any exercise of
this Warrant, upon the request of the Holder, acknowledge in writing its
continuing obligation to afford to the Holder any rights to which the Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant; PROVIDED, HOWEVER, that if the Holder shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Corporation to afford to the Holder any such rights.
2.7 PAYMENT OF TAXES AND EXPENSES. The Corporation shall pay
any recording, filing, stamp or similar tax which may be payable in respect of
any transfer involved in the issuance of, and the preparation and delivery of
certificates (if applicable) representing, (i) any Warrant Shares purchased upon
exercise of this Warrant and/or (ii) new or replacement warrants in the Holder's
name or the name of any transferee. The Holder shall pay any transfer tax due as
a result of the transfer of all or any portion of this Warrant to a transferee.
2.8 EXPIRATION. This Warrant and the Holder's rights
hereunder, to the extent not previously exercised, shall expire as of 5:00 P.M.,
Boston, Massachusetts time, on the Expiration Date.
3. REGISTRATION AND OTHER RIGHTS. The Holder of this Warrant shall have
the right to cause the Corporation to register any and all Warrant Shares under
the Securities Act and under any blue sky or securities laws of any
jurisdictions within the United States, at the time
<PAGE>
and in the manner specified and as provided for in the Stock Purchase Agreement.
4. ADJUSTMENTS.
4.1 ADJUSTMENTS FOR STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
(a) In the event that, at any time and from time to time after
the Issue Date, the Corporation shall (A) issue any additional shares of Stock
as a dividend or distribution on its outstanding Stock or options, warrants or
other rights to purchase, directly or indirectly, Stock as a dividend or
distribution on its outstanding Stock or securities convertible, directly or
indirectly, into Stock as a dividend or distribution on its outstanding Stock
(other than shares of Stock issued upon exchange, exercise or conversion of the
Preferred Stock or upon exercise of this Warrant), (B) subdivide its outstanding
shares of Stock into a greater number of shares of Stock or (C) combine its
outstanding shares of Stock into a smaller number of shares of Stock, then and
in each such event, (x) the Exercise Price shall, simultaneously with the
happening of such event, be adjusted by multiplying the then current Exercise
Price by a fraction, (i) the numerator of which shall be the number of shares of
Stock outstanding immediately prior to such event, and (ii) the denominator of
which shall be the number of shares of Stock outstanding immediately after such
event, each in accordance with their terms, and the product so obtained shall
thereafter be the Exercise Price then in effect, and (y) the number of Warrant
Shares shall be adjusted by increasing or decreasing, as the case may be, the
number of shares of Stock included within the Warrant Shares immediately prior
to such event by the percentage increase or decrease in the total number of
shares of Stock outstanding immediately after such event as compared to the
total number of shares of Stock outstanding immediately prior to such event and
the result so obtained shall be the number of Warrant Shares then in effect.
(b) The Exercise Price and the number of Warrant Shares, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 4.1
4.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION OR MERGER. In the
event that, at any time or from time to time after the Issue Date, the
Corporation shall (a) effect a reorganization, (b) consolidate with or merge
into any other Person, or (c) sell or transfer all or substantially all of its
properties or assets or more than 50% of the voting capital stock of the
Corporation (whether issued and outstanding, newly issued, from treasury, or any
combination thereof) to any other Person under any plan or arrangement
contemplating the reorganization, consolidation or merger, sale or transfer, or
dissolution of the Corporation, then, in each such case, the Holder, upon the
exercise of this Warrant as provided in Section 2 hereof at any time or from
time to time after the consummation of such reorganization, consolidation,
merger or sale or the effective date of such dissolution (subject to the
limitation contained in Section 4.6, if applicable), as the case may be, shall
receive, in lieu of the Warrant Shares issuable on such exercise immediately
prior to such consummation or such effective date, as the case may be, the Stock
and property (including cash) to which the
<PAGE>
Holder would have been entitled upon the consummation of such reorganization,
consolidation or merger, or sale or transfer, or in connection with such
dissolution, as the case may be, if the Holder had so exercised this Warrant
immediately prior thereto (assuming the payment by the Holder of the Exercise
Price therefor as required hereby in a form permitted hereby, which payment
shall be included in the assets of the Corporation for the purposes of
determining the amount available for distribution), all subject to successive
adjustments thereafter from time to time pursuant to, and in accordance with,
the provisions of this Section 4.
4.3 ADJUSTMENTS FOR RECLASSIFICATIONS. If the Common Stock issuable
upon the conversion of this Warrant shall be changed into the same or a
different number of shares of any class(es) or series of stock, whether by
reclassification or otherwise (other than an adjustment under Section 4.1 or a
merger, consolidation, or sale of assets provided for under Section 4.2), then
and in each such event, the Holder hereof shall have the right thereafter to
convert each Warrant Share into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, or other change
by holders of the number of shares of Common Stock into which such Warrant
Shares would have been convertible immediately prior to such reclassification,
or change, all subject to further adjustment as provided herein.
4.4 DISTRIBUTIONS. In the event that, at any time or from time to time
after the Issue Date, the Corporation shall make or issue, or shall fix a record
date for the determination of eligible holders entitled to receive, a dividend
or other distribution with respect to Common Stock payable in (i) shares of its
capital stock (other than a stock dividend provided for in Section 4.1), (ii)
other securities of the Corporation or any other Person, (iii) evidences of
indebtedness issued by the Corporation or any other Person, (iv) options,
warrants or rights to subscribe for or purchase any of the foregoing, or (v)
assets (excluding cash dividends) then, in each such case, the Holder of this
Warrant shall receive, in addition to the shares of Stock issuable upon the
exercise of this Warrant prior to such date, and without the payment of
additional consideration therefor, the shares of capital stock, other
securities, evidence of indebtedness, options, warrants or other rights or
assets, as the case may be, to which such Holder would have been entitled upon
such date as if such Holder had exercised this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the date
of the actual exercise of this Warrant, retained such shares and/or all other
additional stock available to it as aforesaid during such period, giving effect
to all adjustments pursuant to this Section 4. The Corporation shall reserve and
set aside, for the life of this Warrant or until exercised in full, all such
distributions to which the Holder is entitled to receive pursuant to the this
Section 4.4.
4.5 CONTINUATION OF TERMS. Upon any reorganization, reclassification,
sale, consolidation, merger or other transfer (and any liquidation, dissolution
or winding up of the Corporation following any such transfer) referred to in
this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of Stock and property (including
cash, where applicable) receivable upon the exercise of this
<PAGE>
Warrant after the consummation of such reorganization, reclassification, sale,
consolidation, merger or other transfer or the effective date of liquidation,
dissolution or winding up of the Corporation following any such transfer, as the
case may be, and shall be binding upon the issuer of any such Stock, including,
in the case of any such transfer, the Person acquiring all or substantially all
of the properties or assets or more than 50% of the voting capital stock of the
Corporation (whether issued and outstanding, newly issued or from treasury or
any combination thereof), whether or not such Person shall have expressly
assumed the terms of this Warrant.
4.6 DISSOLUTION. Subject to Section 4.5 hereof, in the event of any
dissolution of the Corporation following the transfer of all or substantially
all of its properties or assets at any time after the Issue Date, the
Corporation shall retain for a period of at least ninety (90) days after the
effective date of such dissolution the Stock and property (including cash, where
applicable) receivable by the Holder pursuant to Section 4.2 hereof upon
exercise of this Warrant at any time after the effective date of such
dissolution (assuming the payment by the Holder of the Exercise Price therefor
as required hereby in a form permitted hereby). If the Holder fails to exercise
this Warrant within the sixty (60) day period following the effective date of
such dissolution, then such Stock and property (including cash, where
applicable) shall be distributed PRO RATA to those Persons who were stockholders
of record of the Corporation on the effective date of such dissolution or as
otherwise required by law or the Certificate of Incorporation of the
Corporation.
5. OFFICER'S CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the number and kind of Warrant Shares, or
property, issuable hereunder from time to time, or the Exercise Price, the
Corporation, at its expense, will promptly cause an officer of the Corporation
to compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing the facts upon which such adjustment or readjustment is based. The
Corporation will forthwith send a copy of each such certificate to the Holder in
accordance with Section 10.5 below.
6. NOTICES OF RECORD DATE, ETC. In the event of:
(a) any taking by the Corporation of a record of the holders of Stock
for the purpose of determining the holders thereof who are entitled to receive
any shares of Stock as a dividend or other distribution or pursuant to a stock
split, or
(b) any reorganization of the Corporation, or any sale or transfer, in
a single transaction or a series of related transactions, of all or
substantially all the assets of the Corporation to, or the consolidation or
merger of the Corporation with or into, any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Corporation, or
<PAGE>
(d) any sale, in a single transaction or a series of related
transactions, of more than fifty percent (50%) of the Corporation's voting
capital stock (whether issued and outstanding, newly issued, from treasury, or
any combination thereof),
then and in each such event the Corporation will mail or cause to be mailed to
the Holder a notice specifying (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or stock split, and stating
the amount and character of such dividend, distribution or stock split, or (ii)
the date on which any such reorganization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of any one or more classes of
Stock shall be entitled to exchange their shares of Stock for securities or
other property deliverable on such reorganization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, or (iii) the date on which any
such sale of more than fifty percent (50%) of the Corporation's voting capital
stock is to take place and the material terms thereof , as the case may be. Such
notice shall be mailed at least ten (10) days prior to the date specified in
such notice on which any such action is to be taken.
7. EXCHANGE OF WARRANT. Subject to the provisions of Section 9 hereof
(if and to the extent applicable), this Warrant shall be exchangeable, upon the
surrender hereof by the Holder at the principal office of the Corporation, for
new warrants of like tenor, each registered in the name of the Holder or in the
name of such other Persons as the Holder may direct. Each of such new warrants
shall be exercisable for such number of Warrant Shares as the Holder shall
direct, PROVIDED that all of such new warrants shall represent, in the
aggregate, the right to purchase the same number of Warrant Shares and cash,
securities or other property, if any, which may be purchased by the Holder upon
exercise of this Warrant at the time of its surrender.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of a customary affidavit of the Holder and an indemnity
agreement or, in the case of any such mutilation, on surrender and cancellation
of this Warrant, the Corporation at its expense will execute and deliver, in
lieu thereof, a new warrant of like tenor.
9. TRANSFER PROVISIONS, ETC.
9.1 LEGENDS.
(a) Each certificate representing any Warrant Shares issued
upon exercise of this Warrant shall bear the following legend:
"THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE
<PAGE>
TRANSFERRED ONLY PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IN
ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED."
(b) Each certificate representing any shares of Stock issued
from time to time upon exercise of this Warrant shall also bear any legend
required under any applicable state securities or blue sky laws.
9.2 MECHANICS OF TRANSFER. Any transfer of all or any portion of this
Warrant, or of any interest therein, that is otherwise in compliance with
applicable law shall be effected by surrendering this Warrant to the Corporation
at its principal office, together with (i) a duly executed form of assignment,
in the form attached hereto, (ii) payment of any applicable transfer taxes and
(iii) unless there is in effect a registration statement under the Securities
Act covering the proposed transfer or the proposed transfer is to Affiliates or
Affiliated Groups (as such terms are defined in the Stock Purchase Agreement) of
the Holder, if the Corporation so requests (except in transactions in compliance
with Rule 144) a written opinion of legal counsel reasonably satisfactory to the
Corporation addressed to the Corporation and satisfactory in form and substance
to the Corporation's counsel, acting reasonably, to the effect that the proposed
transfer of the Warrant or the Warrant Shares may be effected without
registration under the Securities Act. In the event of any such transfer of this
Warrant, in whole, the Corporation shall issue a new warrant of like tenor to
the transferee, representing the right to purchase the same number of Warrant
Shares, and cash, securities or other property, if any, which were purchasable
by the Holder upon exercise of this Warrant at the time of its transfer. In the
event of any such transfer of any portion of this Warrant, (i) the Corporation
shall issue a new warrant of like tenor to the transferee, representing the
right to purchase the same number of Warrant Shares, and cash, securities or
other property, if any, which were purchasable by the Holder upon exercise of
the transferred portion of this Warrant at the time of such transfer, and (ii)
the Corporation shall issue a new warrant of like tenor to the Holder,
representing the right to purchase the number of Warrant Shares, and cash,
securities or other property, if any, purchasable by the Holder upon exercise of
the portion of this Warrant not transferred to such transferee. Until this
Warrant or any portion thereof is transferred on the books of the Corporation,
the Corporation may treat the Holder as the absolute holder of this Warrant and
all right, title and interest therein for all purposes, notwithstanding any
notice to the contrary.
9.3. RESTRICTIONS ON TRANSFER. Subject to Section 9.2 hereof and
compliance with applicable securities laws, this Warrant, and any portion
hereof, and the Warrant Shares may be transferred by the Holder in its sole
discretion at any time and to any Person, including without limitation transfers
to Affiliates or Affiliated Groups (as such terms are defined in the Stock
Purchase Agreement), without the consent of the Corporation.
<PAGE>
10. GENERAL.
10.1 STATEMENT ON WARRANT. Irrespective of any adjustments in the
Exercise Price or the number or kind of Warrant Shares, this Warrant may
continue to express the same kind of Warrant Shares as are stated on the front
page hereof.
10.2 AUTHORIZED SHARES; RESERVATION OF SHARES FOR ISSUANCE. At all
times while this Warrant is outstanding, the Corporation shall maintain its
corporate authority to issue, and shall have authorized and reserved for
issuance upon exercise of this Warrant, such number of shares of Stock as shall
be sufficient to perform its obligations under this Warrant (after giving effect
to any and all adjustments to the number and kind of Warrant Shares purchasable
upon exercise of this Warrant).
10.3 NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, sale or
other transfer of any of its assets or properties, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder hereunder against
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of Stock receivable upon the
exercise of this Warrant above the amount payable therefor on such exercise, and
(b) will take all action that may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Stock on the exercise of this Warrant.
10.4 NO RIGHTS AS STOCKHOLDER. The Holder shall not be entitled to vote
or to receive dividends or to be deemed the holder of Stock that may at any time
be issuable upon exercise of this Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holder any of the
rights of a stockholder of the Corporation until the Holder shall have exercised
this Warrant and been issued Warrant Shares in accordance with the provisions
hereof.
10.5 NOTICES. All notices, demands, requests, certificates or other
communications under this Warrant shall be in writing and shall be either mailed
by certified mail, postage prepaid, in which case such notice, demand, request,
certificate or other communications shall be deemed to have been given three (3)
days after the date on which it is first deposited in the mails, or hand
delivered or sent by facsimile transmission, by tested or otherwise
authenticated telex or cable or by private expedited courier for overnight
delivery with signature required, in each such case, such notice, demand,
request, certificate or other communications being deemed to have been given
upon delivery or receipt, as the case may be:
(i) if to the Corporation, SoftLock.com, Inc., Five Clock Tower Place,
Suite 440,
<PAGE>
Maynard, Massachusetts 01754, Attention: President, or at such other address as
the Corporation may have furnished in writing to the Holder; and
(ii) if to the Holder, at the Holder's address appearing in the books
maintained by the Corporation.
10.6 AMENDMENT AND WAIVER. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and only
with) the written consent of the Corporation and the Holder.
10.7 GOVERNING LAW. This Warrant shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
10.8 COVENANTS TO BIND SUCCESSOR AND ASSIGNS. All covenants,
stipulations, promises and agreements in this Warrant shall be binding on and
inure to the benefit of the Corporation and the Holder and their respective
successors, assigns and transferees, whether so expressed or not.
10.9 SEVERABILITY. In case any one or more of the provisions contained
in this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
10.10 CONSTRUCTION. The definitions of this Warrant shall apply equally
to both the singular and the plural forms of the terms defined. Wherever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The section and paragraph headings used herein are
for convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
10.11 REMEDIES. The Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Corporation agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
of this Warrant or where any provision hereof is validly asserted as a defense,
the
<PAGE>
successful party to such action or proceeding shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
10.12 COUNTERPARTS; DELIVERY BY FACSIMILE. This Warrant may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. Delivery of this
Warrant may be effected by facsimile.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Common Stock
Purchase Warrant to be executed as an instrument under seal in its corporate
name by one of its officers thereunto duly authorized, all as of the day and
year first above written.
SOFTLOCK.COM, INC.
[Corporate Seal]
By:__________________________
Name:
Title:
<PAGE>
FORM OF SUBSCRIPTION
(To be executed upon exercise of Warrant)
To: SOFTLOCK.COM, INC.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant for, and to exercise thereunder,
_______ shares of Common Stock, $0.001 par value per share ("COMMON STOCK"), of
SoftLock.com, Inc., a Delaware corporation, and tenders herewith payment of
$__________, representing the aggregate purchase price for such shares based on
the price per share provided for in such Warrant. Such payment is being made in
accordance with [Section 2.1(a)(i)] [Section 2.1(a)(ii)] [Section 2.1(a)(iii)]
of the attached Warrant.
Please issue a certificate or certificates for such shares of Common
Stock in the following name or names and denominations and deliver such
certificate or certificates to the person or persons listed below at their
respective addresses set forth below:
Dated:
---------------------- ---------------------------
--------------------------
(Address)
If said number of shares of Common Stock shall not be all the shares of
Common Stock issuable upon exercise of the attached Warrant, a new Warrant is to
be issued in the name of the undersigned for the balance remaining of such
shares of Common Stock less any fraction of a share of Common Stock paid in
cash.
Dated: ____________, 19__ ------------------------------------
NOTE: The above signature should
correspond exactly with the name on
the face of the attached Warrant or
with the name of the assignee
appearing in the assignment form
below.
<PAGE>
FORM OF ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _____________________________________ hereby sells,
assigns and transfers unto _________________ the attached Warrant [__% of the
attached Warrant], together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ___________________________ attorney
to transfer said Warrant [said percentage of said Warrant] on the books of
SoftLock.com, Inc., a Delaware corporation, with full power of substitution in
the premises.
If not all of the attached Warrant is to be so transferred, a new
Warrant is to be issued in the name of the undersigned for the balance of said
Warrant.
Dated: ____________, 19__
--------------------------------------------
NOTE: The above signature should correspond
exactly with the name on the face of th
attached Warrant.
