Exhibit 4.01
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 17th day of
December, 1999 by and between xxxxx-xxxxxxxxxx.xxx, corp., a Delaware
corporation (the "Company"), and the Investor set forth on the signature page
affixed hereto (the "Investor").
RECITALS
A. The Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended;
B. The Investor wishes to purchase, and the Company wishes to sell and
issue to the Investor, upon the terms and conditions stated in this Agreement,
such number of shares of the common stock of the Company, $0.01 par value per
share (the "Common Stock") and that number of warrants to purchase Common Stock
in the form attached hereto as EXHIBIT A (the "Warrants"), for an aggregate
purchase price of $2,400,000.12 as are set forth on the signature page attached
hereto and executed by the Investor; and
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT B (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder, and applicable state securities laws;
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere
in this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings here set forth:
1.1 "Affiliate" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by, or is under common
control with, such Person.
1.2 "Agreements" means this Agreement the Registration Rights
Agreement and the Warrants.
1.3 "Closing" means the consummation of the transactions
contemplated by this Agreement, and "Closing Date" means the date of such
Closing.
1.4 "Control" means the possession , direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
1.5 "Market Price" means the average of the lowest ten consecutive
closing bid prices of the Company's Common Stock over the fifty (50) trading
days immediately preceding the applicable date.
1.6 "Material Adverse Effect" means an effect which, either alone or
in conjunction with other effects, constitutes a material adverse effect on the
(i) condition (financial or otherwise), business, assets, or results of
operations of the Company and its subsidiaries, taken as a whole; (ii) ability
of the Company to perform any of its material obligations under the terms of
this Agreement; or (iii) rights and remedies of an Investor under the terms of
this Agreement.
1.7 "Person" means an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.8 "SEC Filings" has the meaning set forth in Section 4.6.
1.9 "Securities" means the Shares, the Warrants and the Warrant
Shares (defined below).
1.10 "Shares" means the shares of Common Stock being purchased by
the Investor hereunder.
1.11 "Warrant Shares" means the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants.
1.12 "1933 Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
1.13 "1934 Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Shares and Warrants. Subject to the terms
and conditions of this Agreement, the Investor hereby agrees to purchase and the
Company hereby agrees to sell and issue to the Investor, the number of Shares
and Warrants to purchase the number of shares of Common Stock set forth on the
Investor's signature page attached hereto. The number of Shares to be purchased
by the Investor shall be determined by dividing the Investor's aggregate
purchase price (as such aggregate purchase price is set forth on the Investor's
signature page attached hereto), by an amount equal to 80% of the Market Price
on the date hereof (the "Purchase Price"). The number of shares of Common Stock
purchasable by the Investor pursuant to the Warrants shall be equal to 35% of
the number of Shares purchased by the Investor, and the exercise price of the
Warrants will be 115% of the Market Price.
3. Closing. On the date of this Agreement, the Purchase Price shall be
determined. The Company shall promptly deliver to the Investor's counsel, in
trust, a certificate or certificates, registered in such name or names as the
Investor may designate, representing all of the Shares and all of the Warrants,
with instructions that such certificates are to be held for release to the
Investor only upon payment of the Purchase Price to the Company. Upon receipt by
counsel to the Investor of the certificates, the Investor shall promptly cause a
wire transfer in same day funds to be sent to the account of the Company as
instructed in writing by the Company, in amounts representing the Investor's
aggregate Purchase Price. On the date the Company receives such funds, the
certificates evidencing the Shares and the Warrants shall be released to the
Investor (and such date shall be deemed the "Closing Date").
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that:
4.1 Organization, Good Standing and Qualification. The Company and
each of its subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its organization and has all requisite
power and authority to carry on its business and own its properties as now
conducted and owned. The Company and each of its subsidiaries is duly qualified
or licensed to do business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or licensing necessary unless the
failure to so qualify or be licensed would not have a Material Adverse Effect.
4.2 Authorization. The Company has full power and authority and has
taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary for (i) the authorization, execution and delivery of
the Agreements, (ii) the performance of all obligations of the Company hereunder
or thereunder, and (iii) the authorization, issuance (or reservation for
issuance) and delivery of the Securities. The Agreements constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
4.3 Capitalization. Set forth on Schedule 4.3 hereto is (a) the
authorized capital stock of the Company on the date hereof; (b) the number of
shares of capital stock issued and outstanding; (c) the number of shares of
capital stock issuable pursuant to the Company's stock plans; and (d) the number
of shares of capital stock issuable and reserved for issuance pursuant to
securities (other than the Shares and the Warrants) exercisable for, or
convertible into or exchangeable for any shares of capital stock. All of the
issued and outstanding shares of the Company's capital stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights. Except as set forth on Schedule 4.3, no Person is entitled
to pre-emptive or similar statutory or contractual rights with respect to any
securities of the Company. Except as set forth on Schedule 4.3, there are no
outstanding warrants, options, convertible securities or other rights,
agreements or arrangements of any character under which the Company is or may be
obligated to issue any equity securities of any kind, or to transfer any equity
securities of any kind. Except as set forth on Schedule 4.3, the Company does
not know of any voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among any of the
securityholders of the Company relating to the securities held by them. Except
as set forth on Schedule 4.3, the Company has not granted any Person the right
to require the Company to register any securities of the Company under the 1933
Act, whether on a demand basis or in connection with the registration of
securities of the Company for its own account or for the account of any other
Person, except that the Company has completed the acquisition of all of the
shares of a company known as Internet Broadcasting Company, Inc. ("IBC") and has
issued shares of stock pursuant to the terms of the IBC transaction which have
registration rights in accordance with the terms of the IBC agreements.
4.4 Valid Issuance. The Company has reserved a sufficient number of
shares of Common Stock for issuance pursuant to this Agreement and upon exercise
of the Warrants. The Company will take such steps as may be necessary to reserve
sufficient shares for issuance pursuant to Section 7 below when such issuance is
determinable. The Shares and Warrants are duly authorized, and such Securities,
along with the Warrant Shares when issued in accordance herewith and with the
terms of the Warrants, will be duly authorized, validly issued, fully paid,
non-assessable and free and clear of all encumbrances and restrictions, except
for restrictions on transfer imposed by applicable securities laws.
4.5 Consents. The execution, delivery and performance by the Company
of the Agreements and the offer, issuance and sale of the Securities require no
consent of, action by or in respect of, or filing with, any Person, governmental
body, agency, or official other than filings that have been made pursuant to
applicable state securities laws and post-sale filings pursuant to applicable
state and federal securities laws and the requirements of the Nasdaq Stock
Market, which the Company undertakes to file within the applicable time periods.
4.6 Delivery of SEC Filings; Business. The Company has provided the
Investor with copies of the Company's most recent Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1999, and all other reports filed by the
Company pursuant to the 1934 Act since the filing of the Annual Report on Form
10-KSB (collectively, the "SEC Filings"). The Company and its subsidiaries are
engaged only in the business described in the SEC Filings and the SEC Filings
contain a complete and accurate description of the business of the Company and
its subsidiaries as presently conducted. The Company has provided the Investor
with a copy of the report issued by Xxxxxxxx & Xxxxxxxx, as well as the Private
Placement Memorandum in connection with this transaction.
4.7 Use of Proceeds. The proceeds of the sale of the Securities
hereunder shall be used by the Company for working capital and general corporate
purposes.
4.8 No Material Adverse Change. Since the filing of the Company's
most recent Annual Report on Form 10-KSB or as otherwise identified and
described in subsequent reports filed by the Company pursuant to the 1934 Act,
there has not been:
(i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected in
the financial statements included in the Company's most recent Quarterly Report
on Form 10-QSB, except changes in the ordinary course of business which have not
had, in the aggregate, a Material Adverse Effect;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company except
quarterly dividends paid on Preferred Stock of the Company as described
generally in the Company's Form 10-KSB;
(iii) any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company or any of its
subsidiaries;
(iv) any waiver by the Company or any of its subsidiaries of a
valuable right or of a material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any of its
subsidiaries, except in the ordinary course of business and which is not
material to the assets, properties, financial condition, operating results or
business of the Company and its subsidiaries taken as a whole (as such business
is presently conducted and as it is proposed to be conducted);
(vi) any material change or amendment to a material contract or
arrangement by which the Company or any of their subsidiaries or any of its
assets or properties is bound or subject;
(vii) any labor difficulties or labor union organizing
activities with respect to employees of the Company or any of its subsidiaries;
(viii) any transaction entered into by the Company or any of its
subsidiaries other than in the ordinary course of business; or
(ix) any other event or condition of any character that might
have a Material Adverse Effect.
4.9 SEC Filings; Material Contracts.
(a) As of its filing date, each report filed by the Company with
the SEC pursuant to the 1934 Act, complied as to form in all material respects
with the requirements of the 1934 Act and did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(b) Each registration statement and any amendment thereto filed
by the Company pursuant to the 1933 Act, as of the date such statement or
amendment became effective, complied as to form in all material respects with
the 1933 Act and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of
any sale of securities pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(c) Except as set forth on Schedule 4.3 hereto, there are no
agreements or instruments currently in force and effect that constitute a
warrant, option, convertible security or other right, agreement or arrangement
of any character under which the Company is or may be obligated to issue any
material amounts of any equity security of any kind, or to transfer any material
amounts of any equity security of any kind.
4.10 Form S-3 Eligibility. The Company is currently eligible to
register the resale of its Common Stock on a registration statement on Form S-3
under the 1933 Act.
4.11 No Conflict, Breach, Violation or Default. The execution,
delivery and performance of the Agreements by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, orconstitute a default under (i) the
Company's Certificate of Incorporation as in effect on the date hereof
("Articles") or Bylaws as in effect on the date hereof, or (ii) except where it
would not have a Material Adverse Effect, (a) any statute, rule, regulation or
order of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company or any of
their properties, or (b) any agreement or instrument to which the Company or any
such subsidiary is a party or by which the Company or any such subsidiary is
bound or to which any of the properties of the Company or any such subsidiary is
subject.
4.12 Tax Matters. The Company and its subsidiaries have correctly
and timely prepared and filed all tax returns required to have been filed by it
with all appropriate governmental agencies and timely paid all taxes owed by
them. The charges, accruals and reserves on the books of the Company and its
subsidiaries in respect of taxes for all fiscal periods are adequate in all
material respects, and there are no material unpaid assessments of the Company
or any subsidiary nor, to the knowledge of the Company, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except such as which
are not material. All material taxes and other assessments and levies that the
Company or any subsidiary is required to withhold or to collect for payment have
been duly withheld and collected and paid to the proper governmental entity or
third party. There are no tax liens or claims pending or threatened against the
Company or any subsidiary or any of their respective assets or property. There
are no outstanding tax sharing agreements or other such arrangements between the
Company or any subsidiary and any other corporation or entity. The Company has
the right, at its discretion, to file for an extension of time to file any tax
returns required to be filed by the Company.
4.13 Title to Properties. Except as disclosed in the SEC Filings,
the Company and its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Filings, the Company
and its subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
4.14 Certificates, Authorities and Permits. The Company and its
subsidiaries possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by them and have not received any notice of proceedings relating to
the revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
4.15 No Labor Disputes. No labor dispute with the employees of the
Company or any subsidiary exists or, to the knowledge of the Company, is
imminent.
4.16 Intellectual Property. The Company and its subsidiaries own or
possess adequate trademarks and trade names and have all other rights to
inventions, know-how, patents, copyrights, trademarks, trade names, confidential
information and other intellectual property (collectively, "Intellectual
Property Rights"), free and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims (except the security interest of
Silicon Valley Bank granted by the Company in connection with the working
capital credit line extended to the Company by Silicon Valley Bank), necessary
to conduct the business now operated by them, or presently employed by them, and
presently contemplated to be operated by them, and have not received any notice
of infringement of or conflict with asserted rights of others with respect to
any Intellectual Property Rights. Schedule 4.16 sets forth a list by serial
number and title of the patents and/or patent applications owned or possessed by
the Company or any of its subsidiaries. No proprietary technology of any Person
was used in the design or development by the Company of (or otherwise with
respect to) any of the Intellectual Property Rights, which technology was not
properly acquired by the Company from such Person.
4.17 Environmental Matters. Neither the Company nor any of its
subsidiaries is in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "Environmental Laws"), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the Company
is not aware of any pending investigation that might lead to such a claim.
4.18 Litigation. Except as disclosed in the SEC Filings, there are
no pending actions, suits or proceedings against or affecting the Company, any
of its subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale of the
Securities; and to the Company's knowledge, no such actions, suits or
proceedings are threatened or contemplated.
4.19 Financial Statements. The financial statements included in each
SEC Filing present fairly and accurately the consolidated financial position of
the Company and its subsidiaries as of the dates shown and their consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis. Except as set forth on Schedule 4.19
or in the financial statements of the Company included in the SEC Filings filed
prior to the date hereof, the Company has no liabilities, contingent or
otherwise, except those which individually or in the aggregate are not material
to the financial condition or operating results of the Company.
4.20 Insurance Coverage. The Company and its subsidiaries maintain
in full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted, and properties owned or
leased, by the Company and its subsidiaries, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.
4.21 Compliance with Nasdaq Continued Listing Requirements. The
shares of Common Stock are duly listed for trading on the Nasdaq SmallCap
Market. The Company is in compliance with all applicable Nasdaq SmallCap Market
continued listing requirements. There are no proceedings pending or to the
Company's knowledge threatened against the Company relating to the continued
listing of the Company's Common Stock on the Nasdaq SmallCap Market and the
Company has not received any notice of, nor to the knowledge of the Company is
there any basis for, the delisting of the Common Stock from the Nasdaq SmallCap
Market.
4.22 Acknowledgment of Dilution. The number of shares of Common
Stock issuable pursuant to this Agreement may increase substantially. The
Company's executive officers and directors have studied and fully understand the
nature of the transactions being contemplated hereunder and recognize that they
have a potential dilutive effect.
4.23 Brokers and Finders. The Investor shall have no liability or
responsibility for the payment of any commission or finder's fee to any third
party in connection with or resulting from this agreement or the transactions
contemplated by this Agreement.
4.24 No Directed Selling Efforts or General Solicitation. Neither
the Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.
4.25 No Integrated Offering. Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would adversely affect reliance by
the Company on Section 4(2) for the exemption from registration for the
transactions contemplated hereby, or would require registration of the
Securities under the 1933 Act, or would require a Shareholder vote under
applicable Nasdaq rules.
4.26 Disclosures. No representation or warranty made under any
Section hereof and no information furnished by the Company pursuant hereto, or
in any other document, certificate or statement furnished by the Company to the
Investor or any authorized representative of the Investor, pursuant to the
Agreements or in connection therewith, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the respective
statements contained herein or therein, in light of the circumstances under
which the statements were made, not misleading.
5. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company that:
5.1 Organization and Existence. The Investor is a validly existing
corporation or limited liability company and has all requisite corporate or
limited liability company power and authority to invest in the Securities
pursuant to this Agreement.
5.2 Authorization. The execution, delivery and performance by the
Investor of the Agreements have been duly authorized and the Agreements will
each constitute the valid and legally binding obligation of the Investor,
enforceable against the Investor in accordance with their terms.
5.3 Purchase Entirely for Own Account. The Securities to be received
by the Investor hereunder will be acquired for the Investor's own account, not
as nominee or agent, and not with a view to the resale or distribution of any
part thereof in violation of securities laws, and the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same.
5.4 Investment Experience. The Investor acknowledges that it can
bear the economic risk and complete loss of its investment in the Securities and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. The Investor has had an opportunity
to receive documents related to the Company and to ask questions of and receive
answers from the Company regarding the Company, its business and the terms and
conditions of the offering of the Securities. Neither such inquiries nor any
other due diligence investigation conducted by the Investor shall modify, amend
or affect the Investor's right to rely on the Company's representations and
warranties contained in this Agreement or made pursuant to this Agreement. The
Investor acknowledges receipt of the Company's Private Placement Memorandum
dated December 1999.
5.6 Restricted Securities. The Investor understands that the
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, until registration for resale
pursuant to the Registration Rights Agreement, or until resale under Rule 144(k)
is available, certificates evidencing the Securities may bear one or all of the
following legends or legends substantially similar thereto:
"These securities have not been registered under the Securities Act
of 1933, as amended (the "Act"), and may not be offered, sold,
pledged, hypothecated, assigned or transferred except (i) pursuant
to a registration statement under the Act which has become effective
and is current with respect to these securities, or (ii) pursuant to
a specific exemption from registration under the Act but only upon a
holder hereof first having obtained the written opinion of counsel
to the Corporation, or other counsel reasonably acceptable to the
Corporation, that the proposed disposition is consistent with all
applicable provisions of the Act as well as any applicable "blue
sky" or similar securities laws, or (iii) pursuant to Rule 144,
provided the Investor shall provide reasonable assurances that such
Rule is available."
If required by the authorities of any state in connection with the
issuance of sale of the Securities, the certificates shall bear the legend
required by such state authority.
Upon registration for resale pursuant to the Registration Rights
Agreement, or upon Rule 144(k) becoming available, the Company shall promptly
cause certificates evidencing the Shares previously issued hereunder to be
replaced with certificates which do not bear such restrictive legends.
5.8 Accredited Investor. The Investor is an "accredited investor" as
defined in Rule 501(a) of Regulation D, as amended, under the 0000 Xxx.
5.9 No General Solicitation. The Investor did not learn of the
investment in the Securities as a result of any public advertising or general
solicitation.
5.10 Brokers and Finders. The Investor represents and warrants to
the Company that it has made no commitment for payment of any commissions or
finders' fees to any third party in connection with the transactions
contemplated by this Agreement.
6. Registration Rights Agreement. The parties acknowledge and agree
that part of the inducement for the Investor to enter into this Agreement is the
Company's execution and delivery of the Registration Rights Agreement. The
parties acknowledge and agree that simultaneously with the execution hereof, the
Registration Rights Agreement is being duly executed and delivered by the
parties thereto.
7. Covenants and Agreements of the Company.
7.1 Subsequent Sale at Lower Price.
(a) Required Adjustments. Subject to the exclusions contained in
Section 7.1(e) below, if during the period ending on the later of thirty (30)
months following the effective date of the Registration Statement referred to in
Section 7.2 below and thirty three (33) months following the date of this
agreement (the "MFN Period"), the Company issues or sells any shares of its
Common Stock at a Per Share Selling Price (as defined below) lower than the
Purchase Price per share set forth in Section 2 hereof, the Purchase Price per
share of the Shares sold to the Investor hereunder shall be adjusted downward to
equal such lower Per Share Selling Price and Investor shall be entitled to
receive the additional shares as provided by Section 7.1(c); provided, however,
that in the event the Investor then owns less than 51% of the Shares acquired by
it hereunder, the Investor shall be entitled to additional shares only with
respect to the number of Shares then owned by the Investor as provided in
Section 7.1(c). The Company shall give to the Investor written notice of any
such sale within 24 hours of the closing of any such issuance or sale. For so
long as the Investor owns 51% or more of the Shares originally acquired by the
Investor hereunder, the Investor shall be entitled to the full benefit of the
Purchase Price adjustment required by this Section 7.1.
(b) Definitions.
(i) For the purposes of this Section 7.1, the term "Per
Share Selling Price" as used in this Section 7.1 shall include the amount
actually paid by third parties for each share of Common Stock. In the event a
fee in excess of 6% is paid by the Company in connection with such transaction,
any such excess amount shall be deducted from the selling price pro rata to all
shares sold in the transaction to arrive at the Per Share Selling Price. A sale
in a capital raising transaction of shares of Common Stock shall include the
sale or issuance of rights, options, warrants or convertible securities under
which the Company is or may become obligated to issue shares of Common Stock,
and in such circumstances the Per Share Selling Price of the Common Stock
covered thereby shall also include the exercise or conversion price thereof (in
addition to the consideration received by the Company upon such sale or issuance
less the excess fee amount as provided above). In case of any such security
issued within the MFN Period in a "Variable Rate Transaction" or an "MFN
Transaction" (each as defined below), the Per Share Selling Price shall be
deemed to be the lowest conversion or exercise price at which such securities
are converted or exercised or might have been converted or exercised in the case
of a Variable Rate Transaction, or the lowest adjustment price in the case of an
MFN Transaction, each within the MFN Period plus eighteen (18) months. If shares
are issued for a consideration other than cash, the Per Share Selling Price
shall be the fair value of such consideration as determined in good faith by
independent certified public accountants mutually acceptable to the Company and
the Investor.
(ii) The term "Variable Rate Transaction" shall mean a
transaction in which the Company issues or sells (a) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (x) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the Common Stock at any time
after the initial issuance of such debt or equity securities, or (y) with a
fixed conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock (but
excluding standard stock split anti-dilution provisions), or (b) any securities
of the Company pursuant to an "equity line" structure which provides for the
sale, from time to time, of securities of the Company which are registered for
resale pursuant to the 1933 Act.
(iii) The term "MFN Transaction" shall mean a transaction in
which the Company issues or sells any equity securities in a capital raising
transaction or series of related transactions (the "New Offering") which grants
to the investor (the "New Investor") the right to receive additional shares
based upon future equity raising transactions of the Company on terms more
favorable than those granted to the New Investor in the New Offering.
(iv) The term "MFN Period" shall have the meaning set forth
in Section 7.1(a), above.
(c) Adjustment Mechanism. If an adjustment of the Purchase Price
is required pursuant to Section 7.1(a), the Company shall deliver to the
Investor within eight calendar days of the closing of the transaction giving
rise to the adjustment ("Delivery Date") the Investor's pro-rata share of (A)
such number of additional shares of Common Stock equal to (i) the aggregate
Purchase Price paid by the Investor divided by the adjusted per share purchase
price as required under Section 7.1(a), minus (ii) the total number of shares of
Common Stock previously delivered to that Investor hereunder and (B) additional
Warrants to purchase shares of Common Stock equal to 35% of the number of shares
of Common Stock to which the Investor is entitled by reason of the adjustment of
the Purchase Price; provided however, that the Company shall effect such
adjustment in cash, in whole or in part, to the extent required by Section
7.1(d). In the event the Company fails to deliver the additional shares (or
cash, as the case may be) by the Delivery Date, the Company shall be liable to
the Investor for a penalty equal to 2% of the aggregate Purchase Price
adjustment per month (in each instance to the Investor pro rata in accordance
with its participation in this offering), payable in Common Stock or cash, at
the Investor's election. The additional shares referred to herein shall be
considered "Shares" for purposes of this Agreement.
(d) Limitation on Number of Shares.
(i) If by way of any adjustment required by this Section
7.1, thewould receive a number of shares of Common Stock such that the total
number of such shares held by the Investor as of the date of such adjustment
would be greater than 9.90% but less than 13.0% of the total outstanding Common
Stock of the Company, then the Company shall not effect the adjustment required
by this Section to the extent necessary to avoid causing the aforesaid
limitation to be exceeded until 120 days following the date such adjustment
would have otherwise been made.
(ii) If by way of any adjustment required by this Section
7.1, the Investor would receive a number of shares of Common Stock such that the
total number of such shares held by the Investor as of the date of such
adjustment would equal or exceed 13.0% of the total outstanding Common Stock of
the Company, then the Company shall not effect the adjustment required by this
Section to the extent necessary to avoid causing the aforesaid limitation to be
exceeded until 180 days following the date such adjustment would have otherwise
been made.
(iii) In no event shall the Company issue to the Investor
additional shares pursuant to an adjustment required by this Section 7.1 such
that the total number of shares issued to the Investor (when added to the
Warrant Shares) would exceed 19.9% of the Company's issued and outstanding
shares of Common Stock on the date hereof. Instead, the Company shall redeem
such excess shares at 110% of the Per Share Purchase Price, as adjusted. Only
shares acquired pursuant to this Agreement will be included in determining
whether the limitations would be exceeded for purposes of this Section
7.1(d)(iii).
(iv) In no event will the Company be required to issue
shares in violation of applicable Securities and Exchange Commission and Nasdaq
rules and regulations requiring shareholder approval. Instead, the provisions of
the foregoing Section 7.1(d)(iii) shall apply.
(e) Capital Adjustments. In case of any stock split or reverse
stock split, stock dividend, reclassification of the common stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of Section 7.1 shall be applied
in a fair, equitable and reasonable manner so as to give effect, as nearly as
may be, to the purposes hereof.
(f) Exclusions. Section 7.1(a) shall not apply to:
(i) sales of shares of Common Stock by the Company pursuant
to the provisions of any shareholder-approved option or similar plan heretofore
or hereafter adopted by the Company; or
(ii) sales of up to $1,000,000 of shares of Common Stock by
the Company upon the exercise of options or warrants issued subsequent to the
date hereof in payment for professional services rendered to the Company; or
(iii) except as limited in (iv) below, sales of shares of
Common Stock by the Company upon conversion or exercise of any convertible
securities, options or warrants outstanding prior to the date hereof
(iv) with respect to options of directors and other
affiliates of the Company which are currently outstanding and priced at $3.80
per share or below, the exclusion shall relate only to the first 1,000,000 of
such options exercised after the date hereof and with respect to any such
options in excess of 1,000,000, Section 7.1(a) shall apply and the purchase
price shall be adjusted by a fraction, the numerator of which is the then
outstanding shares of Common Stock times the then per share Market Price of the
Common Stock plus the number of all such options exercised times the exercise
price of such options and the denominator being the number of shares of Common
Stock then outstanding plus the number of all such options exercised times the
then per share Market Price of the Common Stock; provided, however, that if
there has been an agreement executed by the Company and a third party for the
acquisition of the Company by that third party, and the Market Price of the
Common Stock is greater than 130% of the per share Purchase Price paid by the
Investor hereunder, and the Shares are then the subject of an effective
registration statement, then there shall be no such limitations on the exercise
of such options and the provisions of Section 7.1(a) shall not apply to such
exercises.
7.2 Limitation on Transactions.
(a) Until the date of effectiveness of the Registration
Statement covering the Shares as contemplated by the Registration Rights
Agreement, without the prior written consent of the Investor (which consent may
be withheld in the Investor's discretion), the Company shall not issue or sell
or agree to issue or sell for cash in a non-public offering any equity
securities in a capital raising transaction.
(b) Until the expiration of the MFN Period, without the prior
written consent of the Investor (which consent may be withheld in the Investor's
discretion), the Company shall not (i) issue or sell or agree to issue or sell
for cash in a non-public offering any securities in a MFN Transaction; or (ii)
issue or sell, or agree to issue or sell, for cash in a non-public offering any
securities in a Variable Rate Transaction, provided, however, that the foregoing
limitation on Variable Rate Transactions shall not apply to any such securities
with an aggregate face value outstanding at any time equal to or less than seven
percent (7%) of the Company's primary market capitalization.
(c) Subject to any consent or approval rights of the Investor
hereunder, in the event the Company contemplates a non-public offering of its
equity or debt securities within six months of the date hereof, the Company
agrees that, upon the request of the Investor, the Company shall first disclose
the terms and conditions and other relevant facts of such proposed transaction
to Nasdaq and obtain from Nasdaq its assurance that such transaction will not be
integrated with the offering which is the subject of this Agreement for purposes
of the Nasdaq rules requiring shareholder approval of the issuance of 20% or
more of an issuer's outstanding common stock. In the event the Company fails to
seek or obtain such assurances, then, at the election of the Investor, the
Company shall redeem the Common Stock purchased by the Investor at 120% of the
original per share Purchase Price paid by the Investor for all Common Stock then
held by such the Investor.
7.3 Right of the Investor to Participate in Future Transactions.
Until the expiration of the MFN Period, the Investor will have a right to
participate in future non-public capital raising transaction on the terms and
conditions set forth in this Section 7.3. During such period, the Company shall
give ten (10) business days advance written notice to the Investor prior to any
non-public offer or sale of any of the Company's equity securities or any
securities convertible into or exchangeable or exercisable for such securities
by providing to the Investor a comprehensive term sheet containing all
significant business terms of such a proposed transaction. The Investor shall
have the right (pro rata in accordance with the Investor's participation in this
offering, or together with other investors selected by the Investor and
reasonably acceptable to the Company) to purchase all (but not less than all) of
such securities which are the subject of such a proposed transaction for the
same consideration and on the same terms and conditions as contemplated for such
third-party sale. The Investor's rights hereunder must be exercised in writing
by the Investor within five (5) business days following receipt of the notice
from the Company. If, subsequent to the Company giving notice to the Investor
hereunder but prior to the Investor exercising its right to participate (or the
expiration of the seven-day period without response from the Investor), the
terms and conditions of the proposed third-party sale are changed from that
disclosed in the comprehensive term sheet provided to the Investor, the Company
shall be required to provide a new notice to the Investor hereunder and the
Investor shall have the right, which must be exercised within five (5) business
days of such new notice, to exercise its rights to purchase the securities on
such changed terms and conditions as provided hereunder. In the event the
Investor does not exercise its rights hereunder, or affirmatively decline to
engage in the proposed transaction with the Company, then the Company may
proceed with such proposed transaction on the same terms and conditions as
noticed to the Investor (assuming the Investor has consented to the transaction,
if required, pursuant to Section 7.2 of this Agreement). The rights and
obligations of this Section 7.3 shall in no way diminish the other rights of the
Investor pursuant to this Section 7.
7.4 Opinion of Counsel. On or prior to the Closing Date, the Company
will deliver to the Investor the opinion of legal counsel to the Company, in
form and substance reasonably acceptable to the Investor, addressing those legal
matters set forth in Schedule 7.4 hereto.
7.5 Reservation of Common Stock Pursuant to Section 7.1 and Exercise
of Warrants. The Company hereby agrees, at all times with respect to shares
issuable upon exercise of the Warrants, and at all appropriate times with
respect to shares issuable pursuant to Section 7.1, to reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of providing for the additional issuance(s) of Common Stock pursuant
to Section 7.1 and exercise of the Warrants, such number of shares of Common
Stock as shall from time to time equal the number of shares sufficient to permit
the issuance, if any, required pursuant to Section 7.1 plus the number of shares
of Common Stock as shall be necessary to permit the exercise of the Warrants in
accordance with the terms of the Warrants.
7.6 Reports. The Company will furnish to the Investor the following
reports, each of which shall be provided to the Investor by air mail:
(a) Quarterly Reports. As soon as available and in any event
within 45 days after the end of each fiscal quarter of the Company, the
Company's quarterly report on Form 10-Q or 10-QSB or, in the absence of such
report, consolidated balance sheets of the Company and its subsidiaries as at
the end of such period and the related consolidated statements of operations,
stockholders' equity and cash flows for such period and for the portion of the
Company's fiscal year ended on the last day of such quarter, all in reasonable
detail and certified by a principal financial officer of the Company to have
been prepared in accordance with generally accepted accounting principles,
subject to year-end and audit adjustments.
(b) Annual Reports. As soon as available and in any event within
90 days after the end of each fiscal year of the Company, the Company's Form
10-K or, in the absence of a Form 10-K or Form 10-KSB, consolidated balance
sheets of the Company and its subsidiaries as at the end of such year and the
related consolidated statements of earnings, stockholders' equity and cash flows
for such year, all in reasonable detail and accompanied by the report on such
consolidated financial statements of an independent certified public accountant
selected by the Company and reasonably satisfactory to the Investor.
(c) Securities Filings. As promptly as practicable and in any
event within five days after the same are issued or filed, copies of (i) all
notices, proxy statements, financial statements, reports and documents as the
Company or any subsidiary shall send or make available generally to its
stockholders or to financial analysts, and (ii) all periodic and special
reports, documents and registration statements (other than on Form S-8) which
the Company or any subsidiary furnishes or files, or any officer or director of
the Company or any of its subsidiaries (in such person's capacity as such)
furnishes or files with the SEC.
(d) Other Information. Such other information relating to the
Company or its subsidiaries as from time to time may reasonably be requested by
the Investor provided the Company produces such information in its ordinary
course of business, and further provided that the Company, solely in its own
discretion, determines that such information is not confidential in nature and
disclosure to the Investor would not be harmful to the Company.
7.7 Press Releases. Any press release or other publicity concerning
this Agreement or the transactions contemplated by this Agreement shall be
submitted to the Investor for comment at least two (2) business days prior to
issuance, unless the release is required to be issued within a shorter period of
time by law or pursuant to the rules of a national securities exchange. The
Company shall issue a press release concerning the fact and material terms of
this Agreement within one business day of the Closing.
7.8 No Conflicting Agreements. The Company will not, and will not
permit its subsidiaries to, take any action, enter into any agreement or make
any commitment that would conflict or interfere in any material respect with the
obligations to the Investor under the Agreements.
7.9 Insurance. For so long as the Investor beneficially owns any of
the Securities, the Company shall, and shall cause each subsidiary to, have in
full force and effect (a) insurance reasonably believed to be adequate on all
assets and activities of a type customarily insured, covering property damage
and loss of income by fire or other casualty, and (b) insurance reasonably
believed to be adequate protection against all liabilities, claims and risks
against which it is customary for companies similarly situated as the Company
and the subsidiaries to insure.
7.10 Compliance with Laws. For so long as the Investor beneficially
owns any of the Securities, the Company will use reasonable efforts, and will
cause each of its subsidiaries to use reasonable efforts, to comply with all
applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance (in one instance or in the
aggregate) would not have a Material Adverse Effect.
7.11 Listing of Underlying Shares and Related Matters. The Company
hereby agrees, promptly following the Closing of the transactions contemplated
by this Agreement, to take such action to cause the Shares and the Warrant
Shares to be listed on the Nasdaq SmallCap Market as promptly as possible but no
later than the effective date of the registration contemplated by the
Registration Rights Agreement. The Company further agrees that if the Company
applies to have its Common Stock or other securities traded on any other
principal stock exchange or market, it will include in such application the
Common Stock underlying the Warrants, and will take such other action as is
necessary to cause such Common Stock to be so listed. The Company will take all
action necessary to continue the listing and trading of its Common Stock on the
Nasdaq SmallCap Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of such
exchange, as applicable, to ensure the continued eligibility for trading of the
Shares and the Warrant Shares thereon.
In the event it is determined that the issuance of the Shares would
or does constitute an issuance which, pursuant to the rules or regulations of
the Nasdaq SmallCap Market (or any other national securities exchange upon which
the Common Stock is or becomes traded), renders the Shares ineligible for
inclusion on the Nasdaq (or any other national securities exchange upon which
the Common Stock is then traded), then the Company shall promptly redeem such
number of Shares held by the Investor (pro rata in accordance with its
participation in this offering) which are so ineligible at a per share
redemption price equal to 110% of the per share Purchase Price for those Shares
as set forth in Section 2 hereof. It is understood and agreed that any
redemption by the Company will be subject to the requirements of Delaware law.
7.12 Corporate Existence. So long as the Investor beneficially own
any of the Shares or Warrants, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or successor
entity in such transaction (a) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith,
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to fulfill
its obligations hereunder and effect the exercise in full of all Warrants
outstanding as of the date of such transaction; (b) has no legal, contractual or
other restrictions on its ability to perform the obligations of the Company
hereunder and under the agreements and instruments entered into in connection
herewith; and (c) is a publicly traded corporation whose common stock and the
shares of capital stock issuable upon exercise of the Warrants are (or would be
upon issuance thereof) listed for trading on the Nasdaq SmallCap Market, New
York Stock Exchange or American Stock Exchange or, if it is not such a public
company, then the Company shall redeem any of the Shares and Warrant Shares then
held by the Investor, at the election of the Investor, at a per share redemption
price equal to 120% of the original per share Purchase Price.
7.13 Remedies. The Investor shall be entitled to a decree of
specific performance to enforce its rights hereunder. The Company shall
indemnify and hold harmless the Investor from and against any loss, liability,
costs, expenses or fees (including reasonable attorneys fees) arising out of (i)
the entry into and performance of the Agreements by the Investor, (ii) any
breach by the Company of any representation, warranty, covenant or agreement in
any of the Agreements, and/or (iii) the enforcement of this Section
8. Survival. All representations, warranties, covenants and agreements
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the execution
and delivery of this Agreement for a period of three years from the date of this
Agreement; provided, however, that the provisions contained in Section 7 hereof
shall survive in accordance therewith.
9. Jurisdiction. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law or choice of law. The Company and the Investor hereby agree
that all actions or proceedings arising directly or indirectly from or in
connection with this Agreement shall be litigated only in the Supreme Court of
the State of New York or the United States District Court for the Southern
District of New York located in New York County, New York. To the extent
permitted by applicable law, the Company and the Investor consent to the
jurisdiction and venue of the foregoing courts and consent that any process or
notice of motion or other application to either of said courts or a judge
thereof may be served inside or outside the State of New York or the Southern
District of New York by registered mail, return receipt requested, directed to
such party at its address set forth in this Agreement (and service so made shall
be deemed complete five (5) days after the same has been posted as aforesaid) or
by personal service or in such other manner as may be permissible under the
rules of said courts.
10. Miscellaneous.
10.1 Successors and Assigns. This Agreement may not be assigned by a
party hereto without the prior written consent of the other party hereto, except
that without the prior written consent of the Company, but after notice duly
given, the Investor may assign its rights and delegate its duties hereunder in
whole or in part to an Affiliate, or to a third party acquiring some portion or
all of its Shares in a private transaction and without the prior written consent
of the Investor, but after notice duly given and in compliance with this
Agreement, the Company may assign its rights and delegate its duties hereunder
to any successor-in-interest corporation in the event of a merger or
consolidation of the Company with or into another corporation, or any merger or
consolidation of another corporation with or into the Company that results
directly or indirectly in an aggregate change in the ownership or control of
more than 50% of the voting rights of the equity securities of the Company, or
the sale of all or substantially all of the Company's assets. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
10.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.3 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.4 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given only upon delivery to each party to be notified by (i)
personal delivery, (ii) telex or telecopier, upon receipt of the correct answer
back, or (iii) an internationally recognized overnight air courier, addressed to
the party to be notified at the address as follows, or at such other address as
such party may designate by ten days' advance written notice to the other party:
If to the Company:
xxxxx-xxxxxxxxxx.xxx, corp.
Two Xxxxxxxxxxx Xxxxxxxx Xxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxxx Xxxx, Chief Financial Officer
508/870-4000
Facsimile: 508/870-5585
If to the Investor, to the address set forth on the signature
page hereto.
10.5 Expenses. The parties hereto shall pay their own costs and
expenses in connection herewith, except that the Company shall pay to Tail Wind,
Inc. the sum of .75% of the gross proceeds of this offering by the Company as
and for legal and due diligence expenses in connection herewith and such amount
shall be paid at Closing from gross proceeds of the offering.
10.6 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such securities, and the Company.
10.7 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
10.8 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto, and the Registration Rights Agreement constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
10.9 Further Assurances. The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
The Company: xxxxx-xxxxxxxxxx.xxx, corp.
By:_________________________
Name:
Title:
The Investor: The Tail Wind Fund, Ltd.
By:_________________________
Name:
Title:
By:_________________________
Name:
Title:
Aggregate Purchase Price: $2,400,000.12
Number of Shares of Common Stock: 802,676
Number of Warrants: 280,936
Effective per share Purchase Price of Shares: $2.99
Exercise price of Warrants: $4.30
Address for Notice:
The Tail Wind Fund Ltd.
MeesPierson (Bahamas) Ltd.
Attn: Xxxxx XxXxxxxxx
Xxxxxxxxxx Xxxxx, 000 Xxxx Xxx Xxxxxx
P.O. Box SS 5539, Nassau, Bahamas
Tel: 242/000-0000 Fax: 242/000-0000
with a copy to:
Xxxxx Xxxxx Esq.
The Tail Wind Fund Ltd.
x/x XXXX
0xx Xxxxx, No. 0 Xxxxxx Xxxxxx
Xxxxxx, XX0X 0XX XX
Tel: 00-000-000-0000 Fax: 00-000-000-0000
Xxxxx Xxxx LLP
000 Xxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attn: XxXxxx Xxxxxx
Tel: 202/000-0000 Fax: 202/000-0000
