Exhibit 10.2
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as of
__________, 2004, by and between LEVEL 8 SYSTEMS, INC., a Delaware corporation
(the "Company"), and the various purchasers listed on Schedule I hereto (each
referred to herein as a "Purchaser" and, collectively, the "Purchasers").
WHEREAS, the Company and the Purchasers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 under Regulation D as promulgated by the United States
Securities and Exchange Commission (the "Commission") under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act");
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, promissory notes ("Convertible
Promissory Notes") convertible at the Purchaser's option into shares of common
stock of the Company, par value $.001 per share (the "Common Stock")in the form
of Exhibit A annexed hereto, and a stock purchase warrant (each a "Warrant",
and, collectively, the "Warrants"), in the form of Exhibit B annexed hereto to
purchase shares of the Company's Common Stock;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form of Exhibit C 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 Purchasers hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale. On the Closing Date (as defined below), subject
to the terms and conditions set forth herein, the Company shall issue and sell
to each Purchaser and each Purchaser, severally and not jointly, shall purchase
from the Company the Convertible Promissory Notes as set forth on Schedule I
(the "Notes") and a Warrant exercisable for the amount of Common Stock as set
forth on Schedule I for such Purchaser. The aggregate purchase price for the
Notes and Warrant purchased by the Purchasers shall not exceed $800,000.
1.2 Closing. The closing (the "Closing") of the purchase and sale of the
Notes and the Warrants shall take place at the offices of Xxxxxx Xxxxxxxx LLC,
00 Xxxxxxxx Xxxxx, Xxxxxxxx Xxxxxxx, Xxx Xxxx 00000, immediately following the
execution hereof or such later date or dates or different location or locations
as the parties shall agree, but in no event prior to the date that the
conditions set forth in Section 4.1 have been satisfied or waived by the
appropriate party (such date of the Closing, the "Closing Date"). At the
Closing:
a. Each Purchaser shall deliver to the Company (1) this
Agreement, duly executed by such Purchaser, (2) the Registration Rights
Agreement, duly executed by such Purchaser and (3) the purchase price as set
forth next to its name on Schedule I in United States dollars in immediately
available funds to an account or accounts designated in writing by the Company;
and
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b. The Company shall deliver to each Purchaser (1) this
Agreement, duly executed by the Company, (2) the Registration Rights Agreement,
duly executed by the Company, (3) a Warrant representing the Purchaser's right
to acquire the number of shares of Common Stock as set forth on Schedule I
hereto registered in the name of such Purchaser, and (4) a Convertible
Promissory Note as set forth on Schedule I hereto.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company
represents and warrants to each of the Purchasers that the statements contained
in this Section 2.1 are true, correct and complete as of the date hereof, and
will be true correct and complete as of the Closing Date (unless specifically
made as of another date), except as specified to the contrary in the
corresponding paragraph of the disclosure schedule prepared by the Company
accompanying this Agreement (the "Company Disclosure Schedules"):
a. Organization and Qualification. The Company duly incorporated,
validly existing and in good standing under the laws 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 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, or financial
condition of the Company, taken as a whole or (z) 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 made available to the Purchaser 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 Convertible Promissory Notes, and the
Registration Rights Agreement and the Warrants (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
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indemnification and contribution may be limited by Federal or state securities
laws or public policy relating thereto.
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. Except as specifically set forth in
Schedule 2.1 (c), no securities of the Company are entitled to preemptive or
similar rights, and no Person (as hereinafter defined) has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as specifically set forth in Schedule 2.1 (c), and except as a result of
the purchase and sale of the Notes and Warrant, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. The issue and sale of
the Notes and Warrants will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities.
d. Authorization and Validity; Issuance of Shares. The shares of Common
Stock issuable upon conversion of the Notes ("Note Shares") and exercise of the
Warrants (the "Warrant Shares", collectively with the Note Shares the "Note and
Warrant Shares") are and will at all times hereafter continue to be duly
authorized and reserved for issuance and, when issued and paid for in accordance
with this Agreement and the Transaction Documents, will be validly issued, fully
paid and non-assessable, free and clear of all liens.
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 **Note and Warrant 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, (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 debt or otherwise) to which
the Company is a party or by which any property or asset of the Company is bound
or affected, except where such conflict or violation has not resulted or would
not reasonably be expected to 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 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), or by which any material property or asset of the Company is bound,
except where such conflict has not resulted or would not reasonably be expected
to result, individually or in the aggregate, in a Material Adverse Effect.
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f. Consents and Approvals. The Company is not 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 and
(ii) any filings, notices or registrations under applicable Federal or state
securities laws (together with the consents, waivers, authorizations, orders,
notices and filings referred to on Schedule 2.1(f), the "Required Approvals"),
except where failure to do so has not resulted or would not reasonably result,
individually, or in the aggregate, in a Material Adverse Effect. "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.
g. Litigation; Proceedings. Except as specifically set forth on
Schedule 2.1(g)or in the SEC Documents (as hereinafter defined), there is no
action, suit, notice of violation, proceeding or investigation pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its subsidiaries or any of their respective properties before or by any
court, governmental or administrative agency or regulatory authority (Federal,
state, county, local or foreign) (collectively, an "Action") which (i) adversely
affects or challenges the legality, validity or enforceability of any of this
Agreement or the Transaction Documents or (ii) would reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect. Neither the
Company nor any subsidiary, nor, to the knowledge of the Company, any officer
thereof, is or has been, nor, to the knowledge of the Company, any director
thereof is or has been for the last three years, the subject of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty. There has not been, and, to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director that was a director of the Company at any time during the last three
years or officer of the Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration statement filed by
the Company or any subsidiary under the Exchange Act or the Securities Act.
h. No Default or Violation. The Company (i) is not in default under or
in violation of any indenture, loan or other credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound and which is required to be included as an exhibit to any
SEC Document (as defined in Section 2.1(j)) or will be required to be included
as an exhibit to the Company's next filing under either the Securities Act or
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (ii) is
not in violation of any order of any court, arbitrator or governmental body
applicable to it, (iii) is not in violation of any statute, rule or regulation
of any governmental authority to which it is subject, (iv) is not in default
under or in violation of its Certificate of Incorporation, Bylaws or other
organizational documents, respectively in the case of (i), (ii) and (iii),
except where such violations have not resulted or would not reasonably result,
individually or in the aggregate, in a Material Adverse Effect.
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i. 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 Notes or the Warrants or the issuance of such
securities under the Securities Act. Subject to the accuracy and completeness of
the representations and warranties of the Purchasers contained in Section 2.2,
the offer, sale and issuance by the Company to the Purchasers of each of the
Notes and the Warrants and the issuance of the Note and Warrant Shares is exempt
from the registration requirements of the Securities Act.
j. SEC Documents; Financial Statements. The Common Stock of the Company
is registered pursuant to Section 12(g) of the Exchange Act. 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 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. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the 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 generally accepted accounting principles applied on
a consistent basis during the periods involved ("GAAP"), 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
and its consolidated subsidiaries 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.
k. Material Changes. Since the date of the latest audited financial
statements included within the SEC Documents, except as specifically disclosed
in the SEC Documents , (i) there has been no event, occurrence or development
that has had or that could result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company has not altered
its method of accounting or the identity of its auditors, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock, and (v) the Company has not issued any
equity securities to any officer, director or affiliate, except pursuant to
existing Company stock option plans. The Company does not have pending before
the Commission any request for confidential treatment of information.
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l. Patents and Trademarks. The Company and its subsidiaries own, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Documents and which the failure to
so own or have could have, or reasonably be expected to result in, a Material
Adverse Effect (collectively, the "Intellectual Property Rights"). Except with
respect to liabilities reflected in the Company's financial statements or as
otherwise described in the SEC Documents The Intellectual Property Rights are
not subject to any lien, mortgage, pledge, security interest, encumbrance,
claim, restriction on use, option, conditional sales agreement, or charge of any
kind, or any rights of others, however evidenced or created which would
reasonably be expected to have a Material Adverse Effect. The business as now
conducted and as presently proposed to be conducted by the Company does not and
will not cause the Company to infringe or violate any of the patents,
trademarks, service marks, trade names, copyrights, domain names, licenses,
trade secrets or other proprietary rights of any other person or entity. Neither
the Company nor any subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any subsidiary violates or
infringes upon the rights of any Person which if determined adversely to the
Company would, individually or in the aggregate have a Material Adverse Effect.
To the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.
m. Transactions With Affiliates and Employees. Except as set forth in
SEC Documents, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
n. Eligibility to Register Shares. The Company is eligible to register
the resale of the Note and Warrant Shares for resale by the Purchasers under
Form S-1 promulgated under the Securities Act.
o. Registration Rights. Except as specifically set forth on Schedule
2.1 (o), the Company has not granted or agreed to grant to any Person any rights
(including "piggy-back" registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority.
p. Broker's Fees. No fees or commissions or similar payments with
respect to the transactions contemplated by this Agreement or the Transaction
Documents have been paid or will be payable by the Company to any third party
broker, financial advisor, finder, investment banker, or bank. The Purchaser
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shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section 2.1(p) that may be due in connection with the transactions contemplated
by this Agreement and the Transaction Documents.
q. Disclosure. Except for information regarding the transaction contemplated by
this Agreement and the Transaction Documents and the terms and conditions hereof
and thereof, the Company confirms that neither it nor any other Person acting on
its behalf has provided any of the Purchasers or their agents or counsel with
any information the Company believes constitutes material, non-public
information. The Company understands and confirms that the Purchasers will rely
on the foregoing representations in effecting transactions in securities of the
Company. All disclosure provided to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the Schedules to
this Agreement, furnished by or on behalf of the Company are true and correct
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
a. Organization; Authority. Such Purchaser, as applicable, is a
corporation 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 this Agreement and the Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. The purchase by such Purchaser, as
applicable, of the Note and the Warrant hereunder has been duly authorized by
all necessary action on the part of such Purchaser. Each of this Agreement and
the Transaction Documents has been duly executed and delivered by each Purchaser
and constitutes the valid and legally binding obligation of each Purchaser,
enforceable against such Purchaser 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 and except that rights to
indemnification and contribution may be limited by Federal or state securities
laws or public policy relating thereto.
b. Investment Intent. Such Purchaser is acquiring the Note and the
Warrant for its own account and not with a present view to or for distributing
or reselling the Note, the Warrant or the Note and Warrant Shares or any part
thereof or interest therein in violation of the Securities Act. Nothing
contained herein shall be deemed a representation or warranty by such Purchaser
to hold the Note or Warrant or Note and Warrant Shares for any period of time.
Such Purchaser is acquiring the Note or Warrant or Note and Warrant Shares
hereunder in the ordinary course of its business. Such Purchaser does not have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Note, the Warrant or the Note and Warrant Shares.
c. Purchaser Status. At the time such Purchaser was offered the Note
and the Warrant, and at the Closing Date and each date such Purchaser exercises
the Warrant or the conversion option under the Note, (i) it was and will be an
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"accredited investor" as defined in Rule 501 under the Securities Act and (ii)
such Purchaser, 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 Note, the Warrant and the Note and Warrant Shares.
Such Purchaser is not a registered broker-dealer under Section 15 of the
Exchange Act.
d. Reliance. Such Purchaser understands and acknowledges that (i) the
Note, the Warrant and the Note and Warrant Shares are being offered and sold to
the Purchaser without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
under Section 4(2) of the Securities Act or Regulation D promulgated thereunder
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 Purchaser hereby consents to such reliance.
e. Information. Such Purchaser 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 offer and sale of the Note and the
Warrant which have been requested by such Purchaser or its advisors. Such
Purchaser and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. The Purchaser understands that its investment in the
Note and Warrant involves a significant degree of risk. Neither such inquiries
nor any other investigation conducted by or on behalf of such Purchaser or its
representatives or counsel shall modify, amend or affect such Purchaser's right
to rely on the truth, accuracy and completeness of the Company's representations
and warranties contained in this Agreement or the Transaction Documents.
f. Governmental Review. Such Purchaser 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 Notes or
Warrants.
g. Residency. Such Purchaser is a resident of the jurisdiction set
forth immediately beside such Purchaser's name on Schedule I hereto.
The Company acknowledges and agrees that the Purchasers 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 Purchaser should decide to dispose of the Note, the
Warrant, or the Note and Warrant Shares held by it, such Purchaser understands
and agrees that it may do so (1) only pursuant to an effective registration
statement under the Securities Act, (2) pursuant to an available exemption from
the registration requirements of the Securities Act, (3) to an affiliate of the
Purchaser, or (4) pursuant to Rule 144 promulgated under the Securities Act
("Rule 144"). In connection with any transfer of any Note, the Warrant or Note
and Warrant Shares other than pursuant to an effective registration statement,
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Rule 144, to the Company or to an affiliate of the Purchasers, 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
Note, the Warrant, or Note and Warrant Shares may be sold pursuant to Rule
144(k), no written opinion of counsel shall be required from any Purchaser if
such Purchaser 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 Purchaser to an affiliate
of such Purchaser, 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 the Transaction Documents and shall have the rights of a Purchaser
under this Agreement and the Transaction Documents. The Company shall not
require an opinion of counsel in connection with the transfer of the shares of
Note, the Warrant or the Note and Warrant Shares to an affiliate of a Purchaser.
b. The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Note, the
Warrant and the Note and Warrant Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE 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 AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS
AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SHARES.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement or grant a security
interest in some or all of the Note, the Warrant or the Note and Warrant Shares
and, if required under the terms of such arrangement, such Purchaser may
transfer the pledged or secured Note, Warrant or Note and Warrant Shares to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
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approval of the Company and no legal opinion of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the appropriate Purchaser's expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party reasonably request in connection with a pledge or transfer of the Note,
the Warrant or the Note and Warrant Shares, including the preparation and filing
of any required prospectus supplement under Rule 424(b)(3) of the Securities Act
or other applicable provision of the Securities Act to appropriately amend the
list of selling stockholders thereunder.
The Company agrees that it will provide any Purchaser, upon request,
with a certificate or certificates representing the Note, the Warrant or the
Note and 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. The Company agrees that
following the effective date of the registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Notes and Note and Warrant Shares by the Purchasers or at such
time as such legend is no longer required under this Section 3.1, it will, no
later than three Trading Days (as such term is defined in the Registration
Rights Agreement) following the delivery by a Purchaser to the Company or the
Company's transfer agent of a certificate representing Notes and Note and
Warrant Shares issued with a restrictive legend, deliver or cause to be
delivered to such Purchaser a certificate representing such Notes and Note and
Warrant Shares that is free from all restrictive and other legends.
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 Reservation of Note and Warrant Shares. 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 Note and Warrant. If at
any time the number of shares of Common Stock authorized and reserved for
issuance is insufficient to cover the number of Note and Warrant Shares issued
and issuable upon exercise of the Note and Warrant (based on the Exercise Price
(as defined in the Note and Warrant) of the Note and Warrant in effect from time
to time) without regard to any limitation on exercises, the Company will
promptly take all corporate action necessary to authorize and reserve such
shares including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company's obligations under this
Section 3.3, 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.
3.4 Furnishing of Information. As long as any Purchaser owns the Note,
the Warrant or the Note and Warrant Shares, the Company covenants to 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 the Exchange Act. 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 the preceding sentence. As long as
any Purchaser owns the Note, the Warrant or the Note and Warrant Shares, if the
Company is not required to file reports pursuant to such laws, it will prepare
and furnish to the Purchasers and make publicly available in accordance with
85
Rule 144(c) such information as is required for the Purchasers to sell the
Company Common Stock under Rule 144.
3.5 Integration. The Company shall not, and shall use its best
efforts to ensure that no affiliate of the Company shall, 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 sale of the Notes hereunder in a manner that would require the
registration under the Securities Act of the sale of the Notes to the
Purchasers, or that would be integrated with the offer or sale of the Notes for
purposes of the rules and regulations of the Nasdaq National Market, if such
integration would result in a violation of any such rule or regulation.
3.6 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Notes hereunder for working capital purposes.
3.7 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.
ARTICLE IV.
CONDITIONS
4.1 Closing.
a. Conditions Precedent to the Obligation of the Company to Sell the Notes
and the Warrants. The obligation of the Company to sell the Notes and the
Warrants is subject to the satisfaction or waiver by the Company, at or before
the Closing Date, of each of the following conditions:
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of each Purchaser in this
Agreement shall be true and correct in all material respects as of the date when
made and as of the Closing Date;
(ii) Performance by the Purchasers. Each Purchaser 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 Purchaser 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 or the Transaction Documents; and
b. Conditions Precedent to the Obligation of the Purchasers to Purchase
the Notes and Warrants at the Closing. The obligation of each Purchaser
hereunder to acquire and pay for the Note and the Warrant at the Closing is
subject to the satisfaction or waiver by Purchaser, 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;
(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;
86
(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) Required Approvals. All Required Approvals shall have
been obtained;
(v) Shares of Common Stock. The Company shall have duly
reserved the number of shares of Common Stock and the number or Note and Warrant
Shares issuable upon the exercise of the Notes or Warrants acquired by the
Purchasers on the Closing Date;
(vi) Opinion of Counsel. The Purchasers shall have received an
opinion from the Company's counsel, dated the Closing Date, addressed to the
Purchasers, in a form reasonably satisfactory to Purchasers;
(vii) Certificates and Documents. The Company shall have
delivered to the Purchasers:
(a) The Certificate of Incorporation of the Company, as in effect prior to
the Closing, certified by the Secretary of State of the State of Delaware;
(b) Certificate, as of a date not more than 15 days prior to Closing, as
to the corporate good standing of the Company, issued by the Secretary of
State of the State of Delaware;
(c) By-laws of the Company, certified by its Secretary or Assistant
Secretary as being in effect on the date of Closing; and
(d) Resolutions of the Board of Directors of the Company, authorizing and
approving all matters in connection with this Agreement and the
transactions contemplated hereby, certified by the Secretary or Assistant
Secretary of the Company as of the date of Closing.; and
(viii) Compliance Certificate. The Company shall have
delivered to the Purchasers a certificate, executed by the CEO or President of
the Company, dated the Closing Date, certifying to the fulfillment of the
conditions specified in this Article IV(b).
87
ARTICLE V.
INDEMNIFICATION
5.1 Indemnification. The Company will indemnify and hold the Purchasers
and their directors, officers, shareholders, partners, employees and agents
(each, a "Purchaser Party") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys'
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any misrepresentation, breach or
inaccuracy, or any allegation by a third party that, if true, would constitute a
breach or inaccuracy, of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or in the other Transaction
Documents; or (b) any cause of action, suit or claim brought or made against
such Purchaser Party and solely arising out of or solely resulting from the
execution, delivery, performance or enforcement of this Agreement or any of the
other Transaction Documents. The Company will reimburse such Purchaser for its
reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred. Notwithstanding the foregoing, the
Company shall not be required to indemnify any the Purchaser under the terms of
this Article V with respect to any claim or violation for which indemnification
is expressly excluded under the Registration Rights Agreement.
ARTICLE VI.
MISCELLANEOUS
6.1 Entire Agreement. This Agreement, together with the Exhibits and
Schedules hereto 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. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration or other communication shall or may be
given to or served upon any of the parties by another, or whenever any of the
parties desires to give or serve upon another any such communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or by registered or certified
mail, return receipt requested, postage prepaid, or by telecopy and confirmed by
telecopy answerback addressed as follows:
If to the Company:
Xxxxx 0 Systems, Inc.
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxx X. Xxxxxxxxx
With a Copy to:
Xxxxxx Xxxxxxxx LLC
00 Xxxxxxxx Xxxxx
Xxxxxxxx Xxxxxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. May, Jr., Esq.
88
If to the Purchasers: To the address set forth on the
counterpart signature page of such Purchaser, or at such other address as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Every notice, demand, request, consent, approval, declaration or
other communication hereunder shall be deemed to have been duly given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section prior to 6:30 p.m. (New York City time) on a business day, (b) the
next business day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a business day or later than 6:30 p.m. (New
York City time) on any business day, (c) the business day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given. As
used herein, a "business day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.
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 Purchasers 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.
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; Assignability. Neither this Agreement nor
any right, remedy, obligation or liability arising hereunder or by reason hereof
shall be assignable by either the Company or the Purchasers without the prior
written consent of the other party. In the event that such prior written consent
is obtained and this Agreement is assigned by either party, all covenants
contained herein shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns.
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; Waiver of Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by and construed and enforced in accordance with the internal laws
of the State of Delaware, without regard to the principles of conflicts of law
thereof. Each party agrees that all proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
89
(each a "Proceeding") shall be commenced exclusively in the state and federal
courts sitting in the State of Delaware. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the State of Delaware for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of the any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
Proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such Proceeding is improper. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for 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 hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.
6.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive following the Closing.
6.10 Counterparts; Facsimile Signatures. 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) with the same force and effect as if such
facsimile signature page were an original thereof.
6.11 [Intentionally Deleted]
6.12 Publicity. Neither the Company nor the Purchasers shall issue any
press release or make any public disclosure regarding the transactions
contemplated hereby unless such press release or public disclosure is approved
by the other party hereto in advance. Notwithstanding the foregoing, each of the
parties hereto may, in documents required to be filed by it with the SEC or
other regulatory bodies, make such statements with respect to the transactions
contemplated hereby as each may be advised by counsel is legally necessary or
advisable, and may make such disclosure as it is advised by its counsel is
required by law.
6.13 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.
6.14 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
90
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.
6.15 Replacement of Certificates. If any certificate or instrument
evidencing any shares of Common Stock is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement shares.
6.16 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under this
Agreement or the Transaction Documents. The parties agree that monetary damages
may not be adequate compensation for any loss incurred by reason of any breach
of obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
6.17 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under this Agreement or any Transaction Document
are several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under this Agreement or any Transaction Document. Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
this Agreement or any the Transaction Document. Each Purchaser shall be entitled
to independently protect and enforce its rights, including without limitation
the rights arising out of this Agreement or out of the other Transaction
Documents, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.
6.18 Fees and Expenses. Except as set forth in the Registration Rights
Agreement, and except as provided herein, each Party shall pay the fees and
expenses of its advisers, accountants and other experts.
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the day and year first above written.
XXXXX 0 SYSTEMS, INC.
By:
----------------------------------
Xxxx X. Xxxxxxxxx
Chief Operating and Financial Officer
PURCHASERS:
[COUNTERPART SIGNATURE PAGES FOLLOW]
-92-
IN WITNESS WHEREOF, the undersigned Purchaser has caused this
Securities Purchase Agreement to be duly executed by its respective authorized
persons as of the day and year first above written.
PURCHASER:
-------------------------------------------------------------
(Print or Type Name of Purchaser)
By:
----------------------------------------------------------
Name:
--------------------------------------------------------
Title:
-------------------------------------------------------
RESIDENCE:
---------------------------------------------------
ADDRESS:
-----------------------------------------------------
-----------------------------------------------------
---------------------------------------------------
Telephone:
-----------------------------------------
Facsimile:
-----------------------------------------
Attention:
-----------------------------------------
AGGREGATE SUBSCRIPTION AMOUNT:
Face Value of Convertible Promissory Note:
-------------------------------------
[PURCHASER SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
93
SCHEDULE I
NAME AND NUMBER OF CONVERTIBLE FACE VALUE OF
ADDRESS OF PURCHASER RESIDENCE NUMBER OF NOTE SHARES WARRANT SHARES PROMISSORY NOTE
-------------------- --------- --------------------- -------------- ---------------
94
