Exhibit 10.1
EXECUTION COPY
---------------------------------------------------------------------
SERIES C PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
by and among
THE PURCHASERS LISTED ON SCHEDULE I HERETO,
SOFTLOCK.COM, INC. AND
SOFTLOCK SERVICES, INC.
Dated as of December 21, 2000
-----------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 - Authorization, Purchase and Sale of the Acquired Securities...........................................1
1.1 Authorization of the Acquired Securities................................................................1
----------------------------------------
1.2 Sale and Purchase of the Shares and Warrants............................................................1
--------------------------------------------
1.3 Certain Defined Terms...................................................................................2
---------------------
SECTION 2 - Closing, Payment and Delivery.........................................................................2
2.1 Closing Date and Place of Closing.......................................................................2
---------------------------------
2.2 Closing Payment and Delivery............................................................................2
----------------------------
2.3 Subsequent Sales of Shares..............................................................................2
--------------------------
SECTION 3 - Representations and Warranties of the Company.........................................................3
3.1 Organization and Standing; Articles and By-laws.........................................................3
-----------------------------------------------
3.2 Corporate Power.........................................................................................3
---------------
3.3 Subsidiaries............................................................................................3
------------
3.4 Capitalization..........................................................................................4
--------------
3.5 Authorization...........................................................................................5
-------------
3.6 Contracts; Insurance....................................................................................6
--------------------
3.7 Securities and Exchange Commission Documents............................................................8
--------------------------------------------
3.8 Absence of Undisclosed Liabilities......................................................................9
----------------------------------
3.9 Absence of Certain Changes..............................................................................9
--------------------------
3.10 Taxes..................................................................................................11
-----
3.11 Transactions With Affiliates...........................................................................11
----------------------------
3.12 Litigation.............................................................................................11
----------
3.13 Consents...............................................................................................12
--------
3.14 Title to Properties, Liens and Encumbrances............................................................12
-------------------------------------------
3.15 Leases.................................................................................................13
------
3.16 Franchises, Licenses, Trademarks, Patents and Other Rights.............................................13
----------------------------------------------------------
3.17 Issuance Taxes.........................................................................................14
--------------
3.18 Offering...............................................................................................14
--------
3.19 Employees..............................................................................................14
---------
3.20 Business of the Company and Subsidiary.................................................................15
--------------------------------------
3.21 Use of Proceeds........................................................................................16
---------------
3.22 Applicability of, and Compliance with, Other Laws......................................................16
-------------------------------------------------
3.23 Indebtedness...........................................................................................18
------------
3.24 Insurance Coverage.....................................................................................18
------------------
3.25 Illegal or Unauthorized Payments; Political Contributions..............................................18
---------------------------------------------------------
3.26 Disclosure.............................................................................................18
----------
3.27 Potential Conflicts of Interest........................................................................19
-------------------------------
3.28 Real Property Holding Corporation......................................................................19
---------------------------------
SECTION 4 - Representations and Warranties of Purchasers.........................................................19
4.1 Organization; Good Standing; Power and Authority; Binding Obligation...................................19
--------------------------------------------------------------------
4.2 Purchase Entirety for Own Account; Etc.................................................................20
--------------------------------------
4.3 Disclosure.............................................................................................20
----------
4.4 Accredited Investor....................................................................................20
-------------------
4.5 Restricted Securities..................................................................................21
---------------------
4.6 Legends................................................................................................21
-------
4.7 Termination of Restrictions............................................................................21
---------------------------
SECTION 5 - Conditions to Closing of Purchasers..................................................................22
5.1 Representations and Warranties Correct.................................................................22
--------------------------------------
5.2 Performance............................................................................................22
-----------
5.3 Compliance Certificate.................................................................................22
----------------------
5.4 Opinion of Company's Counsel...........................................................................22
----------------------------
5.5 Good Standing Certificates.............................................................................22
--------------------------
5.6 Qualifications.........................................................................................23
--------------
5.7 Amendment of Certificate and Filing of Certificate.....................................................23
--------------------------------------------------
5.8 Proceedings and Documents..............................................................................23
-------------------------
5.9 By-Laws................................................................................................23
-------
5.10 Shareholders' and Rights Agreement.....................................................................23
----------------------------------
5.11 Certification by Corporate Secretary...................................................................23
------------------------------------
5.12 Warrants...............................................................................................24
--------
5.13 Legal Investment.......................................................................................24
----------------
5.14 Side Letter............................................................................................24
-----------
SECTION 6 - Conditions to Closing of Company.....................................................................24
6.1 Representations and Warranties Correct.................................................................24
--------------------------------------
6.2 Performance............................................................................................24
-----------
6.3 Qualifications.........................................................................................24
--------------
6.4 Proceedings and Documents..............................................................................25
-------------------------
6.5 Statement of Accredited Investor.......................................................................25
--------------------------------
6.6 Legal Investment.......................................................................................25
----------------
6.7 Shareholders' and Rights Agreement.....................................................................25
----------------------------------
SECTION 7 - Affirmative Covenants................................................................................25
7.1 Basic Financial Information............................................................................25
---------------------------
7.2 Additional Information and Rights......................................................................26
---------------------------------
7.3 Prompt Payment of Taxes, Etc...........................................................................28
----------------------------
7.4 Maintenance of Properties and Leases...................................................................28
------------------------------------
7.5 Insurance..............................................................................................28
---------
7.6 Accounts and Records...................................................................................29
--------------------
7.7 Compliance with Laws, Contracts, Licenses and Permits..................................................29
-----------------------------------------------------
7.8 Maintenance of Corporate Existence, etc................................................................29
---------------------------------------
7.9 Availability of Common Stock for Conversion............................................................30
-------------------------------------------
7.10 Proprietary Information Agreement, and Key Employee Agreement..........................................30
-------------------------------------------------------------
7.11 Use of Proceeds........................................................................................30
---------------
7.12 Compliance by Subsidiaries.............................................................................30
--------------------------
7.13 Expenses of Board Members..............................................................................30
-------------------------
7.14 Securities Law Filings.................................................................................31
----------------------
7.15 Registration and Transfer of Securities................................................................31
---------------------------------------
7.16 Indemnification........................................................................................31
---------------
7.17 Registration Requirements..............................................................................32
-------------------------
7.18 Indemnification and Contribution.......................................................................34
--------------------------------
7.19 "Market Stand-Off" Agreement..........................................................................37
----------------------------
SECTION 8 - Negative Covenants...................................................................................37
8.1 Sale/Purchase of Assets; Merger........................................................................37
-------------------------------
8.2 Future Registration Rights.............................................................................38
--------------------------
8.3 Changes in Type of Business............................................................................38
---------------------------
8.4 Dividends and Distributions............................................................................38
---------------------------
8.5 Purchase of Equity Securities..........................................................................39
-----------------------------
8.6 Conflicting Agreements.................................................................................39
----------------------
8.7 Amendment of Charter Documents.........................................................................39
------------------------------
8.8 Related Party Transactions.............................................................................39
--------------------------
8.9 Issuance of Equity Securities..........................................................................39
-----------------------------
8.10 Subsidiaries...........................................................................................39
------------
8.11 Fiscal Year............................................................................................39
-----------
8.12 Business Plan..........................................................................................40
-------------
8.13 Employee Stock Plans...................................................................................40
--------------------
8.14 Liens..................................................................................................40
-----
8.15 Investments............................................................................................40
-----------
8.16 Purchases and Sales....................................................................................40
-------------------
8.17 Leases.................................................................................................41
------
8.18 Indebtedness...........................................................................................41
------------
8.19 Loans; Guarantees......................................................................................41
-----------------
8.20 License of Listed Rights or Intellectual Property......................................................41
-------------------------------------------------
8.21 Compliance by Subsidiaries.............................................................................41
--------------------------
SECTION 9 - Definitions..........................................................................................41
SECTION 10 - Miscellaneous.......................................................................................47
10.1 Governing Law..........................................................................................47
-------------
10.2 Survival...............................................................................................47
--------
10.3 Successors and Assigns.................................................................................47
----------------------
10.4 Entire Agreement; Amendment............................................................................47
---------------------------
10.5 Notices, etc...........................................................................................48
------------
10.6 Delays or Omissions....................................................................................48
-------------------
10.7 Rights; Severability...................................................................................49
--------------------
10.8 Agent's Fees and Services..............................................................................49
-------------------------
10.9 Legal Fees and Expenses................................................................................49
-----------------------
10.10 Titles and Subtitles................................................................................49
--------------------
10.11 Counterparts........................................................................................49
------------
10.12 Construction........................................................................................50
------------
10.13 Further Assurances..................................................................................50
------------------
10.14 Equitable Relief....................................................................................50
----------------
10.15 Publicity...........................................................................................50
---------
</TABLE>
<PAGE>
SCHEDULES AND EXHIBITS
Schedule I - Schedule of Purchasers
Schedule II - Disclosure Schedules
Exhibit A - Certificate of Designation of Powers, Preferences and Rights
of Series C Preferred Stock
Exhibit B - Form of Opinion of Counsel
Exhibit C - Amended and Restated Shareholders' and Rights Agreement
Exhibit D - Statement of Accredited Investor
Exhibit E - Form of Preferred Stock Warrant
Exhibit F - Form of August 1, 2001 Common Stock Warrant
Exhibit G Form of October 15, 2001 Common Stock Warrant
<PAGE>
SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this
"Agreement") is made and entered into as of the 21st day of December, 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., a wholly-owned subsidiary of the Company (the "Subsidiary") and
each of the parties listed on Schedule I 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 promises and the mutual
covenants and conditions herein contained, the Company 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 First Closing (as defined in Section 2.1
hereof) will have, authorized the designation of Series C Preferred Stock, par
value $0.01 per share (the "Series C Preferred"), having the rights, privileges
and preferences as set forth in the Certificate of Designation of Powers,
Preferences and Rights of Series C 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 76,523 shares (the "Shares") of Series C Preferred, the
Conversion Shares, the Warrants and the Warrant Shares, each as defined in
Section 9 hereof. 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 First 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 C Preferred set forth opposite each such Purchaser's name on
the Schedule of Purchasers, and (ii) the Warrants. The purchase price for the
Shares and the Warrants shall be $191.00 per share of Series C Preferred for an
aggregate purchase price for all of the Shares and Warrants at the First Closing
of $7,000,000.
1.3 Certain Defined Terms.
Certain capitalized terms used in this Agreement shall have the
respective meanings ascribed to them in Section 9 hereof.
SECTION 2
Closing, Payment and Delivery
2.1 Closing Date and Place of Closing.
The closing of the initial purchase and sale of the Shares and
Warrants (the "First 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 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
Hutchins, Wheeler & Dittmar, 101 Federal Street, Boston, Massachusetts, or such
other place as shall have been agreed to by the Company and the Purchasers
participating in such First Closing.
2.2 Closing Payment and Delivery.
At the First 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 three (3) Warrants substantially in the form of Exhibit E,
Exhibit F and Exhibit G, attached hereto, for the number of shares of Series C
Preferred Stock and Common Stock, as defined in Section 9 hereof, respectively,
as is set forth opposite such Purchaser's name on the Schedule of Purchasers.
2.3 Subsequent Sales of Shares.
At any time, and from time to time, on or before March 31, 2001 the
Company may sell up to the balance of the authorized shares of Series C
Preferred Stock not sold at the First Closing to such persons as may be approved
by the Board of Directors ("Board") of the Company; provided that the aggregate
number of Shares sold pursuant to this Agreement shall not exceed 76,523. All
such sales shall be made on the terms and conditions set forth in this
Agreement, including without limitation, the representations and warranties by
such Purchasers as set forth in Section 4; provided however that Purchasers of
Shares pursuant to this Section 2.3 shall not be entitled to any Warrants
provided in Section 1.2. Any shares of Series C Preferred Stock sold pursuant to
this Section 2.3 shall be deemed Shares for all purposes under this Agreement
and any Purchasers thereof shall be deemed to be "Purchasers" for all purposes
of this Agreement. Any Purchaser of Shares pursuant to this Section 2.3 shall be
required as a condition to closing to become a party to that certain Amended and
Restated Shareholders and Rights Agreement.
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 through and including the
Closing Date and copies of the minutes of all Board, Committees of the Board 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 the Subsidiary is in
breach of any of the provisions of its Certificate of Incorporation or its
By-laws.
3.2 Corporate Power.
Each of the Company and the Subsidiary has all requisite corporate
power to enter into this Agreement and each of the Financing Documents, as
defined in Section 9 hereof, 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.
3.3 Subsidiaries.
Neither the Company nor the 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, except as set forth in the
Disclosure Schedules. 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, as defined in Section
9 hereof, of Subsidiary. The Subsidiary has not issued any Derivative
Securities, as defined in Section 9 hereof.
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 First 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, (ii) the holders of any interest exceeding five percent (5%) of the
amount of such issued and outstanding 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 non-assessable. 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 or Series B 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 Schedules, neither the
Company nor the Subsidiary, is bound by, has any 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);
(c) Except as set forth in the Disclosure Schedules, neither the
Company nor the Subsidiary (i) has 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 a party to or bound by,
and has knowledge of, any agreement or instrument relating to the voting of any
of its securities, and (iii) is 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 Schedules, which govern or affect in any way the rights of the
holders of securities, including any class of capital stock, of the Company or
the Subsidiary. No First Public Offering (as defined in the Shareholders' and
Rights Agreement dated as of February 11, 2000 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 issuance upon
(i) exercise of the Warrants for Series C Preferred Stock, a number of shares of
Series C Preferred Stock necessary to cover the exercise of such Warrants, and
(ii) conversion of shares of Series C Preferred and exercise of the Warrants for
Common Stock, a number of shares of Common Stock sufficient to cover the
conversion of all such shares of Series C Preferred and the issuance of such
Warrant Shares;
(e) All of the outstanding shares of capital stock, membership
interests, and other securities of the Company and the Subsidiary 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 or the Subsidiary;
(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 preemptive 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 the Subsidiary of this
Agreement and each of the Financing Documents to which it is a party 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, 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 the Subsidiary 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 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, as
defined herein, 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
(which, in addition to the material contracts, obligations, commitments,
agreements and plans mentioned in subsections (a) through (q) below, shall mean
the performance by or payment to the Company of greater than $10,000 in any one
(1) year), 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, any of the
securities of the Company or Subsidiary;
(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, as defined in
Section 9 hereof, 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, as defined herein, 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 the Company or Subsidiary, which loss would be reasonably
likely to have a Material Adverse Effect, as defined in Section 9 hereof.
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
Certificate of Designation for the Series B Preferred Stock), the By-laws, as
amended, the Series A Preferred Stock Purchase Agreement dated as of December
30, 1999, as supplemented, the Series B Preferred Stock Purchase Agreement dated
as of February 10, 2000, the Shareholders' and Rights Agreement dated as of
February 10, 2000. Each such agreement, instrument, and commitment is a valid,
binding and enforceable obligation of the Company or the Subsidiary (as the case
may be) and to the Company's and/or Subsidiary's 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 non-compliances 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 Schedules is pending or, to the Company's or 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 Schedules 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 Securities and Exchange Commission 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, the term "Balance Sheet" shall mean the
unaudited, draft consolidated balance sheet of the Company and Subsidiary as of
September 30, 2000, provided to the Purchasers and "Financial Statements" shall
mean the unaudited, draft consolidated financial statements of the Company and
the Subsidiary as of and for the twelve (12) month period ended on September 30,
2000, a true and complete copy of which has been provided to the Purchasers.
3.8 Absence of Undisclosed Liabilities.
Neither the Company nor the 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.
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 the 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, as defined in Section 9
hereof, 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 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 the 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;
(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, as defined in Section 9
hereof, 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 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 the Subsidiary has ever had any tax deficiency proposed or assessed
against it and neither the Company nor the 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 Schedules, 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 Schedules, 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. Except as set forth on the Disclosure Schedules, to the
Company's and Subsidiary's knowledge, there is no basis for any such action,
suit, proceeding or claim involving the Company or the Subsidiary, 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 Schedules, the Company and Subsidiary have no knowledge
of any unasserted claim, the assertion of which is more likely than not.
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. The Company and the
Subsidiary have and maintain, and the Disclosure Schedules set 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
their business or in connection with the ownership or use of their 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 Schedules) 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 (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 material 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 Schedules list 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 Company's and/or Subsidiary's 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 Company's and/or Subsidiary's business, "Proprietary
Information"). Except as set forth in the Disclosure Schedules, the Company
and/or Subsidiary 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 Company's and/or Subsidiary's 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 Schedules and such rights are, to the best knowledge
of the Company and/or Subsidiary, licensed exclusively to it except as indicated
in the Disclosure Schedules. 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 Company's and Subsidiary's 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 Company's and Subsidiary's
best knowledge, threatened, nor, to the Company's and Subsidiary's knowledge, is
there any basis for any such litigation or proceeding. The Company and
Subsidiary 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 Company and/or Subsidiary nor to the knowledge of
the Company and/or Subsidiary any of their employees has infringed or made
unlawful use of, or is, to the Company's and/or Subsidiary's 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 Company and/or Subsidiary; and
(ii) to the Company's and/or Subsidiary's knowledge, the activities of the
Company's and/or Subsidiary's 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 Schedules, no litigation (or other proceedings in or
before any court or other governmental, adjudicatory, arbitral, or
administrative body) charging the Company and/or Subsidiary with infringement or
unlawful use of any patent, trademark, copyright, or other proprietary right is
pending or, to the Company's and/or Subsidiary's knowledge, threatened, nor is
there any basis for any such litigation or proceeding;
(d) To the knowledge of the Company and Subsidiary, no officer,
director, employee, or consultant of the Company and/or Subsidiary 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 agreements and obligations to use his or her best
efforts to promote the interests of the Company and/or Subsidiary, (ii)
conflicts or may conflict with the business or operations of the Company and/or
Subsidiary 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 Company and/or Subsidiary;
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 Schedules 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 present or former employees
who has had access to Proprietary Information of the Company or Subsidiary has
executed the Company's or Subsidiary's standard form of proprietary information
agreement ("Proprietary Information Agreement"). 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,
no employee or former employee of the Company or Subsidiary is or is expected to
be in violation of the terms of the aforesaid Proprietary Information 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 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 Schedules, 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) Each of the Company and Subsidiary 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 Company or Subsidiary. 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 and Subsidiary. 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 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 Schedules, the Company and the
Subsidiary have no knowledge or belief (i) that 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) that 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.
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
the Subsidiary owns or intends to carry or purchase any "margin security" within
the meaning of said Regulation G, including margin securities originally issued
by the Company or the Subsidiary. 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.
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
("Employee Plan") 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 Employee Plans, if any, listed on the
Disclosure Schedules, each of the Company and the Subsidiary is in compliance
with the applicable provisions of ERISA. Neither the Company nor the 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 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 Employee 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 the 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, (collectively "Governmental Agency") or is
presently subject to any formal or informal proceedings before, or
investigations by a Governmental Agency. 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
Governmental Agency for purposes of security clearance or otherwise;
(c) To the Company's and 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, 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
so-called "OSHA" law. 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;
(ii) Environmental Claims. There are no Environmental Claims,
as defined in Section 9 hereof, pending, threatened or likely to be threatened
(a) against the Company or Subsidiary, (b) to the Company's or 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, as defined in Section 9 hereof, 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 (i) obligations which may be terminated without payment or
penalty by the Company or Subsidiary upon not more than thirty (30) days notice,
and (ii) 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.
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 (i) as a kickback or bribe to any person, (ii)
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
(iii) 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 Schedules, 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) own, directly or
indirectly, any interest (excepting passive holdings for investment purposes of
not more than one percent (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 Internal
Revenue Code of 1986, as amended (the "Code") and the Treasury Regulation
Section 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 of each closing date (including the date of the First
Closing) on which such Purchasers purchase Shares of the Company, as to itself
only, as follows:
4.1 Organization; Good Standing; Power and Authority; Binding
Obligation.
Such Purchaser 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 Purchasers and constitutes a 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 Entirety for Own Account; Etc.
Such Purchaser is acquiring the Shares and Warrants solely for
investment purposes for his, her or its own account, not as a nominee or agent
and not with the view to, or for resale in connection with, any distribution
thereof. Such Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the Acquired Securities. Such
Purchaser 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. Such Purchaser 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.
Such Purchaser has received or reviewed all the information which each
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. Such Purchaser also has received and reviewed a copy of the Financial
Statements and Balance Sheet. Such Purchaser 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 he, she or it is a party, and answers have been
provided to its full satisfaction. Such Purchaser has fully reviewed all
corporate and governance documents of the Company and Subsidiary provided,
understands all relevant terms and has asked all questions and received answers
thereto to his, her or its full satisfaction. If deemed necessary, such
Purchaser has consulted with a professional advisor who has provided him, her or
it with advice concerning these terms. HE, SHE OR 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.
Such Purchaser is an accredited investor as defined in Rule 501(a) of
Regulation D under the Securities Act. The information provided by such
Purchaser on the Statement of Accredited Investor, attached hereto as Exhibit D
(the "Statement of Accredited Investor"), is true and correct in all respects.
Such Purchaser 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. Such Purchaser 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. Such Purchaser has not
been organized solely for the purpose of acquiring the Acquired Securities. Such
Purchaser 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
his, hers or its particular financial situation. Such Purchaser has consulted
his, her or 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.
4.5 Restricted Securities.
Such Purchaser 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. Such Purchaser is
familiar with Rule 144 promulgated by the Commission under the Securities Act,
and understands the resale limitations imposed thereunder and by the Securities
Act generally. Such Purchaser also acknowledges that the Acquired Securities are
subject to significant restrictions on transfer, pledge or hypothecation. Such
Purchaser agrees that in no event will he, she or 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 by such Purchaser 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, as
defined herein, 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 First Closing Date and any subsequent closing pursuant to Section 2.3.
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, 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 Hutchins, Wheeler &
Dittmar, A Professional Corporation, counsel to the Company and Subsidiary,
addressed to the Purchasers and dated the Closing Date, in substantially the
form set forth in Exhibit B, attached hereto (the "Opinion of Counsel"), and in
form and substance reasonably satisfactory to the Purchasers.
5.5 Good Standing Certificates.
The Company shall have delivered to the Purchasers certificates dated
not more than five (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 By-Laws.
The By-laws of the Company shall provide that the holders of Series C
Preferred which represent fifteen percent (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, the holders
of the Series B 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 C attached hereto.
5.11 Certification by Corporate Secretary.
With respect to the Company and Subsidiary, a certificate of their
respective secretaries, dated the Closing Date, certifying (i) 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, (ii) an attached copy of
the By-laws, (iii) an attached copy of the resolutions of their respective
Boards, with respect to the transactions hereby contemplated or otherwise to be
effected at the Closing, (iv) the incumbency of their respective officers and
directors, and (v) as to the membership of their respective Boards, 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
three (3) Warrants (each for the purchase of that number of shares of Common
Stock or Series C Preferred specified in the Schedule of Purchasers)
substantially in the form of Exhibit E, Exhibit F and Exhibit G, attached
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
Company and Subsidiary are subject.
5.14 Side Letter.
The Company shall have executed and delivered to each of 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
Subsidiary and their counsel.
6.5 Statement of Accredited Investor.
The Purchasers shall have executed and delivered to the Company and
Subsidiary a Statement of Accredited Investor to the effect and in substantially
the form set forth in Exhibit D attached hereto.
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 Company and Subsidiary are subject.
6.7 Shareholders' and Rights Agreement.
The Company, the holders of the Series A Preferred Stock, the holders
of the Series B Preferred Stock, and the Purchasers shall have executed and
delivered the Shareholders' and Rights Agreement in substantially the form of
Exhibit C attached hereto.
SECTION 7 - Affirmative Covenants
The Company and Subsidiary hereby jointly and severally covenant and
agree, for the benefit of any Purchaser who owns 2,356 (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 C Preferred) or more
shares of the Series C Preferred which remain outstanding and which have not
been converted to Common Stock (the "Ownership Threshold"):
7.1 Basic Financial Information.
The Company and Subsidiary 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.
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
2001 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, reports,
minutes, consents, waivers or such other information substantially
similar to such reports, minutes, consents, waivers or other
information delivered to the members of the Company's Board (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
December 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, as
defined in Section 9 hereof, consistently applied (except for changes
in the application of such principles that have been approved by the
Company's Board), 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.
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 and any 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 any 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 any 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.
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 sixty
(60) days of the date hereof and shall thereafter maintain key-man life
insurance on the life of Scott Griffith, 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 Scott Griffith 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, in the amount of at least $15 million) 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 Schedules). 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 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 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 and
other subsidiaries 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 and
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 so-called "OSHA" Law.
7.8 Maintenance of Corporate Existence, etc.
The Company, Subsidiary and each Other Subsidiary will 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, Subsidiary and each Other Subsidiary 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 C
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 as approved by the Board 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 the Company authorizes the Company,
Subsidiary and each 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 and each 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 each 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 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 (a) the registration and prospectus delivery
requirements of the Securities Act and (b) the 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.
(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, 2001, the Company shall (i) file with the
Commission one or more Registration Statements on Form S-1, Form S-3 or any
other suitable form, 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
(or shares of Common Stock issuable on conversion of shares of Series C
Preferred Stock included within "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 facilities of any national securities
exchange on which the Common Stock is then traded, or in privately-negotiated
transactions. The Company shall use its reasonable best efforts to cause such
Registration Statement to be declared effective on or before July 15, 2001. 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 herein,
in connection with any registration, qualification or compliance hereunder, and
each Purchaser shall pay all Selling Expenses, as defined herein, 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:
(i)......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 (constituting Conversion Shares and Shares of Common Stock
issuable upon exercise of the Warrants) has been resold or (C) such time as all
of the Conversion Shares and Warrant Shares can be sold within a given three (3)
month period without compliance with the registration requirements of the
Securities Act pursuant to Rule 144;
(ii).....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;
(iii)....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;
(iv).....cause all Common Stock registered as described herein
to be listed on each securities exchange and quoted on each quotation service on
which the Equity Securities of the Company are then listed or quoted;
(v)......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;
(vi).....otherwise use its best efforts promptly to comply
with all applicable rules and regulations of the Commission;
(vii)....file the documents required of the Company and
otherwise use its best efforts to promptly 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, however, as to Clause (B) 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;
(viii)...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
(ix) in the event that the Common Stock is de-listed from the
Nasdaq SmallCap Market, then the Company will, at such time as the Common Stock
(including Conversion Shares and Warrant Shares) again qualifies for listing on
the Nasdaq SmallCap Market, cause the Common Stock to be so listed.
(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 (constituting Conversion Shares and Shares
of Common Stock issuable upon exercise of Warrants) 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
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)
September 11, 2001, 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 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 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
seventy-five percent (75%) of the shares of Series C 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 (i) any of the following set forth in Section 8.1 through 8.9
unless the holders of a majority of such outstanding shares of Series C
Preferred held by holders who continue to meet the Ownership Threshold approve
or consent in writing or (ii) 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 the
Company, Subsidiary or any other subsidiaries 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) twenty percent (20%) of the Company's and
Subsidiary's consolidated net revenues for the twelve (12) month period
immediately preceding such purchase; or
(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 one
hundred percent (100%) Other Subsidiary may consolidate with or merge into
Subsidiary or the Company or into another one hundred percent (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 fifty percent (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
one hundred percent (100%) subsidiary of the Company and more than fifty percent
(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, (ii) the dividend amount set
forth in the Certificate of Designation of the Series C Preferred Stock payable
on the Series C Preferred Stock and (iii) dividends and distributions on the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred made, together as a single class for this purpose, pro rata in
proportion to the number of shares of Common Stock then issuable on conversion
of the Series A Preferred Stock, the Series B Preferred Stock and Series C
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
(i) as permitted by this Agreement, the Shareholders' and Rights Agreement, and
the Certificate, (ii) as required by the Certificates of Designations of the
Series A Preferred Stock or Series B Preferred Stock, or (iii) 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 C Preferred and conversions of the Series C Preferred).
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 or any amendment to
the Company's, Subsidiary's or any Other Subsidiary's Certificate of
Incorporation, including but not limited to the Certificate of Designation of
the Series C Preferred Stock.
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 the Shares
issuable at any Subsequent Closing and 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 C 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 or
any Other Subsidiary's operation of the business; provided however the Company
may present to the Shareholders at the next annual meeting a proposal to change
the name of the Corporation.
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 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 (i) Liens existing as of
the date hereof as disclosed in Section 3.14 hereof, (ii) 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, (iii) 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, (iv) any Lien created
on any real property or equipment in connection with the leasing of such real
property or equipment, (v) Liens contemplated by the Annual Plan and (vi)
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 (i)
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, (ii) invest
in commercial paper rated at least Prime I by Moody's Industrial Manual, (iii)
deposit funds in money market accounts in financial institutions having capital
resources in excess of $100,000,000 and (iv) 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 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 five
percent (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 five percent (5%) of the then outstanding Equity Securities or
constitute(s) at least a five percent (5%) equity participant, (c) in the case
of a specified person who is an individual, Family Members of such person, and
(d) the case of the Purchasers, any entities for which a Purchaser its general
partner, investment advisor or any person serving in a similar capacity, or any
of its Affiliates serve as general partner and/or investment adviser or in a
similar capacity, and all mutual funds, hedge 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
Balance Sheet shall have the meaning ascribed to it in Section 3.7
hereof.
Board shall mean the entire Board of Directors of the Company or the
Subsidiary as applicable.
Certificate shall mean the Certificate of Designation of Powers,
Preferences and Rights of Series C Preferred Stock.
Closing Date shall have the meaning ascribed to it in Section 2.1
hereof.
Code shall have the meaning ascribed to it in Section 3.28 hereof.
Commission shall mean the Securities and Exchange Commission. 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 C Preferred
(including without limitation Shares of Series C Preferred Stock issuable upon
exercise of Warrants issued pursuant to this Agreement), (b) issuable upon the
conversion of the Series C 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.
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 or 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 mean the Securities Exchange Act of 1934, as
amended.
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.
First Closing shall have the meaning ascribed to it in Section 2
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.
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 ("ECBs"); 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.
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.
Opinion of Counsel shall have the meaning set forth in Section 5.4
hereof.
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 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 hereof.
Proprietary Information Agreement shall have the meaning ascribed to it
in Section 3.19 and Section 7.10 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 $7.64 per share of
Common Stock (as adjusted for stock splits, including 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 hereof.
Registration Statement shall have the meaning ascribed thereto in
Section 7.17 hereof.
Related Party shall mean any officer, director, employee or consultant
of the Company, Subsidiary or Other Subsidiary or any holder of five percent
(5%) or more of any class of capital stock of the Company, Subsidiary or 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 thereto in Section
3.4(c).
Selling Expenses shall have the meaning ascribed thereto in Section
7.17 hereof.
Series C Preferred shall have the meaning ascribed to it in Section 1.1
hereof.
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.
Statement of Accredited Investor shall have the meaning ascribed to it
in Section 4.4 hereof.
Subsidiary shall mean SoftLock Services, Inc.
Warrant(s) shall have the meaning ascribed thereto in Section 5.11
hereof.
Warrant Shares means, at any time, shares of Series C Preferred Stock
or Common Stock as the case may be (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 Commonwealth 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), By-laws and other internal
corporate documents of the Company, Subsidiary or 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 Commonwealth
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 the Company Subsidiary, if added to Agreement may not
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.
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.
Notwithstanding anything to the contrary contained herein, nothing contained in
this Agreement shall be deemed to modify or limit any of the rights pursuant to
the Series B Purchase Agreement. 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 (2/3) or more of the shares of Series C 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; provided however that the Company may amend this
Agreement for the sole purpose of adding Purchasers hereto pursuant to sales in
accordance with Section 2.3 hereof without the Consent of the Purchasers.
(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 C 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 C 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 (i) 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 (ii) 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 (iii) 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 Company
and/or Subsidiary 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 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 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 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) Shipman & Goodwin, LLP, special counsel to the Purchasers (which
fees and expenses shall not exceed $35,000 without the prior, written consent of
the Company) and $2,000 for each additional counsel to the Purchasers with
respect to this Agreement and the transactions contemplated hereby.
10.10 Titles and Subtitles.
The titles of the Sections and subsections 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
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.
[ Signatures on Following Page ]
<PAGE>
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.
<TABLE>
<S> <C>
SOFTLOCK COM., INC.
By: _______________________________
Name:
Title:
SOFTLOCK SERVICES, INC.
By: _______________________________
Name:
Title:
RAPTOR GLOBAL PORTFOLIO, LTD.
By: TUDOR INVESTMENT CORPORATION,
As Investment Advisor
By: _______________________________
Name:
Title:
ALTAR ROCK FUND, L.P.
By: Tudor Investment Corporation, as General Partner
By: _______________________________
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: ____________________________
RAM TRADING, LTD.
By: Ritchie Capital Management, L.L.C., its investment manager
By: THR, Inc.
By: ____________________________
RITCHIE CAPITAL MANAGEMENT, L.L.C.
By: THR, Inc.
By:____________________________
APEX INVESTMENT FUND IV, L.P.
By: Apex Management IV, L.L.C., its General Partner
By: ______________________________________
APEX STRATEGIC PARTNERS IV, LLC
By: Apex Management IV, LLC, Manager
By: ______________________________________
SI VENTURE FUND II, L.P.
By: SI VENTURE MANAGEMENT II, L.L.C.
Its General Partner
By: ______________________________________
ASCENT VENTURE PARTNERS
By: ASCENT VENTURE MANAGEMENT III, LLC,
Its General Partner
By: ______________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
SCHEDULE OF PURCHASERS
Number of
Series C Number of Shares Number of
Preferred Issuable Under Shares Issuable Price Per Share
Aggregate August 1, Under October of Series C
Name and Address Shares 2001 Warrants 15, 2001 Warrants Preferred
---------------- ------ ------------- ----------------- ---------
<S> <C> <C> <C> <C>
Altar Rock Fund, L.P. 31 8 207 207
Apex Investment Fund IV, L.P. 9,528 2,382 63,523 63,523
Apex Strategic Partners IV, L.L.C. 289 72 1,927 1,927
Ascent Venture Partners 7,853 1,963 52,356 52,356
Ritchie Capital Management LLC 187 47 1,247 1,247
RC Capital LLC 187 47 1,247 1,247
Ram Trading Ltd. 935 234 6,234 6,234
Raptor Global Portfolio, Ltd. 7,822 1,956 52,149 52,149
SI Venture Fund II, L.P. 9,817 2,454 65,450 65,450
</TABLE>
