Exhibit 10.1
EXCHANGE AGREEMENT
Among
LEVEL 8 SYSTEMS, INC.
and
THE HOLDERS LISTED ON SCHEDULE I
Dated as of August 29, 2001
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement") is dated as of
August 29, 2002 among Level 8 Systems, Inc., a Delaware corporation (the
"Company"), and the various stockholders identified and listed on Schedule I
hereto (each referred to herein as a "Holder" and, collectively, the "Holders").
WHEREAS, the Company and the Holders are parties to that
certain Exchange Agreement dated as of October 16, 2001
(The "2001 Exchange Agreement") providing for the exchange of the Company's
Series A 4% Convertible Redeemable Preferred Stock, par value $0.001 per share,
liquidation value $1,000 per share, initial conversion price $10.00 (the "Series
A Preferred Stock") and related warrants to purchase the Company's common stock
(the "Series A Warrants") and the Series B 4% Convertible Redeemable Preferred
Stock, par value $0.001 per share, liquidation value $1,000 per share, initial
conversion price $25.0625 (the "Series B Preferred Stock") and related warrants
to purchase the Company's common stock (the "Series B Warrants") for,
respectively, a series of newly created Series A1 Convertible Redeemable
Preferred Stock (the "Series A1 Preferred Stock") and related warrants to
purchase the Company's common stock (the "Series A1 Warrants") and/or a series
of newly created Series B1 Convertible Redeemable Preferred Stock (the "Series
B1 Preferred Stock") and related warrants to purchase the Common Stock of the
Company (the "Series B1 Warrants");
WHEREAS, the Company and the Holders are also parties to
either (i) that certain Securities Purchase Agreement dated as of June 28, 1999
(the "Series A Purchase Agreement") relating to the purchase and sale of the
Company's Series A Preferred Stock and Series A Warrants or (ii) that certain
Securities Purchase Agreement dated as of July 20, 2000 (the "Series B Purchase
Agreement") relating to the purchase and sale of the Company's Series B
Preferred Stock and Series B Warrants, or (iii) both the Series A Purchase
Agreement and the Series B Purchase Agreement (collectively, the "Purchase
Agreements");
WHEREAS, subject to the terms and conditions set forth in
this Agreement, the Company desires to issue to the Holders, and the Holders
desire to acquire by exchange, as applicable: (i) shares of the Company's Series
A2 Convertible Redeemable Preferred Stock, par value $0.001 per share,
liquidation value $1,000 per share, initial conversion price $8.333 (the "Series
A2 Preferred Stock") in the form of Exhibit A annexed hereto; (ii) shares of the
Company's Series B2 Convertible Redeemable Preferred Stock, par value $0.001 per
share, liquidation value $1,000 per share, initial conversion price $12.531 (the
"Series B1 Preferred Stock", and, together with the Series A2 Preferred Stock,
the "Preferred Stock") in the form of Annex B annexed hereto; (iii) a stock
purchase warrant or warrants (each, a "Series A2 Warrant"), in the form of
Exhibit C annexed hereto, to purchase an aggregate amount of 753,640 shares of
the Company's common stock, par value $0.001 per share (the "Common Stock");
and/or (iv) a stock purchase warrant or warrants (each, a "Series X0 Xxxxxxx",
and, collectively with the Series A2 Warrant, the "Warrants"), in the form of
Exhibit D annexed hereto, to purchase an aggregate amount of 1,047,382 shares of
the Common Stock;
WHEREAS, as consideration for the issuance of the Series A2
Preferred Stock, the Company desires to accept from the applicable Holders, and
the applicable Holders desire to tender and exchange 11,570 shares of Series A1
Preferred Stock; and as consideration for the issuance of the Series B2
Preferred Stock, the Company desires to accept from the applicable Holders, and
the applicable Holders desire to tender and exchange 30,000 shares of Series B1
Preferred Stock; and as consideration for the issuance of the Series A2
Warrants, the Company desires to accept from the applicable Holders, and the
applicable Holders desire to tender and exchange Series A1 Warrants to purchase
an aggregate amount of 753,640 shares of Common Stock, representing the
unexercised warrants remaining from the original issuances of warrants issued by
the Company in connection with the 2001 Exchange Agreement; and as consideration
for the issuance of the Series B2 Warrants, the Company desires to accept from
the applicable Holders, and the applicable Holders desire to tender and exchange
Series B1 Warrants to purchase an aggregate amount of 1,047,382 shares of Common
Stock, representing the unexercised warrants remaining from the original
issuances of warrants issued by the Company in connection with the 2001 Exchange
Agreement; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the forms of Exhibit E attached hereto (the
"Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, in consideration of the promises and mutual
covenants and agreements hereinafter, the Company and the Holders hereby agree
as follows:
2
ARTICLE I.
EXCHANGE
1.1 Exchange
On the Closing Date (as defined below), subject to the
terms and conditions set forth herein, the Company shall
issue and deliver to each Holder and each Holder, severally and not jointly,
shall acquire from the Company the shares of Preferred Stock as set forth on
Schedule I and a Warrant or Warrants exercisable for the amount of Common Stock
as set forth on Schedule I for such Holder. In exchange for the Preferred Stock
and/or Warrants set forth on Schedule I, the Holders shall tender to the Company
for cancellation the certificates representing the shares of Series A1 Preferred
Stock, Series B1 Preferred Stock, Series A1 Warrants and/or Series B1 Warrants
as set forth on Schedule II.
1.2 Closing.
The Closing. The closing of the exchange of the Preferred
Stock and Warrants (the "Closing") shall take place at the offices of Powell,
Goldstein, Xxxxxx & Xxxxxx XXX, 000 Xxxxxxxxx Xx.; 00xx Xxxxx, Xxxxxxx, Xxxxxxx,
00000, or by transmission by facsimile and overnight courier, immediately
following the execution hereof or such later date or different location as the
parties shall agree, but not prior to the date that the conditions set forth in
Section 4.1 have been satisfied or waived by the appropriate party (the "Closing
Date"). At the Closing:
(i) Each Holder shall deliver and tender, as directed by the
Company, all certificates and documents representing the Series A1 Preferred
Stock, the Series B1 Preferred Stock, the Series A1 Warrants and/or the Series
B1 Warrants as set forth next to its name on Schedule II;
(ii) The Company shall deliver to each Holder a certificate
evidencing the number of shares of Preferred Stock received by such Holder as
set forth on Schedule I hereto, the Series A2 Preferred Stock shall have the
respective rights, preferences, limitations and privileges set forth in Exhibit
A attached hereto, which shall be incorporated into a Certificate of Designation
of Rights, Preferences and Limitations to be approved by the Holders and the
Company's Board of Directors and filed on or before the Closing with the
Secretary of State of Delaware (the "Series A2 Certificate of Designation") and
the Series B2 Preferred Stock shall have the respective rights, preferences,
limitations and privileges set forth in Exhibit B attached hereto, which shall
be incorporated into a Certificate of Designation of Rights, Preferences and
Limitations to be approved by the Holders and the Company's Board of Directors
and filed on or before the Closing with the Secretary of State of Delaware (the
"Series B2 Certificate of Designation" and together with the Series A2
Certificate of Designation, the "Certificates of Designation"); and
(iii) The Company shall deliver to each Holder a Series A2
Warrant, in the form of Exhibit C hereto with respect to the Series A1 Warrants
tendered, and/or a Series B2 Warrant, in the form of Exhibit D hereto with
respect to the Series B1 Warrants tendered, representing the right to acquire
the number of shares of Common Stock purchased by such Holder as set forth on
Schedule II hereto; and
3
(iv) The parties shall execute and deliver each of the documents
referred to in Section 4.1.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to each of the
Holders:
a. Organization and Qualification. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Except as set forth on Schedule 2.1(a), the Company has no subsidiaries
(collectively, the "Subsidiaries"). Each of the Subsidiaries (which for purposes
of this Agreement means any entity in which the Company, directly or indirectly,
owns the majority of such entity's capital stock or holds an equivalent equity
or similar interest) is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the full corporate power and authority to own
and use its properties and assets and to carry on its business as currently
conducted. Except as set forth on Schedule 2.1(a), each of the Company and the
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of any of this Agreement or the
Transaction Documents (as defined in Section 2.1(b)) or any of the transactions
contemplated hereby or thereby, (y) have or result in a material adverse effect
on the results of operations, assets, prospects, or financial condition of the
Company and its Subsidiaries, taken as a whole or (z) materially impair the
Company's ability to perform fully on a timely basis its obligations under any
Transaction Document (any of (x), (y) or (z), being a "Material Adverse
Effect"). The Company has furnished to each of the Holders true and correct
copies of the Company's Certificate of Incorporation, as amended and as in
effect on the date hereof (the "Certificate of Incorporation"), and the
Company's Bylaws, as in effect on the date hereof (the "Bylaws").
b. Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by this Agreement, the Certificates of Designation, the Warrants
and the Registration Rights Agreement (collectively, the "Transaction
Documents"), and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of this Agreement and the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action by the Company. Each of this Agreement and the
Transaction Documents has been duly executed by the Company and when delivered
in accordance with the terms hereof will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application and except that rights to
indemnification and contribution may be limited by Federal or state securities
laws or public policy relating thereto.
4
c. Capitalization. As of the date hereof, the authorized capital stock of
the Company is as set forth in Schedule 2.1(c). All of such outstanding shares
of capital stock have been, or upon issuance will be, validly authorized and
issued, fully paid and nonassessable and were issued in accordance with the
registration provisions of the Securities Act, or pursuant to valid exemptions
therefrom. Except as disclosed in Schedule 2.1(c) or the SEC Documents (as
defined in Section 2.1(k)), (i) no shares of the Company's capital stock are
subject to preemptive rights nor is any holder of the Common Stock entitled to
preemptive or similar rights arising out of any agreement or understanding with
the Company by virtue of any Transaction Document, as defined in Section 2.1(b)
above, (ii) there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, or giving any Person
(as defined below) any right to subscribe for or acquire, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the Securities Act (except
the Registration Rights Agreement), (iv) there are no outstanding securities of
the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries, (v) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the shares of Common Stock as
described in this Agreement and (vi) except as specifically disclosed in the SEC
Documents), to the Company's knowledge, no Person (as defined below) or group of
related Persons beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) or has the right to acquire by agreement with or by obligation binding
upon the Company beneficial ownership of in excess of 5% of the Common Stock.
"Person" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
d. Authorization and Validity; Issuance of Shares. The shares of Series A2
Preferred Stock to be exchanged for the Series A1 Preferred Stock, and the
Series B2 Preferred Stock to be exchanged for the Series B1 Preferred Stock, are
and will at all times hereafter continue to be duly authorized, validly issued,
fully paid and non-assessable, free and clear of all liens, encumbrances and
rights of first refusal, other than liens and encumbrances created by the
Holders (collectively, "Liens") and will not be subject to any preemptive or
similar rights other than as granted pursuant to the Transaction Documents. The
shares of Common Stock issuable upon conversion of the Preferred Stock (the
"Conversion Shares") and exercise of the Warrants (the "Warrant Shares", and
together with the Conversion Shares the "Underlying Shares") are and will at all
times hereafter continue to be duly authorized and reserved for issuance and
will be validly issued, fully paid and non-assessable, free and clear of all
Liens and will not be subject to any preemptive or similar rights other than as
granted pursuant to the Transaction Documents.
5
e. No Conflicts. The execution, delivery and performance of this Agreement
and each of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including the
issuance of the Underlying Shares) do not and will not (i) conflict with or
violate any provision of the Certificate of Incorporation, Bylaws or other
organizational documents of the Company, except where such conflict or violation
has not resulted or would not reasonably result, individually or in the
aggregate, in a Material Adverse Effect, (ii) subject to obtaining the consents
referred to in Section 2.1(f), conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
(evidencing a Company or Subsidiary debt or otherwise) to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, except where such conflict or violation has
not resulted or would not reasonably result, individually or in the aggregate,
in a Material Adverse Effect, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or any Subsidiary is
subject (including Federal and state securities laws and regulations and the
rules and regulations of the principal market or exchange on which the Common
Stock is traded or listed) applicable to the Company or any of its Subsidiaries,
or by which any material property or asset of the Company or any Subsidiary is
bound or affected, except where such conflict has not resulted or would not
reasonably result, individually or in the aggregate, in a Material Adverse
Effect.
f. Consents and Approvals. Except with respect to the consent of Xxxxxxx
Lynch, Pierce, Xxxxxx & Xxxxx Incorporated, neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority, regulatory or self
regulatory agency, or other Person in connection with the execution, delivery
and performance by the Company of this Agreement or the Transaction Documents,
other than (i) the filing of a registration statement with the Commission, which
shall be filed in accordance with and in the time periods set forth in the
Registration Rights Agreement, (ii) the application(s) or any letter(s)
acceptable to the Nasdaq National Market ("Nasdaq") for the listing of the
Underlying Shares with Nasdaq (and with any other national securities exchange
or market on which the Common Stock is then listed), (iii) any filings, notices
or registrations under applicable state securities laws (together with the
consents, waivers, authorizations, orders, notices and filings referred to
herein, except where failure to do so has not resulted or would not reasonably
result, individually, or in the aggregate, in a Material Adverse Effect, and
(iv) the filing of the Certificates of Designation with the Secretary of State
of the State of Delaware.
6
g. Litigation; Proceedings. The Company incorporates the same
representations of Section 2.1(g) of the Series A Purchase Agreement and Section
2.1(g) of the Series B Purchase Agreement as of the respective dates thereof.
h. No Default or Violation. The Company incorporates the same
representations of Section 2.1(h) of the Series A Purchase Agreement and Section
2.1(h) of the Series B Purchase Agreement as of the respective dates thereof.
i. Disclosure; Absence of Certain Changes. None of this Agreement, the
Schedules to this Agreement, the Transaction Documents hereby contained,
contains, or will contain at the time it was or is so furnished any untrue
statement of a material fact or omitted, omits or will omit at such time to
state any material fact necessary in order to make the statements made herein
and therein, in light of the circumstances under which they were made, not
misleading. The Company incorporates the same representations of Section 2.1(i)
of the Series A Purchase Agreement and Section 2.1(i) of the Series B Purchase
Agreement as of the respective dates thereof.
j. Private Offering. The Company and all Persons acting on its behalf have
not made, directly or indirectly, and will not make, offers or sales of any
securities or solicited any offers to buy any security under circumstances that
would require registration of the Preferred Stock, the Warrants or the
Underlying Shares or the issuance of such securities under the Securities Act.
Subject to the accuracy and completeness of the representations and warranties
of the respective Holders contained in Section 2.2, the offer, sale and issuance
by the Company to the Holders of the Preferred Stock, the Warrants and the
Underlying Shares is exempt from the registration requirements of the Securities
Act.
k. SEC Documents; Financial Statements. The Common Stock of the Company is
registered pursuant to Section 12(g) of the Exchange Act. Except as disclosed on
Schedule 2.1(k), since December 31, 2001, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it,
with the Commission, pursuant to Section 13, 14 or 15(d) of the Exchange Act
(the foregoing materials and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein being collectively referred to
herein as the "SEC Documents"), on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Documents prior to
the expiration of any such extension. As of their respective dates, the SEC
Documents complied in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All agreements to which the Company or any Subsidiary is a party or
to which the property or assets of the Company or any Subsidiary are subject and
which are required to be filed as exhibits to the SEC Documents have been filed
as exhibits to the SEC Documents as required. As of their respective dates, the
financial statements of the Company included in the SEC Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved, except as may be otherwise
specified in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Company as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial
year-end audit adjustments. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided the Holders
with any material, nonpublic information without first identifying to the
Holders that they were receiving material, nonpublic information. The Company
acknowledges that the Holders will be trading in the securities of the Company
in reliance on the foregoing representation and warranty.
7
l. Investment Company. The Company is not, and is not controlled by or
under common control with an affiliate (an "Affiliate") of an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
m. Broker's Fees. The Company incorporates the same representations of
Section 2.1(m) of the Series A Purchase Agreement and Section 2.1(m) of the
Series B Purchase Agreement as of the respective dates thereof.
n. Form S-3 Eligibility. The Company is, and at the Closing Date will be,
eligible to register securities (including the Underlying Shares) for resale
with the Commission under Form S-3 promulgated under the Securities Act.
o. Listing and Maintenance Requirements Compliance. The Company
incorporates the same representations of Section 2.1(o) of the Series A Purchase
Agreement and Section 2.1(o) of the Series B Purchase Agreement as of the
respective dates thereof.
p. Intellectual Property Rights. The Company incorporates the same
representations of Section 2.1(p) of the Series A Purchase Agreement and Section
2.1(p) of the Series B Purchase Agreement as of the respective dates thereof.
q. Internal Accounting Controls. The Company incorporates the same
representations of Section 2.1(q) of the Series A Purchase Agreement and Section
2.1(q) of the Series B Purchase Agreement as of the respective dates thereof.
r. Transactions With Affiliates. The Company incorporates the same
representations of Section 2.1(r) of the Series A Purchase Agreement and Section
2.1(r) of the Series B Purchase Agreement as of the respective dates thereof.
s. Application to Takeover Protection. The Company incorporates the same
representations of Section 2.1(s) of the Series A Purchase Agreement and Section
2.1(s) of the Series B Purchase Agreement as of the respective dates thereof.
t. Acknowledgement Regarding Holders' Purchase of Preferred Stock. The
Company further acknowledges that no Holder is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any statement made by any
Holder or any of their respective representatives or agents in connection with
this Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Holders' purchase of the
securities. The Company further represents to each Holder that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
8
u. Seniority; Exclusivity. No class of equity securities of the Company
will be senior to the Preferred Stock in right of payment, whether upon
liquidation, dissolution or otherwise. So long as any Preferred Stock issued
hereunder remains outstanding, the Company shall not exchange, redeem or convert
any of the Company's capital stock for indebtedness, including convertible debt,
of the Company. The Company shall not issue and sell any shares of Preferred
Stock, other than to the Holders pursuant to this Agreement, without the prior
written consent of each of the Holders.
2.2 Representations and Warranties of the Holders. Each of the Holders,
severally and not jointly, hereby represents and warrants to the Company as
follows:
a. Organization; Authority. Such Holder is a corporation or a limited
duration company or a limited liability company or limited partnership duly
formed, validly existing and in good standing under the laws of the jurisdiction
of its incorporation or formation with the requisite power and authority,
corporate or otherwise, to enter into and to consummate the transactions
contemplated hereby and by the Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. The exchange by such Holder for the
shares of Preferred Stock and the Warrants hereunder has been duly authorized by
all necessary action on the part of such Holder. Each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered by such
Holder and constitutes the valid and legally binding obligation of such Holder,
enforceable against such Holder in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
b. Investment Intent. Such Holder is acquiring the shares of Preferred
Stock, the Warrants and the Underlying Shares for its own account and not with a
present view to or for distributing or reselling the shares of Preferred Stock,
the Warrants, the Conversion Shares or the Warrant Shares or any part thereof or
interest therein in violation of the Securities Act; provided, however, that by
making the representations herein, such Holder does not agree to hold any of the
shares of Preferred Stock, the Warrants, the Conversion Shares or the Warrant
Shares for any minimum or other specific term and reserves the right to dispose
of the shares of Preferred Stock at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act.
x. Xxxxxx Status. At the time such Holder was offered the Preferred Stock
and the Warrants, and at the Closing Date and each date such Holder exercises
Warrants, (i) it was and will be an "accredited investor" as defined in Rule 501
under the Securities Act and (ii) such Holder, either alone or together with its
representatives, had and will have such knowledge, sophistication and experience
in business and financial matters so as to be capable of evaluating the merits
and risks of the prospective investment in the Preferred Stock, the Warrants and
the Common Stock.
9
d. Reliance. Such Holder understands and acknowledges that (i) the
Preferred Stock, the Warrants and the Underlying Shares are being delivered to
such Holder without registration under the Securities Act in a transaction that
is exempt from the registration provisions of the Securities Act under Section
3(a)(9) of the Securities Act and (ii) the availability of such exemption
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the representations set forth in this Section 2.2 and such Holder hereby
consents to such reliance.
e. Information. Such Holder and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the exchange of the Preferred Stock and
Warrants which have been requested by such Holder or its advisors. Such Holder
and its advisors, if any, have been afforded the opportunity to ask questions of
the Company. Neither such inquiries nor any other due diligence investigation
conducted by Holder or any of its advisors or representatives shall modify,
amend or affect Holder's right to rely on the Company's representations and
warranties contained in Section 2.1 above or representations and warranties of
the Company contained in any other Transaction Document. Such Holder understands
that its investment in the Preferred Stock and Warrants involves a significant
degree of risk.
f. Governmental Review. Such Holder understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Preferred Stock or
Warrants.
g. Residency. Such Holder is a resident of the jurisdiction set forth
immediately below such Holder's name on Schedule II hereto.
h. Current Holdings. Such Holder is currently a stockholder of the Company.
The Company acknowledges and agrees that the Holders make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III.
OTHER AGREEMENTS
3.1 Transfer Restrictions.
a. If any Holder should decide to dispose of the Preferred Stock, the
Warrants, the Conversion Shares or the Warrant Shares held by it, such Holder
understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from the registration requirements of the Securities Act
or Rule 144 promulgated under the Securities Act ("Rule 144"). In connection
with any transfer of any Preferred Stock, Warrants, Conversion Shares or Warrant
Shares other than pursuant to an effective registration statement, Rule 144 or
to the Company, the Company may require the transferor thereof to provide to the
Company a written opinion of counsel experienced in the area of United States
securities laws selected by the transferor, the form and substance of which
opinion shall be customary for opinions of counsel in comparable transactions
and reasonably acceptable to the Company, to the effect that such transfer does
not require registration of such transferred securities under the Securities
Act; provided, however, that if the Preferred Stock, Warrants, Conversion Shares
or Warrant Shares may be sold pursuant to Rule 144(k), no written opinion of
counsel shall be required from the Holder if such Holder provides reasonable
assurances that such security can be sold pursuant to Rule 144(k).
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register any transfer by any Holder to an Affiliate (as defined in the
Certificates of Designation) of such Holder, provided that the transferee
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act. Any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Holder
under this Agreement and the Transaction Documents. If a Holder provides the
Company with an opinion of counsel, the form and substance of which opinion
shall be customary for opinions of counsel in comparable transactions and
reasonably acceptable to the Company, to the effect that a public sale,
assignment or transfer of the Preferred Stock, the Conversion Shares, the
Warrants and the Warrant Shares may be made without registration under the
Securities Act or the Holder provides the Company with reasonable assurances
that the Warrants, the Conversion Shares and the Warrant Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold, the Company
shall permit the transfer, and, in the case of the Conversion Shares and the
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Holder
and without any restrictive legend. Notwithstanding the foregoing or anything
else contained herein to the contrary, the securities may be pledged as
collateral in connection with a bona fide margin account or other lending
arrangement.
10
b. Each Holder agrees to the imprinting, so long as is required by this
Section 3.1(b), of the following legend on the Preferred Stock, the Warrants,
the Conversion Shares and the Warrant Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
Neither the Preferred Stock, the Warrants, the Conversion Shares, nor the
Warrant Shares shall contain the legend set forth above (or any other legend)
(i) if in the written opinion of counsel to the Company experienced in the area
of United States securities laws such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission), (ii) if such Preferred
Stock, Warrants, Conversion Shares or Warrant Shares may be sold pursuant to
Rule 144(k) or (iii) if such shares are registered for resale under the
Securities Act. The Company agrees that it will provide each Holder, upon
request, with a certificate or certificates representing shares of Preferred
Stock, Warrants, Conversion Shares or Warrant Shares, free from such legend at
such time as such legend is no longer required hereunder. If such certificate or
certificates had previously been issued with such a legend or any other legend,
the Company shall, upon request and upon the delivery of the legended
certificate(s), reissue such certificate or certificates free of any legend.
11
3.2 Stop Transfer Instruction. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company which enlarge
the restrictions on transfer set forth in Section 3.1.
3.3 Furnishing of Information. As long as any Holder owns the Preferred
Stock, the Warrants, the Conversion Shares or the Warrant Shares, the Company
will cause the Common Stock to continue at all times to be registered under
Section 12 of the Exchange Act or subject to Section 15(d) of the Exchange Act,
will timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to Section 13, 14 or 15(d) of the Exchange Act and will
not take any action or file any document (whether or not permitted by the
Exchange Act or the rules thereunder) to terminate or suspend such reporting and
filing obligations. As long as any Holder owns the Preferred Stock, the
Warrants, the Conversion Shares or the Warrant Shares, if the Company is not
required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act,
it will prepare and furnish to the Holders and make publicly available in
accordance with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those that
would otherwise be required to be included in reports required by Section 13(a)
or 15(d) of the Exchange Act, as well as any other information required thereby,
in the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as the holders of a majority of the Preferred Stock, the
Warrants, the Conversion Shares or the Warrant Shares may reasonably request,
all to the extent required from time to time to enable such Person to sell the
Preferred Stock, the Warrants, the Conversion Shares, or the Warrant Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
the legal opinion referenced above in Section 3.1(b). Upon the request of any
such Person, the Company shall deliver to such Person a written certification of
a duly authorized officer as to whether it has complied with such requirements.
3.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or
exchange of the Preferred Stock, the Warrants, the Conversion Shares or the
Warrant Shares in a manner that would require the registration under the
Securities Act of the sale of the Preferred Stock, the Warrants, the Conversion
Shares or the Warrant Shares to any Holder, or to issue securities in such
circumstances that is likely to result in such offering being integrated with
the exchange of the Preferred Stock, Warrants and Underlying Shares in such
manner that stockholder approval would be required pursuant to any stockholder
approval provision applicable to the Company or its securities.
12
3.5 Listing and Reservation of Conversion Shares and Warrant Shares.
a. The Company shall (i) not later than ten (10) business days after the
Closing Date prepare and file with Nasdaq (as well as any other national
securities exchange or market on which the Common Stock is then listed)
additional shares listing applications or letters acceptable to Nasdaq covering
and listing a number of shares of Common Stock which is at least equal to 100%
of the maximum number of Underlying Shares then issuable, assuming that the
payment of all future dividends on such shares then outstanding were made in
shares of Common Stock, (ii) take all steps necessary to cause the Underlying
Shares to be approved for listing on Nasdaq (as well as on any other national
securities exchange or market on which the Common Stock is then listed) as soon
as possible thereafter, (iii) maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all such Underlying Shares, and (iv)
provide to the Holders evidence of such listing. Prior to the effectiveness of
any registration statement filed to register the resale of the Underlying
Shares, the Company shall promptly provide to each Holder copies of any notices
it receives from Nasdaq regarding the continued eligibility of the Common Stock
for listing on such automated quotation system. The Company shall pay all fees
and expenses in connection with satisfying its obligations under this Section
3.5(a).
b. The Company at all times shall reserve a sufficient number of shares of
its authorized but unissued Common Stock to provide for the full conversion of
the outstanding shares of Preferred Stock and exercise of the outstanding
Warrants. Shares of Common Stock reserved for issuance upon conversion of the
shares of Preferred Stock and the exercise of the Warrants shall be allocated
pro rata to each of the Holders in accordance with the number of shares of
Preferred Stock and Warrants issued and delivered to such Holder at the Closing.
If at any time the number of shares of Common Stock authorized and reserved for
issuance is insufficient to cover 100% of the number of Conversion Shares and
Warrant Shares issued and issuable upon conversion of the shares of Preferred
Stock and exercise of the Warrants (based on the Conversion Price (as defined in
the Certificates of Designation) of the shares of Preferred Stock in effect from
time to time and the Exercise Price (as defined in the Warrants) of the Warrants
in effect from time to time) without regard to any limitation on conversions or
exercises, the Company will promptly take all corporate action necessary to
authorize and reserve 100% of such shares pursuant to Section 3(b) of the
Registration Rights Agreement, including, without limitation, calling a special
meeting of stockholders to authorize additional shares to meet the Company's
obligations under this Section 3.5(b), in the case of an insufficient number of
authorized shares, and using best efforts to obtain stockholder approval of an
increase in such authorized number of shares.
3.6 Notice of Breaches.
a. Prior to the effectiveness of any registration statement filed to
register the resale of the Underlying Shares, the Company and each Holder shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in this Agreement or in
the Transaction Documents, as well as any events or occurrences arising after
the date hereof and prior to the Closing Date, which would reasonably be likely
to cause any representation or warranty or other agreement of such party, as the
case may be, contained herein to be incorrect or breached as of the Closing
Date. However, no disclosure by either party pursuant to this Section 3.6 shall
be deemed to cure any breach of any representation, warranty or other agreement
contained herein or in the Transaction Documents.
13
b. Notwithstanding the generality of Section 3.6(a), the Company shall
promptly notify each Holder of any notice or claim (written or oral) that it
receives from any lender of the Company or any Subsidiary to the effect that the
consummation of the transactions contemplated hereby and by the Transaction
Documents violates or would violate any written agreement or understanding
between such lender and the Company or any Subsidiary, and the Company shall
promptly furnish by facsimile to the Holders a copy of any written statement in
support of or relating to such claim or notice.
c. The default by any Holder of any of its obligations, representations or
warranties under this Agreement or the Transaction Documents shall not be
imputed to, and shall have no effect upon, any other Holder or affect the
Company's obligations under this Agreement or any Transaction Document to any
non-defaulting Holder, except as expressly provided in the Transaction Documents
or to the extent an obligation of the Company can not reasonably be met as a
result of a default by a Holder.
3.7 [INTENTIONALLY DELETED]
3.8 Future Financings. The Company and the Holders acknowledge and ratify
the entire contents of Section 3.8 of the Purchase Agreements, respectively, and
agree that such provisions and covenants relating to Future Financings shall
remain in full effect as if such provisions and covenants were made with respect
to the Series A2 Preferred Stock, the Series B2 Preferred Stock and the Warrants
offered for exchange herein.
3.9 Use of Proceeds. The Company shall use the proceeds from the exercise
of the Warrants to acquire assets, reduce debt and for working capital.
3.10 Transactions with Affiliates. So long as any Preferred Stock or
Warrants are outstanding, the Company shall not, and shall cause each of its
Subsidiaries or affiliated entities not to, 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 or persons who were officers or directors at
any time during the previous two years, stockholders who beneficially own 10% or
more of the Common Stock, or Affiliates or any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a 10% or more beneficial interest (each a "Related
Party"), except for (a) customary employment arrangements and benefit programs
on reasonable terms consistent with prior practice, (b) any agreement,
transaction, commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a Person other than
such Related Party, (c) any agreement, transaction, commitment or arrangement
which is approved by a majority of the directors of the Company who have no
material financial interest in the matter or (d) transactions pursuant to the
Transaction Documents. "Affiliate" for purposes of this section only means, with
respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a 20% or more equity interest in that person or entity, (ii)
has 20% or more common ownership with that person or entity, (iii) controls or
is controlled by that person or entity, or (iv) shares common control or is
under common control with that person or entity. "Control" or "Controls" for
purposes of this section means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
14
3.11 Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent (and shall issue to any subsequent transfer
agent as required), to issue certificates, registered in the name of each such
Holder or its respective nominee(s), for the Conversion Shares and/or the
Warrant Shares in such amounts as specified from time to time by each Holder to
the Company in a form acceptable to such Holder (the "Irrevocable Transfer Agent
Instructions"). So long as required pursuant to Section 3.1(b), all such
certificates shall bear the restrictive legend specified in Section 3.1(b) of
this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 3.11, and
stop transfer instructions to give effect to Section 3.1 (in the case of the
Conversion Shares and the Warrant Shares, prior to registration of the
Conversion Shares under the Securities Act) will be given by the Company to its
transfer agent. If a Holder provides the Company with an opinion of counsel of a
law firm with recognized expertise in securities addressed to the Company, the
form and substance of which opinion shall be customary for opinions of counsel
in comparable transactions, to the effect that a public sale, assignment or
transfer of the Preferred Stock, the Conversion Shares, the Warrants and the
Warrant Shares may be made without registration under the Securities Act or the
Holder provides the Company with reasonable assurances that the Warrants, the
Conversion Shares and the Warrant Shares can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Holder and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holders by violating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.11 will be inadequate and agrees, in the event of a beach
or threatened breach by the Company of the provisions of this Section 3.11, that
the Holders, shall be entitled, in addition to all other available remedies, to
an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
3.12 Press Release; Filing of Form 8-K. Subject to the provisions of
Section 6.11, the Company shall issue a press release in form and substance
acceptable to the Holders promptly following the Closing.
3.13 Non-public Information Ordinary Course Brokerage and Trading. The
Holders acknowledge that they may have been provided material non-public
information in connection with the transactions contemplated hereby and that
trading in securities of the Company while in the possession of material
non-public information is prohibited by the federal securities laws. No Holder
who is in possession of material non-public information shall trade in any
securities of the Company prior to the third business day after the Company
publicly announces its results of operations for the quarter ended September 30,
2002, or at any time thereafter that such Holder is in possession of material
non-public information. Subject to compliance with all applicable securities
laws and Nasdaq regulations, no Holder shall be prohibited by the Company from
engaging in its ordinary course brokerage and trading activities in respect of
the Company's Common Stock; provided that the personnel engaged in such
activities have not been involved with the transactions contemplated hereby and
have not been provided with confidential information with respect to the
Company. No Holder shall engage in any trading activity in the Company's
securities in violation of Regulation M under the Exchange Act.
15
3.14 Best Efforts. Each of the parties hereto shall use its best efforts to
satisfy each of the conditions to be satisfied by it as provided in Article IV
of this Agreement.
3.15 Corporate Existence. Until such time as all of the Holders provide the
Company with written notice that they do not beneficially own any shares of
Preferred Stock or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets, except in
the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is listed for trading on the
Nasdaq, the New York Stock Exchange or the American Stock Exchange.
3.16 No Violation of Applicable Law. Notwithstanding any provision of this
Agreement to the contrary, if the redemption of shares of Preferred Stock
otherwise required under this Agreement or the Registration Rights Agreement
would be prohibited by the relevant provisions of the Delaware General
Corporation Law, such redemption shall be effected as soon as it is permitted
under such law; provided, however, that from the fifth (5th) day after such
redemption notice until such redemption price is paid in full, interest on any
such unpaid amount shall accrue and be payable at the rate of 15% per annum in
accordance with the applicable Certificate of Designation.
ARTICLE IV.
CONDITIONS
4.1 Closing.
a. Conditions Precedent to the Obligation of the Company to Deliver the
Shares of Preferred Stock and Warrants. The obligation of the Company to deliver
the shares of Preferred Stock and Warrants is subject to the satisfaction or
waiver (with prior written notice to each Holder) by the Company, at or before
the Closing Date of each of the following conditions:
(i) Accuracy of the Holders' Representations and Warranties. The
representations and warranties of each Holder in this Agreement shall be true
and correct in all material respects as of the date when made and as of the
Closing;
(ii) Performance by the Holders. Each Holder shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Holder at or before the Closing; and
16
(iii) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement or
the Transaction Documents.
b. Conditions Precedent to the Obligation of the Holders to Exchange the
Shares of Series A1 Preferred Stock, the Series B1 Preferred Stock and Warrants
at the Closing. The obligation of each Holder hereunder to exchange its Series
A1 Preferred Stock and/or Series A1 Warrants and/or Series B1 Preferred Stock
and/or Series B1 Warrants for the shares of Preferred Stock and Warrants at the
Closing is subject to the satisfaction or waiver by such Holder, at or before
the Closing Date, of each of the following conditions:
(i) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all respects as of the date when made and as of the
Closing Date, unless such representations and warranties of the Company are
specifically made as of the respective dates of the Series A Purchase Agreement
and the Series B Purchase Agreement as provided in Section 2.1 of this
Agreement;
(ii) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or before the Closing Date;
(iii) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement and
the Transaction Documents;
(iv) No Suspensions of Trading in Common Stock. The trading in the Common
Stock shall not have been suspended by the Commission, on Nasdaq (except for any
suspension of trading of limited duration solely to permit dissemination of
material information regarding the Company);
(v) Listing of Common Stock. The Common Stock shall have been at all times
since the date of this Agreement and on the Closing Date listed for trading on
the Nasdaq;
(vi) Xxxxxxx Xxxxx Consent. The consent of Xxxxxxx Lynch, Pierce, Xxxxxx &
Xxxxx Incorporated shall have been obtained and a copy thereof delivered to the
Holders;
(vii) Required Filing. The Company shall have filed the Certificates of
Designation with the Secretary of State of Delaware and they shall have become
effective;
(viii) Shares of Common Stock. The Company shall have duly reserved the
number of Underlying Shares issuable upon the exercise of the Warrants or the
conversion of the shares of Preferred Stock acquired by the Holder on the
Closing Date;
17
(ix) Adverse Changes. Since the date of the financial statements included
in the Company's Quarterly Report on Form 10-Q or Annual Report on Form 10-K,
whichever is more recent, last filed prior to the date of this Agreement, no
event which had a Material Adverse Effect shall have occurred (for purposes
hereof, changes in the market price of the Common Stock as compared to the
market generally may be considered as a factor in determining whether there has
occurred an event which has had a Material Adverse Effect);
(x) Litigation. No litigation shall have been instituted or threatened
against the Company which would reasonably be expected to, individually or in
the aggregate, have had a Material Adverse Effect;
(xi) Change of Control. No Change of Control shall have occurred between
the date hereof and the Closing Date. "Change of Control" means the occurrence
of any of (i) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act), other than the Holders or any of their Affiliates, of in excess
of 25% of the voting securities of the Company, (ii) a replacement of more than
one-half of the members of the Company's Board of Directors that is not approved
by those individuals who are members of the Board of Directors on the date
hereof in one or a series of related transactions, (iii) the merger of the
Company with or into another entity, (iv) the consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii), (iii) or (iv); and
(xii) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in a form acceptable to the Holders, shall have been delivered to
and acknowledged in writing by the Company's transfer agent with a copy
forwarded to each Holder.
c. Documents and Certificates. At the Closing, the Holders shall have
delivered to the Company, the following in form and substance reasonably
satisfactory to the Company:
(i) Series A1 Preferred Stock Certificates. The certificates representing
all of the Series A1 Convertible Preferred Stock held by such Holder as set
forth next to such Holder's name on Schedule II.
(ii) Series B1 Preferred Stock Certificates. The certificates representing
all of the Series B1 Convertible Preferred Stock held by such Holder as set
forth next to such Holder's name on Schedule II.
(iii) Series A1 Warrants. The documentation representing all of the
unexercised warrants delivered pursuant to the 2001 Exchange Agreement held by
such Holder as set forth next to such Holder's name on Schedule II.
(iv) Series B1 Warrants. The documentation representing all of the
unexercised warrants delivered pursuant to the 2001 Exchange Purchase Agreement
held by such Holder as set forth next to such Holder's name on Schedule II.
18
d. Documents and Certificates. At the Closing, the Company shall have
delivered to the Holders, the following in form and substance reasonably
satisfactory to the Holders:
(i) Series A2 Preferred Stock Certificate. A Preferred Stock Certificate(s)
representing the number of shares of Series A2 Preferred Stock exchanged for by
such Holder as set forth next to such Holder's name on Schedule I, registered in
the name of such Holder, each in form satisfactory to the Holder;
(ii) Series B2 Preferred Stock Certificate. A Preferred Stock
Certificate(s) representing the number of shares of Series B2 Preferred Stock
exchanged for by such Holder as set forth next to such Holder's name on Schedule
I, registered in the name of such Holder, each in form satisfactory to the
Holder;
(iii) Series A2 Warrant. A Warrant(s) representing the Series A2 Warrants
exchanged for by such Holder as set forth next to such Holder's name on Schedule
I, registered in the name of such Holder;
(iv) Series B2 Warrant. A Warrant(s) representing the Series B2 Warrants
exchanged for by such Holder as set forth next to such Holder's name on Schedule
I, registered in the name of such Holder;
(v) Registration Rights. The Company shall have executed and delivered the
Registration Rights Agreement;
(vi) Officer's Certificate. An Officer's Certificate dated the Closing Date
and signed by an executive officer of the Company confirming the accuracy of the
Company's representations and warranties as of such Closing Date and confirming
the compliance by the Company with the conditions precedent set forth in this
Section 4.1(d) as of the Closing Date;
(vii) Secretary's Certificate. A Secretary's Certificate dated the Closing
Date and signed by the Secretary or Assistant Secretary of the Company
certifying (A) that attached thereto is a true and complete copy of the
Certificate of Incorporation of the Company, as in effect on the Closing Date,
(B) that attached thereto is a true and complete copy of the by-laws of the
Company, as in effect on the Closing Date and (C) that attached thereto is a
true and complete copy of the Resolutions duly adopted by the Board of Directors
of the Company authorizing the execution, delivery and performance of this
Agreement and of the Transaction Documents, and that such Resolutions have not
been modified, rescinded or revoked; and
(viii) Other Documents. The Company shall have delivered to each Holder
such other documents relating to the transactions contemplated by the
Transaction Documents as the Holder or its counsel may reasonably request.
19
ARTICLE V.
INDEMNIFICATION
5.1 Indemnification. Except to the extent that matters which could be
covered by this Section 5 are covered by Section 5 of the Registration Rights
Agreement, as applicable, in consideration of the Holders execution and delivery
of this Agreement and the Transaction Documents and acquiring the Preferred
Stock, Conversion Shares, Warrants and Warrant Shares thereunder and in addition
to all of the Company's other obligations under this Agreement, the Purchase
Agreements and the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Holder, its past and present Affiliates and
their successors and assigns (in accordance with the provisions of Section 6.6),
each other holder of the Underlying Shares and all of their stockholders,
officers, directors, employees, members, partners and managers and direct or
indirect investors and any of the foregoing Person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (each an "Indemnitee", and
collectively, the "Indemnitees") from and against any and all actions, causes of
action, suits, claims, losses, proceedings, costs (as incurred), penalties, fees
(including legal fees and expenses), liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
interest, penalties and attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by any Indemnitee as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in this Agreement or in the Transaction Documents,
or any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in this Agreement, the Purchase Agreements or the Transaction Documents, or any
other certificate, instrument or document contemplated hereby or thereby, or (c)
any cause of action, suit or claim brought or made, other than by the Company,
against such Indemnitee and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of this Agreement, the Purchase Agreements
or the Transaction Documents, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Preferred Stock or Warrants or (iii) solely the status of such Holders or
holder of the Preferred Stock, the Conversion Shares, the Warrants or the
Warrant Shares as an investor in the Company; provided however, that the Company
shall not be required to provide indemnification for any losses, claims,
damages, liabilities or expenses arising out of the gross negligence or willful
misconduct of a Holder. The indemnification obligations of the Company under
this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any affiliate
of the Holders and partners, directors, agents, employees and controlling
Persons (if any), as the case may be, of the Holders and any such affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, the Holders and any such affiliate
and any such Person. The Company also agrees that neither the Holders nor any
such Affiliates, partners, directors, agents, employees or controlling Persons
shall have any liability to the Company or any Person asserting claims on behalf
of or in right of the Company in connection with or as a result of the
consummation of this Agreement or any of the Transaction Documents except to the
extent for any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of such Holder or
entity in connection with the transactions contemplated by this Agreement or the
Transaction Documents. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
20
ARTICLE VI.
MISCELLANEOUS
6.1 Entire Agreement. This Agreement, together with the Exhibits and
Schedules hereto, the Purchase Agreements and the Transaction Documents contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters.
6.2 Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party (if received by 5:00 p.m. eastern time ("ET")
where such notice is received) or the first business day following such delivery
(if received after 5:00 p.m. ET where such notice is received); or (iii) one
business day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
Xxxxx 0 Systems, Inc.
0000 Xxxxxxx Xxxxxxx
Xxxx, Xxxxx Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxxxxxx
With a copy to:
Powell, Goldstein, Xxxxxx & Xxxxxx LLP
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxx, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Company
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxx or Xxxxx Xxxxxxxxxx
21
If to Xxxxx Xxxxxxx Partners I, Ltd. to:
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxx
With a copy, in the case of Notice to Xxxxx Xxxxxxx
Partners I, Ltd. to:
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxx
If to Seneca Capital, L.P., to:
c/o Seneca Capital Advisors, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xx. Xxxxx Xxxx
If to Seneca Capital International, Ltd., to:
c/o Seneca Capital Advisors, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xx. Xxxxx Xxxx
With a copy, in the case of Notice to Seneca Capital, L.P.
or Seneca Capital International, Ltd., to:
Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
22
If to Advanced Systems Europe B.V. to:
x/x Xxxxx Systems Ltd.
Azrieli Xxxxxx 0, Xxxxxxxx Xxxxxxxx
00xx Xxxxx
Xxx Xxxx 00000 Israel
Telephone:
Facsimile:
Attention: Xx. Xxxxx Xxxxxxx
With copy to:
Xxxxxxxx, Levy & Xxxx
Xxxxxx House
2 Ibn Xxxxxx Xxxxxx
Xxx Xxxx, Xxxxxx 00000
Telephone: 000-0-000-0000
Facsimile: 972-3-608-9909
Attention: Mr. Xxxx Xxxx
Xx. Xxxx Xxxxx
Each party shall provide written notice to the other party of any change in
address or facsimile number in accordance with the provisions hereof.
6.3 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and each of the Holders or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies to
less than all of the holders of the shares of Preferred Stock outstanding. The
Company shall not offer or pay any consideration to a Holder for consenting to
such an amendment or waiver unless the same consideration is offered to each
Holder and the same consideration is paid to each Holder which consents to such
amendment or waiver.
6.4 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
6.5 References. References herein to Sections are to Sections of this
Agreement, unless otherwise expressly provided.
6.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Holders. The Holders may assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Holder, provided, that any assignees must execute and deliver to
the company an instrument expressly making the representations and warranties
set forth in Section 2.2 and agrees to become a party hereto; further that,
prior to the Closing Date, the Holders may assign this Agreement its rights and
rights or obligations hereunder only to an Affiliate of such Holder. This
provision shall not limit a Holder's right to transfer securities in accordance
with all of the terms of this Agreement or the Transaction Documents.
23
6.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
6.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
6.9 Survival. The representations and warranties of the Company and the
Holders contained in Sections 2.1 and 2.2, the agreements and covenants set
forth in Section 3, and the indemnification provisions set forth in Section 5,
shall survive the Closing and any conversion of the shares of Preferred Stock or
exercise of the Warrants regardless of any investigation made by or on behalf of
the such Holder or by or on behalf of the Company, except that, in the case of
representations and warranties such survival shall be limited to the period of
four (4) years following the Closing Date on which they were made or deemed to
have been made (other than with respect to any claim by a third party against
the party to this Agreement who seeks to assert a claim based on such
representations and warranties). This section shall have no effect on the
survival of the indemnification provisions of the Registration Rights Agreement.
6.10 Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
24
6.11 Publicity. The Company and the Holders shall consult with each other
in issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and neither party shall issue any such
press release or otherwise make any such public statement without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement. The Company shall not publicly
or otherwise disclose the names of any of the Holders without each such Holder's
prior consent, except to the extent required by law and in the initial press
release with respect to the transactions contemplated hereby. The Holders and
their affiliated companies shall, without further cost, have the right to use in
its advertising, marketing or other similar materials all or parts of the
Company's press releases that focus on the transactions forming the subject
matter of this Agreement or which make reference to such transactions. The
Holder understand that this grant by the Company only waives objections that the
Company might have to the use of such materials by the Holders and in no way
constitutes a representation by the Company that references in such materials to
the activities of third-parties have been cleared or constitute a fair use.
6.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
6.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Holders
will be entitled to specific performance of the obligations of the Company under
this Agreement or the Transaction Documents without the showing of economic loss
and without any bond or other security being required. Each of the Company and
the Holders (severally and not jointly) agree that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation the defense that a remedy
at law would be adequate.
6.14 Independent Nature of Holders' Obligations and Rights. The obligations
of each Holder hereunder is several and not joint with the obligations of the
other Holders hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holder as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Holder shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement or out of the Transaction Documents, and it shall not be necessary for
any other Holder to be joined as an additional party in any proceeding for such
purpose.
25
6.15 Payment Set Aside. To the extent that the Company makes a payment or
payments to the Holders hereunder or pursuant to the Transaction Documents or
the Holders enforce or exercise their rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other Person under
any law (including, without limitation, any bankruptcy law, state or federal
law, common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
6.16 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
6.17 Fees and Expenses. Except as set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement; provided, however, that the Company shall
reimburse Xxxxx Xxxxxxx Partners I, Ltd. at the Closing for actual fees and
expenses of its counsel.
6.18 Understanding Among the Holders. It is acknowledged by each Holder
that no Holder has acted as an agent of any other Holder in connection with
making its investment hereunder and that no Holder shall be acting as an agent
of any other Holder in connection with monitoring its investment hereunder. It
is further acknowledged by each of the other Holders that Xxxxx Xxxxxxx Partners
I, Ltd. has retained Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P. ("Akin Gump") to
act as its counsel in connection with the transactions contemplated hereby and
under the other Transaction Documents and that Akin Gump has not acted as
counsel for any of the other Holders in connection therewith and that none of
the other Holders have the status of a client of Akin Gump for conflict of
interest or other purposes as a result thereof.
26
IN WITNESS WHEREOF, the parties hereto have caused this Exchange
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
XXXXX 0 SYSTEMS, INC.
By:
----------------------------------------
Xxxx X. Xxxxxxxxx,
Chief Operating and Financial Officer,
Corporate Secretary
XXXXX XXXXXXX PARTNERS I, LTD.
By:
----------------------------------------
Name:
Title: Authorized Signatory
SENECA CAPITAL, L.P.
By: Seneca Capital Advisors, LLC, its
general partner
By:
-----------------------------------
Name:
Title:
SENECA CAPITAL INTERNATIONAL, LTD.
By:
---------------------------------------------
Name:
Title:
ADVANCED SYSTEMS EUROPE B.V.
By:
---------------------------------------------
Name:
Title:
27
Schedule I
--------------------------------------------------------------------------------
Number of shares of Series Number of shares Number of Shares Number of Shares
A2 Preferred Stock at of Series B2 Preferred Stock Underlying Underlying
Name of Holder Closing Date at Closing Date Series A2 Warrants Series B2 Warrants
-------------- ------------ --------------- ------------------ ------------------
------------------------------------------------------------------------------------------------------------------------------------
Xxxxx Xxxxxxx Partners I, Ltd. 15,000 700,000 523,691
Seneca Capital, L.P. 1,570 5,228 53,640 182,506
====================================
Seneca Capital International, Ltd. 9,772 341,185
====================================
Advanced Systems Europe B.V. 10,000
TOTAL 11,570 30,000 753,640 1,047,382
28
Schedule II
Number of Shares Number of Shares Underlying
Series A1 Preferred Series B1 Preferred Underlying Exchanged Exchanged
Name of and Address of Holder Stock Exchanged Stock Exchanged Series A1 Warrants Series B1 Warrants
----------------------------- --------------- --------------- ------------------ ------------------
Xxxxx Xxxxxxx Partners I, Ltd.: 15,000 700,000 523,691
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxx
Fax: (000) 000-0000
Residence: Grand Cayman, Cayman Islands
Seneca Capital, L.P.: 1,570 5,228 53,640 182,506
c/o Seneca Capital Advisors, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xx. Xxxxx Xxxx
Fax: (000) 000-0000
Residence:
Seneca Capital International, Ltd.: 9,772 341,185
c/o Seneca Capital Advisors, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xx. Xxxxx Xxxx
Fax: (000) 000-0000
Residence:
Advanced Systems Europe B.V.: 10,000
Azrieli Xxxxxx 0, Xxxxxxxx Xxxxxxxx
00xx Xxxxx
Xxx Xxxx 00000 Israel
Attention: Xx. Xxxxx Xxxxxxx
Fax:
Residence: Israel
29
Exhibit A
[Form of Series A2 Certificate of Designation]
30
Exhibit B
[Form of Series B2 Certificate of Designation]
31
Exhibit C
[Form of Series A2 Warrant]
32
Exhibit D
[Form of Series B2 Warrant]
33
Exhibit E
[Form of Registration Rights Agreement]
34
