Execution Copy
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L90, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 21, 1999
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L90, INC.
SERIES C PREFERRED STOCK
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PURCHASE AGREEMENT
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THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT is made as of
September 21, 1999, among L90, INC., a Delaware corporation (the "Company"),
and the Persons listed on the Schedule of Purchasers attached hereto
(collectively referred to herein as the "Purchasers" and individually as a
"Purchaser"). Except as otherwise indicated herein, capitalized terms used
herein are defined in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
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1A. Authorization of the Preferred Stock and Warrants. The Company
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shall authorize the issuance and sale of (i) up to 3,000,000 shares of its
Series C Preferred Stock, par value $.001 per share (the "Series C Preferred"),
at a purchase price of $3.06 per share, having the rights and preferences set
forth in Exhibit A attached hereto and (ii) warrants (each, a "Warrant" and
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collectively, the "Warrants") to purchase an aggregate of 1,911,044 shares of
the Company's Common Stock, par value $0.001 per share (the "Common Stock"), at
a purchase price of $0.001 per share, in the form attached hereto as Exhibit B.
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The Series C Preferred is convertible into shares of the Common Stock.
1B. Purchase and Sale of the Preferred Stock and Warrants. At the
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applicable Closing (as defined below), the Company shall sell to each Purchaser
and, subject to the terms and conditions set forth herein, each Purchaser shall
purchase from the Company (i) the number of shares of Series C Preferred set
forth opposite such Purchaser's name on the Schedule of Purchasers attached
hereto at a cash price of $3.06 per share and (ii) a Warrant which shall permit
such Purchaser to initially purchase a number of shares of Common Stock set
forth opposite such Purchaser's name on the Schedule of Purchasers, at an
exercise price of $3.06 per share. The sale of the Series C Preferred and
Warrant (if applicable) to each Purchaser shall constitute a separate sale
hereunder.
1C. The Closing. The closing of the separate purchases and
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sales of the Series C Preferred and Warrants (the "Closing") to the Purchasers
shall take place at the offices of Paul, Hastings, Xxxxxxxx & Xxxxxx LLP at
10:00 a.m. on (A) September 21, 1999, or (B) if later than such date, the third
business day following satisfaction or waiver of the conditions set forth in
Section 2 hereof, or (C) at such other place or on such other date as may be
mutually agreeable to the Company and each Purchaser. At the Closing, the
Company shall deliver to each Purchaser stock certificates evidencing the Series
C Preferred to be purchased by such Purchaser and a Warrant to be purchased by
such Purchaser, registered in such Purchaser's or its nominee's name, upon
payment of the purchase price thereof by a cashier's or certified check, or by
wire transfer of immediately available funds to the Company's account designated
by the Company in writing to the
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Purchasers, in the aggregate amount set forth opposite such Purchaser's name on
the Schedule of Purchasers.
Section 2. Conditions of Each Purchaser's Obligation at the Closing.
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The obligation of each Purchaser to purchase and pay for the Series C Preferred
and Warrant (if applicable) at the Closing is subject to the satisfaction as of
the Closing of the following conditions. Any condition specified in this
Section 2 may be waived if consented to by each Purchaser; provided that no such
waiver shall be effective against any Purchaser unless it is set forth in a
writing executed by such Purchaser.
2A. Representations and Warranties; Covenants. The representations
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and warranties contained in Section 5 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by the transactions expressly contemplated herein,
and the Company shall have performed in all material respects all of the
covenants required to be performed by it hereunder prior to the Closing.
2B. Amended and Restated Certificate of Incorporation. The Company
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shall have duly adopted, executed and filed with the Secretary of State of
Delaware its Amended and Restated Certificate of Incorporation (the
"Certificate") establishing the terms and the relative rights and preferences of
the Series C Preferred in the form set forth in Exhibit A hereto, and the
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Company shall not have adopted or filed any other document designating terms,
relative rights or preferences of its preferred stock, except as expressly set
forth therein. The Certificate shall be in full force and effect as of the
Closing under the laws of Delaware and shall not have been amended or modified.
2C. Amendment of the Company's Bylaws. The Company's bylaws shall
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have been duly amended to establish the size of the board at nine (9) directors,
one (1) to be designated by holders of Series A Preferred Stock, three (3) to be
designated by holders of Series B Preferred Stock, one (1) to be designated by
holders of the Series C Preferred (provided that so long as Rare Medium Group,
Inc. and its affiliates own at least 50% of the outstanding Series C Preferred,
the director to be designated by the Series C Preferred shall be designated by
Rare Medium Group, Inc.), and four (4) to be designated by holders of the Common
Stock (one of whom shall be an independent director nominated by the other eight
directors). The Company's bylaws shall be in full force and effect as of the
Closing as so amended and shall not have been further amended or modified,
except as contemplated herein.
2D. Registration Agreement. The Company and the Purchasers shall
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have entered into a Series C Registration Agreement in form and substance as set
forth in Exhibit C attached hereto (the "Registration Agreement").
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2E. Shareholders Agreement. The Company, the Purchasers, the holders
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of the Company's Series A Convertible Preferred Stock and the holders of the
Company's Series B Convertible Preferred Stock (collectively, the "Series B
Holders") shall have entered into a shareholders agreement in form and substance
set forth in Exhibit D attached hereto (the "Shareholders Agreement").
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2F. Sale of Series C Preferred and Warrant to Each Purchaser.
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The Company shall have simultaneously sold to each Purchaser the Series C
Preferred and Warrant (if applicable) to be purchased by such Purchaser
hereunder at the applicable Closing and shall have received payment therefor in
full.
2G. Securities Law Compliance. The Company shall have made all
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filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Series C Preferred and Warrants pursuant to this
Agreement in compliance with such laws.
2H. Opinion of the Company's Counsel. Each Purchaser shall have
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received from Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, counsel for the Company, an
opinion with respect to the matters set forth in Exhibit E attached hereto,
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which shall be addressed to each Purchaser, dated the date of the Closing and in
form and substance reasonably satisfactory to each Xxxxxxxxx.
0X. Commitment of Chairman. The Company shall have obtained from
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Xxxxxxx X. Xxxxxxxxx a commitment to continue as the chairman of the Company, in
a form and substance reasonably satisfactory to each Purchaser.
2J. Closing Documents. The Company shall have delivered to each
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Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2A through
2J, inclusive, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement and each of the
other agreements contemplated hereby, the filing of the Certificate, the
amendment to the Company's bylaws referred to in paragraph 2C, the issuance
and sale of the Series C Preferred, the issuance of the Warrants, and the
reservation for issuance upon conversion of the Series C Preferred and
exercise of the Warrants and the consummation of all other transactions
contemplated by this Agreement, and (b) the resolutions duly adopted by the
Company's shareholders adopting the Certificate;
(iii) certified copies of the Certificate and the Company's
bylaws, each as in effect at the Closing; and
(iv) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder
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(including, without limitation, all blue sky law filings and waivers of all
preemptive rights and rights of first refusal);
2K. Proceedings. All corporate and other proceedings taken or
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required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Purchaser and its special counsel.
2L. Compliance with Applicable Laws. The purchase of Series C
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Preferred and Warrant (if applicable) by each Purchaser hereunder shall not be
prohibited by any applicable law or governmental rule or regulation and shall
not subject such Purchaser to any penalty or liability under or pursuant to any
applicable law or governmental rule or regulation, and the purchase of the
Series C Preferred and Warrant (if applicable) by each Purchaser hereunder shall
be permitted by laws, rules and regulations of the jurisdictions and
governmental authorities and agencies to which such Purchaser is subject.
2M. Due Diligence. Each Purchaser shall be fully satisfied in its
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sole discretion with the results of its review of all of the disclosure
schedules and its review of and other due diligence investigations with respect
to, the business, operations, affairs, prospects, properties, assets, existing
and potential liabilities, obligations, profits and condition (financial or
otherwise) of the Company, including without limitation, the Company's progress
in amending certain of its existing customer contracts so that the Company may
include such gross revenue as a reporting position.
Section 3. Covenants.
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3A. Financial Statements and Other Information. The Company shall
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deliver to each Purchaser (so long as such Purchaser holds any Series C
Preferred or any Underlying Common Stock) and to each holder of at least 10% of
the outstanding Series C Preferred and each holder of at least 10% of the
Underlying Common Stock:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period
from the beginning of the fiscal year to the end of such month, and
unaudited consolidating and consolidated balance sheets of the Company and
its Subsidiaries as of the end of such monthly period, setting forth in
each case comparisons to the Com pany's annual budget and to the
corresponding period in the preceding fiscal year, and all such statements
shall be prepared in accordance with generally accepted accounting
principles, consistently applied omitting footnotes and shall be certified
by the Company's principal financial officer;
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(ii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end
of such fiscal year, setting forth in each case comparisons to the Company's
annual budget and to the preceding fiscal year, all prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by (a) with respect to the consolidated portions of such
statements, an opinion of an independent accounting firm of recognized
national standing and (b) a certificate from such accounting firm, addressed
to the Company's board of directors, stating that in the course of its
examination nothing came to its attention that caused it to believe that there
was any default by the Company or any Subsidiary in the fulfillment of or
compliance with any of the material terms, covenants, provisions or conditions
of any material agreement to which the Company or any Subsidiary is a party
or, if such accountants have reason to believe any default by the Company or
any Subsidiary exists, a certificate specifying the nature and period of
existence thereof;
(iii) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the Company
by its independent accountants (and not otherwise contained in other materials
provided hereunder);
(iv) at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis
for the Company and its Subsidiaries for such fiscal year (displaying
anticipated statements of income and cash flows and balance sheets), and
promptly upon preparation thereof any other significant budgets prepared by
the Company and any revisions of such annual or other budgets, and within 30
days after any monthly period in which there is a material adverse deviation
from the annual budget, an Officer's Certificate explaining the deviation and
what actions the Company has taken and proposes to take with respect thereto;
(v) promptly (but in any event within five business days)
after the discovery or receipt of notice of any material default under any
material agreement to which it or any of its Subsidiaries is a party, any
condition or event which is reasonably likely to result in any material
liability under any federal, state or local statute or regulation relating to
public health and safety, worker health and safety or pollution or protection
of the environ ment or any other material adverse change, event or
circumstance affecting the Company or any Subsidiary (including, without
limitation, the filing of any material litigation against the Company or any
Subsidiary or the existence of any dispute with any Person which involves a
reasonable likelihood of such litigation being commenced), an Officer's
Certificate specifying the nature and period of existence thereof and what
actions the Company and its Subsidiaries have taken and propose to take with
respect thereto;
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(vi) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files with the Securities and Exchange Commission or with any securities
exchange on which any of its securities are then listed, and copies of all
press releases and other statements made available generally by the Company to
the public concerning material developments in the Company's and its
Subsidiaries' businesses; and
(vii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably
request.
Each of the financial statements referred to in subparagraph (i) and (ii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments (none of which would, alone
or in the aggregate, be materially adverse to the financial condition, operating
results, assets, operations or business prospects of the Company and its
Subsidiaries taken as a whole).
Notwithstanding the foregoing, the provisions of this paragraph 3A shall cease
to be effective so long as the Company (a) is subject to the periodic reporting
requirements of the Securities Exchange Act and continues to comply with such
requirements and (b) promptly provides to each Person otherwise entitled to
receive information pursuant to this paragraph 3A all reports and other
materials filed by the Company with the Securities and Exchange Commission
pursuant to the periodic reporting requirements of the Securities Exchange Act;
provided that so long as any Series C Preferred remains outstanding, the
Company shall continue to deliver to each Purchaser (so long as such Purchaser
holds any Series C Preferred) and to each holder of at least 10% of the
outstanding Series C Preferred the information specified in subparagraphs 3A(ii)
and 3A(v).
For purposes of paragraphs 3A and 3B hereof, the term "Purchaser" shall include
any partner of a Purchaser who received shares of Series C Preferred or
Underlying Common Stock pursuant to a distribution from or a liquidation of such
Purchaser.
3B. Inspection of Property. The Company shall permit any
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representatives designated by any Purchaser (so long as such Purchaser holds any
Series C Preferred or Underlying Common Stock) or any holder of at least 10% of
the outstanding Series C Preferred or at least 10% of the Underlying Common
Stock, upon reasonable notice and during normal business hours and at such other
times as any such holder may reasonably request, to (i) visit and inspect any of
the properties of the Company and its Subsidiaries, (ii) examine the corporate
and financial records of the Company and its Subsidiaries and make copies
thereof or extracts therefrom and (iii) discuss the
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affairs, finances and accounts of any such corporations with the directors,
officers, key employees and independent accountants of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement by any
Purchaser or any such holder of Series C Preferred or Underlying Common Stock to
the Company's independent accountants shall constitute the Company's permission
to its independent accountants to participate in discussions with such Persons.
3C. Expenses of Directors. All reasonable out-of-pocket expenses of
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each board member, designated by the Series C Preferred pursuant to the
Certificate, incurred in connection with attending regular and special board
meetings and any meeting of any board committee shall be paid by the Company,
upon submission to the Company of appropriate documentation or receipts.
3D. Restrictions. So long as any Series C Preferred remains
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outstanding, the Company shall not, without the prior written consent of the
holders of a majority of the outstanding Series C Preferred:
(i) directly or indirectly declare or pay any dividends or
make any distributions upon any of its capital stock or other equity
securities other than the Company's Series A Convertible Preferred Stock, the
Series B Convertible Preferred Stock or the Series C Preferred pursuant to the
terms of the Certificate, except for dividends payable in shares of Common
Stock issued upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other rights
to acquire such capital stock or other equity securities) or directly or
indirectly redeem, purchase or make any payments with respect to any stock
appreciation rights, phantom stock plans or similar rights or plans; except
for repurchases of Common Stock from employees, directors, consultants or
advisors of the Company and its Subsidiaries upon termination of employment
pursuant to arrangements approved by the Company's board of directors;
(iii) except as expressly contemplated by this Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of, (a) any notes or debt securities containing
equity features (including, without limitation, any notes or debt securities
convertible into or exchangeable for capital stock or other equity securities,
issued in connection with the issuance of capital stock or other equity
securities or containing profit participation features) or (b) any capital
stock or other equity securities (or any securities convertible into or
exchangeable for any capital stock or other equity securities) which are
senior to or on a parity with the Series C Preferred with respect to the
payment of dividends, redemptions or distributions upon liquidation or
otherwise;
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(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
(other than a Wholly-Owned Subsidiary), except for (a) reasonable advances to
employees in the ordinary course of business, (b) acquisitions permitted
pursuant to subparagraph (viii) below and (c) Investments having a stated
maturity no greater than one year from the date the Company makes such
Investment in (1) obligations of the United States government or any agency
thereof or obligations guaranteed by the United States government, (2)
certificates of deposit of commercial banks having combined capital and
surplus of at least $50 million or (3) commercial paper with a rating of at
least "Prime-1" by Xxxxx'x Investors Service, Inc.;
(v) merge or consolidate with any Person or, except as
permitted by subparagraph (viii) below, permit any Subsidiary to merge or
consolidate with any Person (other than a Wholly-Owned Subsidiary);
(vi) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than 25% of the
consolidated assets of the Company and its Subsidiaries (computed on the basis
of book value, determined in accordance with generally accepted accounting
principles consistently applied, or fair market value, determined by the
Company's board of directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales in the
ordinary course of business) or sell or permanently dispose of any of its or
any Subsidiary's material Intellectual Property Rights;
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other
non-corporate entity which is treated as a partnership for federal income tax
purposes);
(viii) acquire, or permit any Subsidiary to acquire, any interest
in any company or business (whether by a purchase of assets, purchase of
stock, merger or otherwise), or enter into any joint venture, unless the
transaction is approved by the Company's board of directors;
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than the
business of the Company and any Subsidiary at Closing;
(x) become subject to, or permit any of its Subsidiaries to
become subject to, (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under
any circumstances) restrict (a) the right of any Subsidiary to make loans or
advances or pay dividends to, transfer property to,
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or repay any Indebtedness owed to, the Company or another Subsidiary or (b)
the Company's right to perform the provisions of this Agreement, the
Registration Agreement, the Certificate or the Company's bylaws (including,
without limitation, provisions relating to the declaration and payment of
dividends on and conversions of the Series C Preferred);
(xi) except as expressly contemplated by this Agreement, make
any amendment to the Certificate or the Company's bylaws, or file any
resolution of the board of directors with the Delaware Secretary of State
containing any provisions, which would increase the number of authorized
shares of the preferred stock of the Company or adversely affect or otherwise
impair the rights or the relative preferences and priorities of the holders of
the Series C Preferred or the Underlying Common Stock under this Agreement,
the Certificate, the Company's bylaws or the Registration Agreement;
(xii) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, employees, shareholders or Affiliates or with any
individual related by blood, marriage or adoption to any such indi vidual or
with any entity in which any such Person or individual owns a beneficial
interest, except for customary employment arrangements and benefit programs on
reasonable terms and except as otherwise expressly contemplated by this
Agreement;
(xiii) increase any compensation (including salary, bonuses and
other forms of current and deferred compensation) payable to any officer or
director of the Company or any Subsidiary, unless such action is approved by a
majority of disinterested directors of the Company's board of directors;
(xiv) make any capital expenditures (including, without
limitation, payments with respect to capitalized leases, as determined in
accordance with generally accepted accounting principles consistently applied)
exceeding $100,000 in the aggregate on a consolidated basis during any twelve-
month period, unless such actions are approved by the Company's board of
directors;
(xv) enter into any leases or other rental agreements
(excluding capitalized leases, as determined in accordance with generally
accepted accounting principles consis tently applied) under which the amount
of the aggregate lease payments for all such agreements exceeds $100,000 on a
consolidated basis for any twelve-month period, unless such actions are
approved by the Company's board of directors;
(xvi) increase or decrease the authorized size of its board of
directors above or below nine (9) members;
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(xvii) use the proceeds from the sale of the Series C Preferred
other than for working capital and general corporate purposes and as set forth
on the attached "Use of Proceeds Schedule."
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3E. Affirmative Covenants. So long as any Series C Preferred remains
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outstanding, the Company shall, and shall cause each Subsidiary to:
(xviii) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(xix) maintain its assets so that its businesses may be
properly and advantageously conducted at all times;
(xx) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or profits
therefrom (in each case before the same becomes delinquent and before
penalties accrue thereon) and all claims for labor, materials or supplies
which if unpaid would by law become a Lien upon any of its property, unless
and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance
with generally accepted accounting principles, consistently applied) have been
established on its books with respect thereto;
(xxi) comply with all other material obligations which it
incurs pursuant to any contract or agreement, whether oral or written, express
or implied, as such obligations become due, unless and to the extent that (A)
the same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto, or (B) the breach thereof would not reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole;
(xxii) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole;
(xxiii) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for corporations of similar size engaged in
similar lines of business;
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(xxiv) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such proper
reserves as in each case are required in accordance with generally accepted
accounting principles, consistently applied; and
(xxv) enter into and maintain proprietary assignment and
information agreements with its key employees.
3F. Compliance with Agreements. The Company shall perform and
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observe (i) all of its obligations to each holder of the Series C Preferred and
all of its obligations to each holder of the Underlying Common Stock set forth
in the Certificate and the Company's bylaws, (ii) all of its obligations to each
holder of the Warrant set forth therein, (iii) all of its obligations to each
holder of the Note set forth therein, (iv) all of its obligations to each holder
of Registrable Securities set forth in the Registration Agreement and (v) all of
its obligations set forth in the Shareholders Agreement.
3G. Current Public Information. At all times after the Company has
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filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission or (ii) a registration statement on Form S-2
or S-3 or any similar registration form hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
3H. Reservation of Common Stock. The Company shall at all times
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reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the conversion of the Series C
Preferred and exercise of the Warrants, such number of shares of Common Stock
issuable upon the conversion of all outstanding Series C Preferred and exercise
of the outstanding Warrants. All shares of Common Stock and Series C Preferred
which are so issuable shall, when issued, be duly and validly issued, fully paid
and nonassessable and free from all taxes, liens and charges. The Company shall
take all such actions as may be necessary to assure that all such shares of
Common Stock and Series C Preferred may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which such shares may be listed (except for official
notice of issuance which shall be immediately transmitted by the Company upon
issuance).
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3I. Intellectual Property Rights. The Company shall, and shall cause
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each Subsidiary to, possess and maintain all material Intellectual Property
Rights necessary to the conduct of their respective businesses and own all
right, title and interest in and to, or have a valid license for, all such
Intellectual Property Rights. Neither the Company nor any Subsidiary shall take
any action, or fail to take any action, which would result in the invalidity,
abandonment, misuse or unenforceability of such Intellectual Property Rights or
which would infringe upon or misappropriate any rights of other Persons.
3J. First Refusal Rights.
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(i) Except for (A) issuances of Common Stock (a) to the Company's
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employees, directors, consultants and advisors for incentive purposes, (b) upon
the conversion of the Series A Preferred, the Series B Preferred or the Series C
Preferred or upon the exercise of the Warrants, (c) in connection with the
acquisition of another company or business as contemplated by paragraph
3D(viii), (d) pursuant to the exercise of any other option, warrant, right or
convertible security outstanding on the date hereof, or (e) pursuant to a public
offering registered under the Securities Act, and (B) issuances of Series C
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Preferred Stock upon issuance of payment in kind dividends to the holders of the
Series C Preferred, if the Company authorizes the issuance or sale of any shares
of Common Stock or any securities containing options or rights to acquire any
shares of Common Stock (other than as a dividend on the outstanding Common
Stock), the Company shall first offer to sell to each holder of Series C
Preferred who is then an accredited investor (as defined in Rule 501(a) under
the Securities Act) a portion of such stock or securities equal to the quotient
determined by dividing (1) the number of shares of Underlying Common Stock then
held by such holder by (2) the sum of the total number of shares of Underlying
Common Stock and the number of shares of Common Stock outstanding which are not
shares of Underlying Common Stock and the number of shares of Common Stock then
issuable upon the exercise of all options, warrants, rights or conversion rights
then outstanding or reserved for issuance. Each holder of shall be entitled to
purchase such stock or securities at the most favorable price and on the most
favorable terms as such stock or securities are to be offered to any other
Persons. The purchase price for all stock and securities offered to the holders
of the Series C Preferred shall be payable in cash.
(ii) In order to exercise its purchase rights hereunder, a
holder of Series C Preferred must within 15 days after receipt of written notice
from the Company describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and such holder's
percentage allotment deliver a written notice to the Company describing its
election hereunder. If all of the stock and securities offered to the holders of
Series C Preferred is not fully subscribed by such holders, the remaining stock
and securities shall be re-offered by the Company to the holders purchasing
their full allotment upon the terms set forth in this paragraph, except that
such holders must exercise their purchase rights within five days after receipt
of such re-offer.
12
(iii) Upon the expiration of the offering periods described
above, the Company shall be entitled to sell such stock or securities which the
holders of Series C Preferred have not elected to purchase during the 90 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 90-day period must be re-offered to
the holders of Series C Preferred pursuant to the terms of this paragraph.
(iv) The rights of the holders of Series C Preferred under
this paragraph shall terminate upon the effectiveness of a registration
statement filed by the Company with the Securities and Exchange Commission under
the Securities Act with respect to an offering of Common Stock underwritten by
an investment bank with a national reputation; provided that if the registration
statement is withdrawn or abandoned before any shares of Common Stock are sold
thereunder, the provisions of this paragraph shall remain in effect.
3K. Public Disclosures. The Company shall not, nor shall it permit
------------------
any Subsidiary to, disclose any Purchaser's name or identity as an investor in
the Company in any press release or other public announcement or in any document
or material filed with any governmental entity, without the prior written
consent of such Purchaser (which consent shall not be unreasonably withheld),
unless such disclosure is required by applicable law or governmental regulations
or by order of a court of competent jurisdiction, in which case prior to making
such disclosure the Company shall give written notice to such Purchaser
describing in reasonable detail the proposed content of such disclosure and
shall permit the Purchaser to review and comment upon the form and substance of
such disclosure.
3L. Key Man Insurance. The Company shall possess within thirty
-----------------
(30) days of the Closing and maintain thereafter a $2,000,000 key man insurance
policy with respect to Xxxx X. Xxxxx (or his replacement) under which such
policy the Company is the beneficiary.
Section 4. Transfer of Restricted Securities.
---------------------------------
4A. General Provisions. Restricted Securities are transferable only
------------------
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 or Rule 144A of the Securities and Exchange Commission (or any similar rule
or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the transfer of any
----------------
Restricted Securities (other than a transfer described in paragraph 4A(i) or
(ii) above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together
with, if reasonably requested by the Company, an opinion of counsel which (to
the Company's reasonable satisfaction) is knowledgeable in securities law
matters to the effect that such
13
transfer of Restricted Securities may be effected without registration of such
Restricted Securities under the Securities Act. In addition, if the holder of
the Restricted Securities delivers to the Company an opinion of counsel that no
subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, the Company shall promptly upon such contemplated
transfer deliver new certificates for such Restricted Securities which do not
bear the Securities Act legend set forth in paragraph 7C. If the Company is not
required to deliver new certificates for such Restricted Securities not bearing
such legend, the holder thereof shall not transfer the same until the
prospective transferee has confirmed to the Company in writing its agreement to
be bound by the conditions contained in this paragraph and paragraph 7C.
4C. Rule 144A. Upon the request of any Purchaser, the Company shall
---------
promptly supply to such Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
4D. Legend Removal. If any Restricted Securities become eligible for
--------------
sale pursuant to Rule 144(k), the Company shall, upon the request of the holder
of such Restricted Securities (accompanies by such documents or certificates as
the Company may reasonably request), remove the legend set forth in paragraph 7C
from the certificates for such Restricted Securities.
Section 5. Representations and Warranties of the Company. As a
---------------------------------------------
material inducement to the Purchasers to enter into this Agreement and purchase
the Series C Preferred and the Warrant hereunder, the Company hereby represents
and warrants to the Purchasers that:
5A. Organization, Corporate Power and Licenses. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Delaware and, except as set forth on the attached "Organization Schedule"
(which would not have a material adverse effect on the Company's business,
operating results or financial condition), is qualified to do business in every
jurisdiction in which its ownership of property or conduct of business requires
it to qualify. The Company possesses all requisite corporate power and
authority and all material licenses, permits and authorizations necessary to own
and operate its properties, to carry on its businesses as now conducted and
presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement. The copies of the Company's and each
Subsidiary's charter documents and bylaws which have been furnished to the
Purchasers' special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
5B. Capital Stock and Related Matters.
---------------------------------
14
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of (a) 15,000,000 shares of preferred
stock, of which 2,000 shares shall be designated as Series A Preferred (the
"Series A Preferred") (of which 2,000 shares shall be issued and outstanding),
5,000,000 shares shall be designated as Series B Preferred (of which 4,107,044
shares shall be issued and outstanding) and 3,000,000 shares shall be designated
as Series C Preferred (of which 1,307,190 shall be issued and outstanding), and
(b) 80,000,000 shares of Common Stock, of which 10,040,000 shares shall be
issued and outstanding and 2,500,000 shares shall be reserved for issuance upon
conversion of the Series A Preferred, 5,000,000 shares shall be reserved for
issuance upon conversion of the Series B Preferred and 3,000,000 shares shall be
reserved for issuance upon conversion of the Series C Preferred. As of the
Closing, neither the Company nor any Subsidiary shall have outstanding any stock
or securities convertible or exchangeable for any shares of its capital stock or
containing any profit participation features, nor shall it have outstanding any
rights or options to subscribe for or to purchase its capital stock or any stock
or securities convertible into or exchangeable for its capital stock or any
stock appreciation rights or phantom stock plans, except for the Series C
Preferred and the Warrants and except as set forth on the attached
"Capitalization Schedule." The Capitalization Schedule accurately sets forth
the following information with respect to all outstanding options and rights to
acquire the Company's capital stock: the holder, the number of shares covered,
the exercise price and the expiration date. As of the Closing, neither the
Company nor any Subsidiary shall be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any warrants, options or other rights to acquire its capital
stock, except as set forth on the Capitalization Schedule. As of the Closing,
all of the outstanding shares of the Company's capital stock shall be validly
issued, fully paid and nonassessable.
(ii) Except as shall have been waived prior to the Closing,
there are no statutory or, to the best of the Company's knowledge, contractual
shareholders' preemptive rights or rights of refusal with respect to the
issuance of the Series C Preferred or the Warrants hereunder, the issuance of
the Common Stock upon conversion of the Series C Preferred or upon exercise of
the Warrants. The Company has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of its
capital stock, and the offer, sale and issuance of the Series C Preferred or the
Warrants hereunder do not require registration under the Securities Act or any
applicable state securities laws. To the best of the Company's knowledge, there
are no agreements between the Company's shareholders with respect to the voting
or transfer of the Company's capital stock or with respect to any other aspect
of the Company's affairs, except as set forth in the Capitalization Schedule.
5C. Subsidiaries; Investments. The attached "Subsidiary Schedule"
-------------------------
correctly sets forth the name of each Subsidiary, the jurisdiction of its
incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own
15
its properties and to carry on its businesses as now being conducted and as
presently proposed to be conducted and is qualified to do business in every
jurisdiction in which its ownership of property or the conduct of business
requires it to qualify. All of the outstanding shares of capital stock of each
Subsidiary are validly issued, full paid and nonassessable, and all such shares
are owned by the Company or another Subsidiary free and clear of any Lien and
not subject to any option or right to purchase any such shares. Except as set
forth on the Subsidiary Schedule, neither the Company nor any Subsidiary owns or
holds the right to acquire any shares of stock or any other security or interest
in any other Person.
5D. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement, the Warrants, the Registration Agreement, the
Shareholders Agreement and all other agreements contemplated hereby to which the
Company is a party, the filing of the Certificate and the amendment of the
Company's bylaws have been duly authorized by the Company. This Agreement, the
Warrants, the Registration Agreement, the Shareholders Agreement and all other
agreements contemplated hereby to which the Company is a party each constitutes
a valid and binding obligation of the Company, enforceable in accordance with
its terms, except as such enforceability is limited by bankruptcy, insolvency,
moratorium or other laws affecting the enforcement or creditors' rights
generally, and by general equitable principles. Except as set forth on the
attached "Restrictions Schedule," the execution and delivery by the Company of
this Agreement, the Registration Agreement, the Shareholders Agreement and all
other agreements contemplated hereby to which the Company is a party, the
offering, sale and issuance of the Series C Preferred and the Warrants, the
issuance of the Common Stock upon conversion of the Series C Preferred, the
issuance of Common Stock upon exercise of the Warrants, the filing of the
Certificate and the amendment of the Company's bylaws and the fulfillment of and
compliance with the respective terms hereof and thereof by the Company, do not
and shall not (i) conflict with or result in a breach of the terms, conditions
or provisions of, (ii) constitute a default under, (iii) result in the creation
of any lien, security interest, charge or encumbrance upon the Company's or any
Subsidiary's capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval, exemption or
other action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the charter or bylaws
of the Company or any Subsidiary as in effect on the date hereof, or any law,
statute, rule or regulation to which the Company or any Subsidiary is subject,
or any agreement, instrument, order, judgment or decree to which the Company or
any Subsidiary is subject. Except as set forth on the Restrictions Schedule,
none of the Subsidiaries are subject to any restrictions upon making loans or
advances or paying dividends to, transferring property to, or repaying any
Indebtedness owed to, the Company or another Subsidiary.
5E. Financial Statements. Attached hereto as the "Financial
--------------------
Statements Schedule" are the following financial statements:
16
(i) the unaudited consolidated balance sheet of the Company and
its Subsidiaries as of December 31, 1998, and the related statements of income
and cash flows (or the equivalent) for the respective twelve-month period then
ended; and
(ii) the unaudited consolidated balance sheet of the Company and
its Subsidiaries as of June 30, 1999 (the "Latest Balance Sheet"), and the
related statements of income and cash flows (or the equivalent) for the six-
month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject in the case of the unaudited financial statements to the absence of
footnote disclosure and changes resulting from normal year-end adjustments (none
of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole).
5F. Absence of Undisclosed Liabilities. Except as set forth on the
----------------------------------
attached "Liabilities Schedule," the Company and its Subsidiaries do not have
any material obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to the Company or any
Subsidiary, whether due or to become due and regardless of when asserted)
arising out of transactions entered into at or prior to the Closing, or any
material action or inaction at or prior to the Closing, or any state of material
facts existing at or prior to the Closing other than: (i) liabilities set forth
on the Latest Balance Sheet (including any notes thereto), (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business (none of which is a liability resulting from breach
of contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
other liabilities and obligations expressly disclosed in the other Schedules to
this Agreement.
5G. No Material Adverse Change. Except as set forth on the attached
--------------------------
"Adverse Change Schedule," since the date of the Latest Balance Sheet, there has
been no material adverse change in the financial condition, operating results,
assets, operations, business prospects, employee relations or customer or
supplier relations of the Company and its Subsidiaries taken as a whole.
5H. Absence of Certain Developments.
-------------------------------
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Developments Schedule," since the date of the Latest
Balance Sheet, neither the Company nor any Subsidiary have
17
(a) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity securities;
(b) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary course
of business;
(c) discharged or satisfied any Lien or paid any obligation
or liability, other than current liabilities paid in the ordinary course of
business;
(d) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its capital stock or other
equity securities or purchased or redeemed any shares of its capital stock or
other equity securities (including, without limitation, any warrants, options
or other rights to acquire its capital stock or other equity securities);
(e) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Liens for current property taxes not yet
due and payable;
(f) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or canceled any debts or claims;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible
assets;
(h) suffered any extraordinary losses or waived any rights of
value, whether or not in the ordinary course of business or consistent with
past practice;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $10,000;
(j) made any loans or advances to, guarantees for the benefit
of, or any Investments in, any Persons in excess of $10,000 in the aggregate;
(k) made any charitable contributions or pledges in excess of
$10,000 in the aggregate;
(l) suffered any damage, destruction or casualty loss
exceeding in the aggregate $10,000, whether or not covered by insurance;
18
(m) made any Investment in or taken steps to incorporate any
Subsidiary; or
(n) entered into any other transaction other than in the
ordinary course of business.
(ii) Neither the Company nor any Subsidiary has at any time made
any payments for political contributions or made any bribes, kickback payments
or other illegal payments.
5I. Assets. Except as set forth on the attached "Assets Schedule,"
------
the Company and each Subsidiary have good and marketable title to, or, to the
knowledge of the Company, a valid leasehold interest in, the properties and
assets used by them, located on their premises or shown on the Latest Balance
Sheet or acquired thereafter, free and clear of all Liens, except for properties
and assets disposed of in the ordinary course of business since the date of the
Latest Balance Sheet and except for Liens disclosed on the Latest Balance Sheet
(including any notes thereto) and Liens for current property taxes not yet due
and payable. Other than ordinary wear and tear or except as described on the
Assets Schedule, the Company's and each Subsidiary's buildings, equipment and
other tangible assets are in good operating condition in all material respects
and are fit for use in the ordinary course of business. The Company and each
Subsidiary own, or have a valid leasehold interest in, all assets necessary for
the conduct of their respective businesses as presently conducted and as
presently proposed to be conducted.
5J. Tax Matters.
-----------
19
(i) Except as set forth on the attached "Taxes Schedule": the
Company, each Subsidiary and each Affiliated Group have filed all Tax Returns
which they are required to file under applicable laws and regulations; all such
Tax Returns are complete and correct in all material respects and have been
prepared in compliance with all applicable laws and regulations in all material
respects; the Company, each Subsidiary and each Affiliated Group in all material
respects have paid all Taxes due and owing by them (whether or not such Taxes
are required to be shown on a Tax Return) and have withheld and paid over to the
appropriate taxing authority all Taxes which they are required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
party; neither the Company, any Subsidiary nor any Affiliated Group has waived
any statute of limitations with respect to any Taxes or agreed to any extension
of time with respect to any Tax assessment or deficiency; the accrual for Taxes
on the Latest Balance Sheet would be adequate to pay all Tax liabilities of the
Company and its Subsidiaries if their current tax year were treated as ending on
the date of the Latest Balance Sheet (excluding any amount recorded which is
attributable solely to timing differences between book and Tax income); since
the date of the Latest Balance Sheet, the Company and its Subsidiaries have not
incurred any liability for Taxes other than in the ordinary course of business;
the assessment of any additional Taxes for periods for which Tax Returns have
been filed by the Company, each Subsidiary and each Affiliated Group shall not
exceed the recorded liability therefor on the Latest Balance Sheet (excluding
any amount recorded which is attributable solely to timing differences between
book and Tax income); no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to the Company, any Subsidiary or any Affiliated Group, no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority and no written notice indicating an intent to open an
audit or other review has been received by the Company from any foreign,
federal, state or local taxing authority; and there are no material unresolved
questions or claims concerning the Company's, any Subsidiary's or any Affiliated
Group Tax liability.
(ii) Neither the Company nor any of its Subsidiaries has made an
election under (S)341(f) of the Internal Revenue Code of 1986, as amended.
Neither the Company nor any Subsidiary is liable for the Taxes of another Person
that is not a Subsidiary in a material amount under (a) Treas. Reg. (S) 1.1502-6
(or comparable provisions of state, local or foreign law), (b) as a transferee
or successor, (c) by contract or indemnity or (d) otherwise. Neither the
Company nor any Subsidiary is a party to any tax sharing agreement. The
Company, each Subsidiary and each Affiliated Group have disclosed on their
federal income Tax Returns any position taken for which substantial authority
(within the meaning of IRC (S)6662(d)(2)(B)(i)) did not exist at the time the
return was filed. Neither the Company nor any Subsidiary has made any payments,
is obligated to make payments or is a party to an agreement that could obligate
it to make any payments that would not be deductible under IRC (S)280G.
(iii) "Tax" or "Taxes" means federal, state, county, local,
foreign or other income, gross receipts, ad valorem, franchise, profits, sales
or use, transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or
20
other withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind whatsoever
(including, without limitation, deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or not. "Tax Return" means any
return, information report or filing with respect to Taxes, including any
schedules attached thereto and including any amendment thereof. "Affiliated
Group" means any affiliated group as defined in IRC (S)1504 that has filed a
consolidated return for federal income tax purposes (or any similar group under
state, local or foreign law) for a period during which any of the Company or any
of its Subsidiaries was a member.
5K. Contracts and Commitments; Significant Customers.
------------------------------------------------
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Contracts Schedule" or the attached "Employee Benefits
Schedule," neither the Company nor any Subsidiary is a party to or bound by any
written or oral:
(a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or arrangement,
or any collective bargaining agreement or any other contract with any labor
union, or severance agreements, programs, policies or arrangements;
(b) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other basis
or contract relating to loans to officers, directors or Affiliates;
(c) contract under which the Company or Subsidiary has
advanced or loaned any other Person any amounts;
(d) agreement or indenture relating to borrowed money or
other Indebtedness or the mortgaging, pledging or otherwise placing a Lien on
any material asset or material group of assets of the Company and its
Subsidiaries;
(e) guarantee of any obligation;
(f) lease or agreement under which the Company or any
Subsidiary is lessee of or holds or operates any property, real or personal,
owned by any other party, except for any lease of real or personal property
under which the aggregate annual rental payments do not exceed $5,000;
21
(g) lease or agreement under which the Company or any
Subsidiary is lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by the Company or any
Subsidiary;
(h) contract or group of related contracts with the same
party or group of affiliated parties the performance of which involves
consideration in excess of $5,000;
(i) assignment, license, indemnification or agreement with
respect to any intangible property (including, without limitation, any
Intellectual Property);
(j) warranty agreement with respect to its services rendered
or its products sold or leased;
(k) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(l) sales, distribution or franchise agreement;
(m) agreement with a term of more than six months which is
not terminable by the Company or any Subsidiary upon less than 30 days notice
without penalty;
(n) contract, agreement or other arrangement with any
officer, director , shareholder, employee or Affiliate, or any Affiliate of
any officer, director, shareholder or employee;
(o) contract or agreement prohibiting it from freely engaging
in any business or competing anywhere in the world; or
(p) any other agreement which is material to its operations
and business prospects or involves a consideration in excess of $5,000
annually.
(ii) All of the contracts, agreements and instruments set forth
on the Contracts Schedule are valid, binding and enforceable in all material
respects against the Company in accordance with their respective terms and, to
the Company's knowledge the other parties thereto, except, in any case, as such
enforceability is limited bankruptcy, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights generally, and by general
equitable principles. The Company and each Subsidiary have performed all
material obligations required to be performed by them and are not in default
under or in breach of nor in receipt of any claim of default or breach under any
contract, agreement or instrument; no event has occurred which with the passage
of time or the giving of notice or both would result in a material default,
breach or event of noncompliance by the Company or any Subsidiary under any
contract, agreement or instrument; neither the Company nor any Subsidiary has
any present expectation or intention of not fully performing all
22
such obligations; neither the Company nor any Subsidiary has knowledge of any
breach or anticipated breach by the other parties to any contract, agreement,
instrument or commitment; and neither the Company nor any Subsidiary is a party
to any materially adverse contract or commitment.
(iii) The Purchasers' special counsel has been supplied with a
true and correct copy of each of the written instruments, plans, contracts and
agreements and an accurate description of each of the oral arrangements,
contracts and agreements which are referred to on the Contracts Schedule,
together with all amendments, waivers or other changes thereto.
(iv) The attached "Significant Customers Schedule" sets forth a
complete and accurate list of all Significant Customers. For purposes of this
Agreement, "Significant Customers" are the twenty (20) customers that have
effected the most purchases, in dollar terms, from the Company during each of
the past four (4) fiscal quarters. Except to the extent set forth on the
Significant Customers Schedule, none of the Company's Significant Customers has
canceled or substantially reduced or, to the knowledge of the Company, is
currently attempting or threatening to cancel or substantially reduce, any
purchases from the Company.
5L. Intellectual Property Rights.
----------------------------
(i) The attached "Intellectual Property Schedule" contains a
complete and accurate list of all (a) patented or registered Intellectual
Property Rights owned or used by the Company or any Subsidiary, (b) pending
patent applications and applications for registrations of other Intellectual
Property Rights filed by the Company or any Subsidiary, (c) unregistered trade
names and corporate names owned or used by the Company or any Subsidiary and (d)
unregistered trademarks, service marks, copyrights, mask works and computer
software owned or used by the Company or any Subsidiary. The Intellectual
Property Schedule also contains a complete and accurate list of all licenses and
other rights granted by the Company or any Subsidiary to any third party with
respect to any Intellectual Property Rights and all licenses and other rights
granted by any third party to the Company or any Subsidiary with respect to any
Intellectual Property Rights, in each case identifying the subject Intellectual
Property Rights. Except as set forth on the Intellectual Property Schedule, the
Company or one of its Subsidiaries owns all right, title and interest to, or has
the right to use pursuant to a valid license, all Intellectual Property Rights
necessary for the operation of the businesses of the Company and its
Subsidiaries as presently conducted and as presently proposed to be conducted,
free and clear of all Liens. Except as set forth on the Intellectual Property
Schedule, to the Company's knowledge the loss or expiration of any Intellectual
Property Right or related group of Intellectual Property Rights owned or used by
the Company or any Subsidiary is not threatened, pending or reasonably
foreseeable.
(ii) Except as set forth on the Intellectual Property Schedule,
(a) the Company and its Subsidiaries own all right, title and interest in and to
all of the Intellectual Property Rights listed on such schedule, free and clear
of all Liens, (b) there have been no claims made against the
23
Company or any Subsidiary asserting the invalidity, misuse or unenforceability
of any of such Intellectual Property Rights, and there are no grounds for the
same, (c) neither the Company nor any Subsidiary has received any notices of,
and is not aware of any facts which indicate a likelihood of, any infringement
or misappropriation by, or conflict with, any third party with respect to such
Intellectual Property Rights (including, without limitation, any demand or
request that the Company or any Subsidiary license any rights from a third
party), (d) to the Company's knowledge, the conduct of the Company's and each
Subsidiary's business has not infringed, misappropriated or conflicted with and
does not infringe, misappropriate or conflict with any Intellectual Property
Rights of other Persons, nor would any future conduct as presently contemplated
infringe, misappropriate or conflict with any Intellectual Property Rights of
other Persons and (e) to the best of the Company's knowledge, the Intellectual
Property Rights owned by or licensed to the Company or any Subsidiary have not
been infringed, misappropriated or conflicted by other Persons. Except as set
forth in the Intellectual Property Schedule, the transactions contemplated by
this Agreement shall have no material adverse effect on the Company's or any
Subsidiary's right, title and interest in and to the Intellectual Property
Rights listed on the Intellectual Property Schedule.
5M. Litigation, etc. Except as set forth on the attached "Litigation
---------------
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or employees of the Company and its Subsidiaries with respect to their
businesses or proposed business activities), or pending or threatened by the
Company or any Subsidiary against any third party, at law or in equity, or
before or by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suit, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); nor has there been any such actions, suits, proceedings, orders,
investigations or claims pending against or affecting the Company or any
Subsidiary during the past 3 years; neither the Company nor any Subsidiary is
subject to any arbitration proceedings under collective bargaining agreements or
otherwise or, to the best of the Company's knowledge, any governmental
investigations or inquiries (including, without limitation, inquiries as to the
qualification to hold or receive any license or permit); and, to the best of the
Company's knowledge, there is no basis for any of the foregoing. Neither the
Company nor any Subsidiary is subject to any judgment, order or decree of any
court or other governmental agency.
5N. Brokerage. Except as set forth on the attached "Brokerage
---------
Schedule," there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon the Company or any
Subsidiary. The Company shall pay, and hold each Purchaser harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any such
claim.
24
5O. Governmental Consent, etc. No permit, consent, approval or
-------------------------
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as set forth on the attached "Consents Schedule" and except as
expressly contemplated herein or in the exhibits hereto.
5P. Insurance. The attached "Insurance Schedule" contains a
---------
description of each insurance policy maintained by the Company and its
Subsidiaries with respect to its properties, assets and businesses, and each
such policy is in full force and effect as of the Closing. Neither the Company
nor any Subsidiary is in default with respect to its obligations under any
insurance policy maintained by it, and neither the Company nor any Subsidiary
has been denied insurance coverage. The insurance coverage of the Company and
its Subsidiaries is customary for corporations of similar size engaged in
similar lines of business. Except as set forth on the Insurance Schedule, the
Company and its Subsidiaries do not have any self-insurance or co-insurance
programs, and the reserves set forth on the Latest Balance Sheet are adequate to
cover all anticipated liabilities with respect to any such self-insurance or co-
insurance programs.
5Q. Employees. Except as set forth on the attached "Employees
---------
Schedule," the Company is not aware that any executive or key employee of the
Company or any Subsidiary or any group of employees of the Company or any
Subsidiary has any plans to terminate employment with the Company or any
Subsidiary. The Company and each Subsidiary have complied in all material
respects with all laws relating to the employment of labor (including, without
limitation, provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes), and
the Company is not aware that it or any Subsidiary has any material labor
relations problems (including, without limitation, any union organization
activities, threatened or actual strikes or work stoppages or material
grievances). Neither the Company, its Subsidiaries nor, to the best of the
Company's knowledge, any of their employees is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreements
relating to, affecting or in conflict with the present or proposed business
activities of the Company and its Subsidiaries, except for agreements between
the Company and its present and former employees.
5R. ERISA.
-----
(i) Multiemployer Plans. Except as set forth on the "Employee
-------------------
Benefits Schedule," the Company does not have any obligation to contribute to
(or any other liability, including current or potential withdrawal liability,
with respect to) any "multiemployer plan" (as defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")).
25
(ii) Retiree Welfare Plans. Except as set forth on the "Employee
---------------------
Benefits Schedule," the Company does not maintain or have any obligation to
contribute to (or any other lia bility with respect to) any plan or arrangement
whether or not terminated, which provides medical, health, life insurance or
other welfare-type benefits for current or future retired or terminated
employees (except for limited continued medical benefit coverage required to be
provided under Section 4980B of the IRC or as required under applicable state
law).
(iii) Defined Benefit Plans. Except as set forth on the
---------------------
"Employee Benefits Schedule," the Company does not maintain, contribute to or
have any liability under (or with respect to) any employee plan which is a tax-
qualified "defined benefit plan" (as defined in Section 3(35) of ERISA), whether
or not terminated.
(iv) Defined Contribution Plans. Except as set forth on the
--------------------------
"Employee Benefits Schedule," the Company does not maintain, contribute to or
have any liability under (or with respect to) any employee plan which is a tax-
qualified "defined contribution plan" (as defined in Section 3(34) of ERISA)
(the"Profit Sharing Plan"), whether or not terminated.
(v) Other Plans. Except as set forth in the "Employee Benefits
-----------
Schedule, the Company does not maintain, contribute to or have any liability
under (or with respect to) any plan or arrangement providing benefits to current
or former employees, including any bonus plan, plan for deferred compensation,
employee health or other welfare benefit plan or other arrangement, whether or
not terminated. All plans and arrangements set forth on the "Employee Benefits
Schedule" are referred to as the "Plans."
(vi) The Company. For purposes of this paragraph 5R, the term
-----------
"Company" includes all organizations under common control with the Company
pursuant to Section 414(b) or (c) of the IRC.
(vii) Payments and Accruals. With respect to the Plans, all
---------------------
required or recommended (in accordance with historical practices) payments,
premiums, contributions, reimbursements or accruals for all periods (or partial
periods) ending prior to or as of the Closing shall have been made or properly
accrued on the Latest Balance Sheet. None of the Plans has any material unfunded
liabilities which are not reflected on the Latest Balance Sheet.
(viii) Compliance. The Plans and all related trusts, insurance
----------
contracts and funds have been maintained, funded and administered in compliance
in all material respects with the applicable provisions of ERISA, the IRC and
other applicable laws. Neither the Company nor any trustee or administrator of
any Plan has engaged in any transaction with respect to the Plans which could
subject the Company or any trustee or administrator or the Plans, or any party
dealing with any such Plan, nor do the transactions contemplated by this
Agreement constitute transactions which could subject any such party, to either
a civil penalty assessed pursuant to Section 502(i) of ERISA
26
or the tax or penalty on prohibited transactions imposed by Section 4975 of the
IRC. No actions, suits or claims with respect to the assets of the Plans (other
than routine claims for benefits) are pending or, to the Company's knowledge,
threatened which could result in or subject the Company to any liability, and,
to the Company's knowledge, there are no circumstances which could give rise to
or be expected to give rise to any such actions, suits or claims.
(ix) Correct Copies. The Company has provided the Purchasers
--------------
with true and complete copies of all documents pursuant to which the Plans are
maintained and administered and the most recent annual reports (Form 5500 and
attachments), if any, for the Plans.
5S. Compliance with Laws. Except as set forth on the attached
--------------------
"Compliance Schedule," neither the Company nor any Subsidiary is in violation of
any law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole, and neither the Company
nor any Subsidiary has received notice of any such violation. Except as set
forth on the Compliance Schedule, neither the Company nor any Subsidiary is
subject to, or has reason to believe it may become subject to, any liability
(contingent or otherwise) or corrective or remedial obligation arising under any
federal, state, local or foreign law, rule or regulation (including the common
law) relating to or regulating health, safety, pollution or the protection of
the environment ("Environmental Laws"). Without limiting the generality of the
foregoing, (i) the Company and each Subsidiary have obtained all permits,
licenses and authorizations required under, and have complied in all respects
with, all Environmental Laws, (ii) no notice has been received by the Company or
any Subsidiary regarding any violation of, or any claim, liability or corrective
or remedial obligation under, any Environmental Laws and (iii) to the Company's
knowledge, no facts or circumstances exist with respect to the past or present
operations or facilities of the Company or any Subsidiary which would give rise
to a liability or corrective or remedial obligation under any Environmental
Laws.
5T. Affiliated Transactions. Except as set forth on the attached
-----------------------
"Affiliated Transactions Schedule," no officer, director, employee, shareholder
or Affiliate of the Company or any Subsidiary or, to the Company's knowledge,
any individual related by blood, marriage or adoption to any such individual or,
to the Company's knowledge, any entity in which any such Person or individual
owns any beneficial interest, is a party to any agreement, contract, commitment
or transaction with the Company or any Subsidiary or has any material interest
in any material property used by the Company or any Subsidiary.
5U. Web Site. To the Company's knowledge, the ownership, operation
--------
and use of the Web Site or any User Information by the Company and its
Subsidiaries has not violated any applicable laws or regulations and neither the
Company nor any of its Subsidiaries has breached any contractual or other legal
obligations relating to the Web Site or any User Information (including any
27
obligations to users of the Web Site). "Web Site" shall mean the web site having
the URL address "xxx.X00.xxx" and any other web site owned and operated by the
Company or any of its Subsidiaries, as such web sites may have changed from time
to time. "User Information" shall mean information of any type regarding users
of the Web Site (including, without limitation, information supplied by such
users).
5V. Disclosure. Neither this Agreement nor any of the exhibits,
----------
schedules, closing certificates or attachments hereto contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein, in light of the circumstances under which
it is made, not misleading. There is no fact which the Company has not
disclosed to the Purchasers in writing and of which any of its officers,
directors or general managers is aware and which has had or would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, customer or supplier relations, employee relations or
business prospects of the Company and its Subsidiaries taken as a whole.
5W. Knowledge. As used in this Section 5, the terms "knowledge" or
---------
"aware" shall mean and include (i) the actual knowledge or awareness of the
Company and its Subsidiaries (which shall include the actual knowledge and
awareness of the officers, directors and the general managers of each facility
of the Company and its Subsidiaries) and (ii) the knowledge or awareness which a
prudent business person would have obtained in the conduct of his business after
making reasonable inquiry and reasonable diligence with respect to the
particular matter in question.
Section 6. Definitions.
-----------
6A. Definitions. For the purposes of this Agreement, the following
-----------
terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
28
"Indebtedness" means at a particular time, without duplication, (i)
------------
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business which
are not more than six months past due), (iv) any commitment by which a Person
assures a creditor against loss (including, without limitation, contingent
reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) any unsatisfied
obligation for "withdrawal liability" to a "multiemployer plan" as such terms
are defined under ERISA.
"Intellectual Property Rights" means all (i) patents, patent
-----------------------------
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations (other
than trade payables or other liabilities incurred in the ordinary course of
business payable within 90 days of incurrence), instruments, stock, securities
or ownership interest (including partnership interests and joint venture
interests) of any other Person and (ii) any capital contribution by such Person
to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
---
29
"Liens" means any mortgage, pledge, security interest, encumbrance,
-----
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Officer's Certificate" means a certificate signed by the Company's
---------------------
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (ii) to the best of such officer's knowledge, such
certificate is accurate and complete in all material respects.
"Permitted Liens" means:
---------------
(i) tax liens with respect to taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings and for
which appropriate reserves have been established in accordance with generally
accepted accounting principles, consistently applied;
(ii) deposits or pledges made in connection with, or to secure
payment of, utilities or similar services, workers' compensation, unemployment
insurance, old age pensions or other social security obligations;
(iii) purchase money security interests in any property acquired
by the Company or any Subsidiary to the extent permitted by this Agreement;
(iv) interests or title of a lessor under any lease permitted
by this Agreement;
(v) mechanics', materialmen's or contractors' liens or
encumbrances or any similar lien or restriction for amounts not yet due and
payable;
(vi) easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of the
business of the Company and its Subsidiaries or detracting from the value of
the assets of the Company and its Subsidiaries;
30
(vii) liens outstanding on the date hereof which secure
Indebtedness and which are described in the schedules to this Agreement.
31
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Restricted Securities" means (i) the Series C Preferred issued
---------------------
hereunder, (ii) the Warrants issued hereunder, (iii) the Common Stock issued
upon conversion of Series C Preferred or upon exercise of the Warrants and
(iv) any securities issued with respect to the securities referred to in clauses
(i), (ii) or (iii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) been distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act or become eligible for
sale pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 7C have been
delivered by the Company in accordance with paragraph 4(ii). Whenever any
particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new securities
of like tenor not bearing a Securities Act legend of the character set forth in
paragraph 7C.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, or any similar federal law then in force.
"Subsidiary" means, with respect to any Person, any corporation,
-----------
limited liability company, partnership, association or other business
entity of which (i) if a corporation, a majority of the total voting power
of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof,
a Person or Persons shall be deemed to have a majority ownership interest
in a limited liability company, partnership, association or other business
entity if such Person or Persons shall be allocated a majority of limited
liability company, partnership, association or other business entity gains
or losses or shall be or control any managing
32
director or general partner of such limited liability company, partnership,
association or other business entity.
"Treasury Regulations" means the United States Treasury Regulations
--------------------
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"Underlying Common Stock" means (i) the Common Stock issued or
-----------------------
issuable upon conversion of the Series C Preferred or upon exercise of the
Warrants and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement only, any
Person who holds Series C Preferred or a Warrant shall be deemed to be the
holder of the Underlying Common Stock obtainable upon conversion of the Series C
Preferred or exercise of a Warrant in connection with the transfer thereof or
otherwise regardless of any restriction or limitation on the conversion of the
Series C Preferred or exercise of the Warrant, such Underlying Common Stock
shall be deemed to be in existence, and such Person shall be entitled to
exercise the rights of a holder of Underlying Common Stock hereunder. As to any
particular shares of Underlying Common Stock, such shares shall cease to be
Underlying Common Stock when they have been (a) effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) distributed to the public through a broker, dealer or market
maker pursuant to Rule 144 under the Securities Act (or any similar provision
then in force) or (c) repurchased by the Company or any Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
-----------------------
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 7. Miscellaneous.
-------------
7A. Expense. The Company and the Purchasers shall each bear their
-------
own fees, costs and expenses incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby and any amendments or waivers
thereto.
7B. Remedies. Each holder of Series C Preferred and Underlying
--------
Common Stock shall have all rights and remedies set forth in this Agreement,
Certificate and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting
33
a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
7C. Purchaser's Investment Representations. Each Purchaser hereby
--------------------------------------
represents that it is an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act and that it is acquiring the Restricted
Securities purchased hereunder or acquired pursuant hereto for its own account
with the present intention of holding such securities for purposes of
investment, and that it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws; provided that nothing contained herein shall prevent any
Purchaser and subsequent holders of Restricted Securities from transferring such
securities in compliance with the provisions of Section 4 hereof. Each
certificate or instrument representing Restricted Securities shall be imprinted
with a legend in substantially the following form:
"The securities represented by this certificate were originally issued on
September __, 1999 and have not been registered under the Securities Act of
1933, as amended (the "Act"), and may not be transferred, sold or pledged
without registration under the Act, unless otherwise exempt from such
registration requirements. The transfer of the securities represented by
this certificate is subject to the conditions specified in the Purchase
Agreement, dated as of September __,1999 and as amended and modified from
time to time, between the issuer (the "Company") and certain investors, and
the Company reserves the right to refuse the transfer of such securities
until such conditions have been fulfilled with respect to such transfer. A
copy of such conditions shall be furnished by the Company to the holder
hereof upon written request and without charge."
7D. Consent to Amendments. Except as otherwise expressly
---------------------
provided herein, the provisions of this Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of a majority of the outstanding Series C Preferred;
provided that if there is no Series C Preferred outstanding, the provisions of
this Agreement may be amended and the Company may take any action herein
prohibited, only if the Company has obtained the written consent of the holders
of a majority of the Underlying Common Stock. No other course of dealing
between the Company and the holder of any Series C Preferred, Warrant or
Underlying Common Stock or any delay in exercising any rights hereunder or under
the Certificate shall operate as a waiver of any rights of any such holders.
For purposes of this Agreement, shares of Series C Preferred or Underlying
Common Stock held by the Company or any Subsidiaries shall not be deemed to be
outstanding.
7E. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the
34
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, regardless of any investigation made by any
Purchaser or on its behalf.
7F. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Series C Preferred, a Warrant or Underlying Common Stock
are also for the benefit of, and enforceable by, any subsequent holder of such
Series C Preferred, such Warrant or such Underlying Common Stock.
7G. Generally Accepted Accounting Principles. Where any accounting
----------------------------------------
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied.
7H. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
7I. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts (including facsimile copies), any one of which need not
contain the signatures of more than one party, but all such counterparts taken
together shall constitute one and the same Agreement.
7J. Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
7K. Governing Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
7L. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by
35
reputable overnight courier service (charges prepaid) or mailed to the recipient
by certified or registered mail, return receipt requested and postage prepaid.
Such notices, demands and other communications shall be sent to each Purchaser
at the address indicated on the Schedule of Purchasers and to the Company at the
address indicated below:
L90, Inc.
0000 Xxxxx Xxxxxx Xxxx.
Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attn: Executive Financial Officer
with a copy to:
Xxxx Xxxxxxxx Xxxxxxxx & Xxxxxx LLP
000 Xxxxx Xxxxxx Xxxxxx, 00/xx/ Xxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Xx.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7M. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
7N. Arbitration. Each of the parties hereto agrees that in the event
-----------
of any dispute arising between the parties arising out of or relating to this
Agreement or its breach, such dispute shall be resolved pursuant to the pre-
dispute arbitration agreement attached hereto as Exhibit F.
---------
* * * * * *
36
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
L90, INC.
By: /s/ Xxxx X. Xxxxx
----------------------------
Name: Xxxx X. Xxxxx
Title: President and CEO
RARE MEDIUM GROUP, INC.
By: /s/ Xxxxxx Xxxxx
----------------------------
Name: Xxxxxx Xxxxx
Title: Vice President
DEVELOPMENT VENTURES (TWO) INC.
By: /s/ Xxxxxxx Xxxxxxxxxxxx
----------------------------
Name: Xxxxxxx Xxxxxxxxxxxx
Title: Chief Financial Officer
[Signature Page to Series C Purchase Agreement]
SCHEDULE OF PURCHASERS
----------------------
Closing as of September 21, 1999
No. of Total Warrant
Shares Purchase for No. of Total
of Price for Shares of Purchase
Names and Series C Series C Common Price for
Addresses Preferred Preferred Stock Warrant
---------- --------- ---------- ----- ---------
Development Ventures 653,595 $2,000,000.70 1,011,044 $1,011.04
(Two) Inc., a Delaware
corporation
Rare Medium Group, 653,595 $2,000,000.70 900,000 $ 900.00
Inc., a Delaware
corporation
TOTAL 1,307,190 $4,000,001.40 1,911,044 $1,911,04
LIST OF EXHIBITS
----------------
Exhibit A - Certificate
Exhibit B - Warrant
Exhibit C - Registration Agreement
Exhibit D - Shareholders Agreement
Exhibit E - Opinion of Counsel
Exhibit F - Pre-Dispute Arbitration Agreement
LIST OF DISCLOSURE SCHEDULES
----------------------------
Use of Proceeds Schedule
Organization Schedule
Capitalization Schedule
Subsidiary Schedule
Restrictions Schedule
Financial Statements Schedule
Liabilities Schedule
Adverse Change Schedule
Developments Schedule
Assets Schedule
Taxes Schedule
Contracts Schedule
Significant Customers Schedule
Intellectual Property Schedule
Litigation Schedule
Brokerage Schedule
Consents Schedule
Insurance Schedule
Employees Schedule
Employee Benefits Schedule
Compliance Schedule
Environmental Schedule
Affiliated Transactions Schedule
Customers Schedule
