Exhibit 10.1
FRONT PORCH DIGITAL, INC.
SECURITIES PURCHASE AGREEMENT
MAY 13, 2004
TABLE OF CONTENTS
PAGE
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1. Agreement to Sell and Purchase........................................1
2. Fees and Warrant......................................................1
3. Closing, Delivery and Payment.........................................2
3.1 Closing....................................................2
3.2 Delivery...................................................2
4. Representations and Warranties of the Company.........................2
4.1 Organization, Good Standing and Qualification..............3
4.2 Subsidiaries...............................................3
4.3 Capitalization; Voting Rights..............................3
4.4 Authorization; Binding Obligations.........................4
4.5 Liabilities................................................5
4.6 Agreements; Action.........................................5
4.7 Obligations to Related Parties.............................6
4.8 Changes....................................................6
4.9 Title to Properties and Assets; Liens, Etc.................7
4.10 Intellectual Property......................................8
4.11 Compliance with Other Instruments..........................9
4.12 Litigation.................................................9
4.13 Tax Returns and Payments...................................9
4.14 Employees.................................................10
4.15 Registration Rights and Voting Rights.....................10
4.16 Compliance with Laws; Permits.............................11
4.17 Environmental and Safety Laws.............................11
4.18 Valid Offering............................................11
4.19 Full Disclosure...........................................11
4.20 Insurance.................................................12
4.21 SEC Reports...............................................12
4.22 Listing...................................................12
4.23 No Integrated Offering....................................12
4.24 Stop Transfer.............................................13
4.25 Dilution..................................................13
4.26 Patriot Act...............................................13
5. Representations and Warranties of the Purchaser......................14
5.1 No Shorting...............................................14
5.2 Requisite Power and Authority.............................14
5.3 Investment Representations................................14
5.4 Purchaser Bears Economic Risk.............................15
5.5 Acquisition for Own Account...............................15
5.6 Purchaser Can Protect Its Interest........................15
5.7 Accredited Investor.......................................15
5.8 Legends...................................................15
6. Covenants of the Company.............................................16
6.1 Stop-Orders...............................................16
6.2 Listing...................................................16
6.3 Market Regulations........................................16
6.4 Reporting Requirements....................................17
6.5 Use of Funds..............................................17
6.6 Access to Facilities......................................17
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6.7 Taxes.....................................................17
6.8 Insurance.................................................18
6.9 Intellectual Property.....................................19
6.10 Properties................................................19
6.11 Confidentiality...........................................19
6.12 Required Approvals........................................19
6.13 Reissuance of Securities..................................20
6.14 Opinion...................................................20
6.15 Margin Stock..............................................20
6.16 Pledge of Subsidiary Capital Stock........................20
6.17 Notice of Default.........................................19
7. Covenants of the Purchaser...........................................21
7.1 Confidentiality...........................................21
7.2 Non-Public Information....................................21
8. Covenants of the Company and Purchaser Regarding Indemnification.....21
8.1 Company Indemnification...................................21
8.2 Purchaser's Indemnification...............................22
8.3 Procedures................................................22
9. Conversion of Convertible Note.......................................22
9.1 Mechanics of Conversion...................................22
10. Registration Rights..................................................23
10.1 Registration Rights Granted...............................23
10.2 Offering Restrictions.....................................24
11. Miscellaneous........................................................24
11.1 Governing Law.............................................24
11.2 Survival..................................................24
11.3 Successors................................................25
11.4 Entire Agreement..........................................25
11.5 Severability..............................................25
11.6 Amendment and Waiver......................................25
11.7 Delays or Omissions.......................................25
11.8 Notices...................................................25
11.9 Titles and Subtitles......................................26
11.10 Facsimile Signatures; Counterparts........................26
11.11 Broker's Fees.............................................26
11.12 Construction..............................................27
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LIST OF EXHIBITS
Form of Convertible Term Note........................................ Exhibit A
Form of Warrant...................................................... Exhibit B
Form of Opinion...................................................... Exhibit C
Form of Escrow Agreement............................................. Exhibit D
Form of Disbursement Letter.......................................... Exhibit E
Form of Subsidiary Guarantee......................................... Exhibit F
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of May 13, 2004, by and between FRONT PORCH DIGITAL, INC., a
Nevada corporation (the "Company"), and LAURUS MASTER FUND, LTD., a Cayman
Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Five Million Dollars
($5,000,000) (the "Note"), which Note is convertible into shares of the
Company's common stock, $0.001 par value per share (the "Common Stock"), at an
initial fixed conversion price of $0.50 per share of Common Stock ("Fixed
Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 4,435,500 shares of the Company's Common Stock (subject to
adjustment as set forth therein) in connection with Purchaser's purchase of the
Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE
Pursuant to the terms and conditions set forth in this Agreement, on
the Closing Date (as defined in Section 3), the Company agrees to sell to the
Purchaser, and the Purchaser hereby agrees to purchase from the Company, a Note
in the aggregate principal amount of Five Million Dollars ($5,000,000)
convertible in accordance with the terms thereof into shares of Common Stock in
accordance with the terms of the Note and this Agreement. The offering of the
Note purchased on the Closing Date shall be known as the "Offering." A form of
the Note is annexed hereto as Exhibit A. The Note will mature on the Maturity
Date (as defined in the Note). Collectively, the Note and the Warrant (as
defined in Section 2) and the Common Stock issuable in payment of the Note, upon
conversion of the Note and upon exercise of the Warrant are referred to as the
"Securities."
2. FEES AND WARRANT
On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a
Warrant to purchase up to 4,435,500 shares of Common Stock in
connection with the Offering (the "Warrant") pursuant to Section 1
hereof. The Warrant must be delivered on the Closing Date. A form of
Warrant is annexed hereto as Exhibit B. The shares of Common Stock
issuable upon exercise of the Warrant are hereinafter as referred to as
the "Warrant Shares".
(b) Subject to the terms of Section 2(d) below, the Company
shall pay to Laurus Capital Management, LLC, the manager of the
Purchaser, a closing payment in an amount equal to three and
nine-tenths percent (3.90%) of the aggregate principal amount of the
Note. The foregoing fee is referred to herein as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its
reasonable legal fees for services rendered to the Purchaser in
preparation of this Agreement and the Related Agreements (as
hereinafter defined), and reasonable out-of-pocket expenses incurred in
connection with the Purchaser's due diligence review of the Company and
its Subsidiaries (as defined in Section 6.8) and all related matters.
Amounts required to be paid under this Section 2(c) will be paid on the
Closing Date and shall not exceed $27,000 for legal fees and $17,500
for expenses incurred while performing due diligence inquiries on the
Company and its Subsidiaries.
(d) The Closing Payment, the legal fees and the due diligence
expenses (net of deposits previously paid by the Company) shall be paid
at closing out of funds held pursuant to a Funds Escrow Agreement of
even date herewith among the Company, Purchaser and an Escrow Agent in
the form attached hereto as Exhibit D (the "Funds Escrow Agreement")
and a disbursement letter in the form attached hereto as Exhibit E (the
"Disbursement Letter").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING
Subject to the terms and conditions set forth herein, the closing of
the transactions contemplated hereby (the "Closing"), shall take place on such
date, and at such time or place, as the Company and Purchaser shall mutually
agree (such date is hereinafter referred to as the "Closing Date").
3.2 DELIVERY
Pursuant to the Funds Escrow Agreement in the form attached hereto as
Exhibit C, at the Closing on the Closing Date, the Company will deliver to the
Purchaser, among other things, a Note in the form attached as Exhibit A
representing the aggregate principal amount of Five Million Dollars ($5,000,000)
and a Warrant in the form attached as Exhibit B in the Purchaser's name
representing 4,435,500 Warrant Shares and the Purchaser will deliver to the
Company, among other things, the amounts set forth in the Disbursement Letter by
wire transfer of immediately available funds to an account of the Company as the
Company shall direct in writing.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows
(which representations and warranties are qualified by the information set
forth in the Company's filings under the Securities Exchange Act of 1934
(collectively, the "Exchange Act Filings"), copies of which have been provided
to the Purchaser):
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION
Each of the Company and each of its Subsidiaries is a corporation,
partnership or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. Each of the Company and each of its Subsidiaries has the corporate
power and authority to own and operate its properties and assets. The Company
has the corporate power and authority to execute and deliver (i) this Agreement,
(ii) the Note and the Warrant to be issued in connection with this Agreement,
(iii) the Master Security Agreement dated as of the date hereof between the
Company and the Purchaser (as amended, modified or supplemented from time to
time, the "Master Security Agreement"), (iv) the Registration Rights Agreement
relating to the Securities dated as of the date hereof between the Company and
the Purchaser, (v) the Escrow Agreement dated as of the date hereof among the
Company, the Purchaser and the escrow agent referred to therein and (vi) all
other agreements related to this Agreement and the Note and referred to herein
(the preceding clauses (ii) through (vi), collectively, the "Related
Agreements"), to issue and sell the Note and the shares of Common Stock issuable
upon conversion of the Note (the "Note Shares"), to issue and sell the Warrant
and the Warrant Shares, and to carry out the provisions of this Agreement and
the Related Agreements and to carry on its business as presently conducted. Each
of the Company and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and it Subsidiaries, taken individually and as a whole (a "Material
Adverse Effect").
4.2 SUBSIDIARIES
Each direct and indirect Subsidiary of the Company, the direct owner of
such Subsidiary and its percentage ownership thereof, is set forth on Schedule
4.2. For the purpose of this Agreement, a "SUBSIDIARY" of any person or entity
means (i) a corporation or other entity whose shares of stock or other ownership
interests having ordinary voting power (other than stock or other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the directors of such corporation, or other persons or
entities performing similar functions for such person or entity, are owned,
directly or indirectly, by such person or entity or (ii) a corporation or other
entity in which such person or entity owns, directly or indirectly, more than
50% of the equity interests at such time.
4.3 CAPITALIZATION; VOTING RIGHTS
(a) The authorized capital stock of the Company, as of the
date hereof and without giving effect to the proposed increase in
authorized
capital stock contemplated by the Company's Schedule 14C Information
Statement filed with the Securities and Exchange Commission on April
30, 2004, consists of 55,000,000 shares, of which 50,000,000 are shares
of Common Stock, 56,342,222 shares of which are issued and outstanding
(including 12,523,810 shares for which the company has received notices
of conversion of its 8.0% Unsecured Convertible Notes due September 30,
2004), and 5,000,000 are shares of preferred stock, par value $0.001
per share, none of which shares of preferred stock are issued and
outstanding. The authorized capital stock of each Subsidiary of the
Company is set forth on Schedule 4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the
shares reserved for issuance under the Company's 2000 Equity Incentive
Plan or the Company's Executive Bonus Plan; and (ii) shares which may
be granted pursuant to this Agreement and the Related Agreements, there
are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder
agreements, or arrangements or agreements of any kind for the purchase
or acquisition from the Company of any of its securities. Except as
disclosed on Schedule 4.3, neither the offer, issuance or sale of the
Note or the Warrant, or the issuance of any of the Note Shares or
Warrant Shares, nor the consummation of any transaction contemplated
hereby will result in a change in the price or number of any securities
of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common
Stock: (i) have been duly authorized and validly issued and are fully
paid and nonassessable; and (ii) were issued in compliance with all
applicable state and federal laws concerning the issuance of
securities.
(d) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in the Company's
Certificate of Incorporation (the "Charter"). The Note Shares and
Warrant Shares have been duly and validly reserved for issuance. When
issued in compliance with the provisions of this Agreement and the
Company's Charter, the Securities will be validly issued, fully paid
and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions
on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is
proposed.
4.4 AUTHORIZATION; BINDING OBLIGATIONS
All corporate action on the part of the Company (including its officers
and directors) necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company hereunder and
under the other Related Agreements at the Closing and, the authorization, sale,
issuance and delivery of the Note and Warrant has been taken or will be taken
prior to the Closing. This Agreement and the other Related Agreements, when
executed and delivered, will be valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5 LIABILITIES
To the Company's knowledge, neither the Company nor any of its
Subsidiaries has any material contingent liabilities, except current liabilities
incurred in the ordinary course of business and liabilities disclosed in any
Exchange Act Filings.
4.6 AGREEMENTS; ACTION
Except as set forth on Schedule 4.6 or as disclosed in any Exchange Act
Filings:
(a) there are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees
to which the Company or any of its Subsidiaries is a party or by which
it is bound which may involve: (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $50,000 (other
than obligations of, or payments to, the Company arising from purchase,
sale or license agreements entered into in the ordinary course of
business); or (ii) the transfer or license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other
than licenses arising from the purchase of "off the shelf" or other
standard products); or (iii) provisions restricting the development,
manufacture or distribution of the Company's products or services; or
(iv) indemnification by the Company with respect to infringements of
proprietary rights.
(b) Since December 31, 2003, neither the Company nor any of
its Subsidiaries has: (i) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or series of
its capital stock; (ii) incurred any indebtedness for money borrowed or
any other liabilities (other than ordinary course obligations)
individually in excess of $50,000 or, in the case of indebtedness
and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate; (iii) made any loans or advances to any
person not in excess, individually or in the aggregate, of $100,000,
other than ordinary course advances for travel expenses; or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights valued
in excess of $50,000, other than in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting
the individual minimum dollar amounts of such subsections.
4.7 OBLIGATIONS TO RELATED PARTIES
Except as set forth on Schedule 4.7, there are no obligations of the
Company or any of its Subsidiaries to officers, directors, stockholders or
employees of the Company or any of its Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf
of the Company and its Subsidiaries;
(c) for other standard employee benefits made generally
available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of
Directors of the Company); and
(d) obligations listed in the Company's financial statements
or disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7 or in the Company's
Exchange Act Filings, none of the officers, directors or, to the best of the
Company's knowledge, key employees or stockholders of the Company or any members
of their immediate families, are indebted to the Company, individually or in the
aggregate, in excess of $50,000 or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company, other than passive investments in publicly traded
companies (representing less than one percent (1%) of such company) which may
compete with the Company. Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person. Except as set forth on Schedule 4.7, the Company is
not a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.8 CHANGES
Since December 31, 2003, except as disclosed in any Exchange Act Filing
or in any Schedule to this Agreement or to any of the Related Agreements, there
has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or any of its Subsidiaries, which individually or in the
aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key
employee or group of employees of the Company or any of its
Subsidiaries;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty or
otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of
its Subsidiaries to any stockholder, employee, officer or director of
the Company or any of its Subsidiaries, other than advances made in the
ordinary course of business;
(g) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder of the
Company or any of its Subsidiaries;
(h) any declaration or payment of any dividend or other
distribution of the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or
any of its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries, except those for
immaterial amounts and for current liabilities incurred in the ordinary
course of business;
(k) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets owned
by the Company or any of its Subsidiaries;
(l) any change in any material agreement to which the Company
or any of its Subsidiaries is a party or by which either the Company or
any of its Subsidiaries is bound which either individually or in the
aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through
(m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC.
Except as set forth on Schedule 4.9, each of the Company and each of
its Subsidiaries has good and marketable title to its properties and assets,
and good title to its leasehold estates, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than:
(a) those resulting from taxes which have not yet become
delinquent;
(b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially
impair the operations of the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair (ordinary wear and tear excepted) and are reasonably fit
and usable for the purposes for which they are being used. Except as set forth
on Schedule 4.9, the Company and its Subsidiaries are in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
4.10 INTELLECTUAL PROPERTY
(a) Each of the Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information
and other proprietary rights and processes necessary for its business
as now conducted and to the Company's knowledge, as presently proposed
to be conducted (the "Intellectual Property"), without any known
infringement of the rights of others. There are no outstanding options,
licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company or any of its Subsidiaries bound
by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary
rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the shelf" or
standard products.
(b) Neither the Company nor any of its Subsidiaries has
received any communications alleging that the Company or any of its
Subsidiaries has violated any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary
rights of any other person or entity, nor is the Company or any of its
Subsidiaries aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any
of its employees made prior to their employment by the Company or any
of its Subsidiaries, except for inventions, trade secrets or
proprietary information that have been rightfully assigned to the
Company or any of its Subsidiaries.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS
Neither the Company nor any of its Subsidiaries is in violation or
default of (x) any term of its Charter or Bylaws, or (y) of any provision of any
indebtedness, mortgage, indenture, contract, agreement or instrument to which it
is party or by which it is bound or of any judgment, decree, order or writ,
which violation or default, in the case of this clause (y), has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. The execution, delivery and performance of and
compliance with this Agreement and the Related Agreements to which it is a
party, and the issuance and sale of the Note by the Company and the other
Securities by the Company, each pursuant hereto and thereto, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term or
provision, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or any of its
Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal
of any permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.
4.12 LITIGATION
Except as set forth on Schedule 4.12 hereto, there is no action, suit,
proceeding or investigation pending or, to the Company's knowledge, currently
threatened against the Company or any of its Subsidiaries that prevents the
Company or any of its Subsidiaries from entering into this Agreement or the
other Related Agreements, or from consummating the transactions contemplated
hereby or thereby, or which has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect or any change
in the current equity ownership of the Company or any of its Subsidiaries, nor
is the Company aware that there is any basis to assert any of the foregoing.
Neither the Company nor any of its Subsidiaries is a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company or any of its Subsidiaries currently pending or
which the Company or any of its Subsidiaries intends to initiate.
4.13 TAX RETURNS AND PAYMENTS
Except as set forth on Schedule 4.13, each of the Company and each of
its Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have
been or are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to
its federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 EMPLOYEES
Except as set forth on Schedule 4.14, neither the Company nor any of
its Subsidiaries has any collective bargaining agreements with any of its
employees. There is no labor union organizing activity pending or, to the
Company's knowledge, threatened with respect to the Company or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its Subsidiaries because of the nature of
the business to be conducted by the Company or any of its Subsidiaries; and to
the Company's knowledge the continued employment by the Company or any of its
Subsidiaries of its present employees, and the performance of the Company's and
its Subsidiaries' contracts with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries is aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
employee of the Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS
Except as set forth on Schedule 4.15 and except as disclosed in
Exchange Act Filings, neither the Company nor any of its Subsidiaries is
presently under any obligation, and neither the Company nor any of its
Subsidiaries has granted any rights, to register any of the Company's or its
Subsidiaries' presently outstanding securities or any of its securities that may
hereafter be issued. Except as set forth on Schedule 4.15 and except as
disclosed in Exchange Act Filings, to the Company's knowledge, no stockholder of
the Company or any of its Subsidiaries has entered into any agreement with
respect to the voting of equity securities of the Company or any of its
Subsidiaries.
4.16 COMPLIANCE WITH LAWS; PERMITS
Neither the Company nor any of its Subsidiaries is in violation of any
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties which has had, or
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement or any other Related Agreement and the issuance of
any of the Securities, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner. Each of the Company and its Subsidiaries has
all material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as now being conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.17 ENVIRONMENTAL AND SAFETY LAWS
Neither the Company nor any of its Subsidiaries is in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. Except as set forth on Schedule 4.17, no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the Company
or any of its Subsidiaries or, to the Company's knowledge, by any other person
or entity on any property owned, leased or used by the Company or any of its
Subsidiaries. For the purposes of the preceding sentence, "Hazardous Materials"
shall mean:
(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal
and/or foreign laws and regulations that govern the existence and/or
remedy of contamination on property, the protection of the environment
from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building
materials; or
(b) any petroleum products or nuclear materials.
4.18 VALID OFFERING
Assuming the accuracy of the representations and warranties of the
Purchaser contained in this Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
4.19 FULL DISCLOSURE
Each of the Company and each of its Subsidiaries has provided the
Purchaser with all information requested by the Purchaser in connection with
its decision to purchase the Note and Warrant. Neither this Agreement, the
Related Agreements, the exhibits and schedules hereto and thereto nor any other
document delivered by the Company or any of its Subsidiaries to Purchaser or its
attorneys or agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, contain any untrue statement of a material fact
nor omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading. Any financial projections and other estimates provided to
the Purchaser by the Company or any of its Subsidiaries were based on the
Company's and its Subsidiaries' experience in the industry and on assumptions of
fact and opinion as to future events which the Company or any of its
Subsidiaries, at the date of the issuance of such projections or estimates,
believed to be reasonable.
4.20 INSURANCE
Each of the Company and each of its Subsidiaries has general
commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21 SEC REPORTS
Except as set forth on Schedule 4.21, the Company has filed all proxy
statements, reports and other documents required to be filed by it under the
Securities Xxxxxxxx Xxx 0000, as amended (the "Exchange Act"). The Company has
furnished the Purchaser with a copy of its Annual Report on Form 10-KSB for its
fiscal year ended December 31, 2003 (the "SEC Report"). To the knowledge of the
Company, the SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its form and neither the SEC Reports, nor
the financial statements (and the notes thereto) included in the SEC Report, as
of its filing date, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.22 LISTING
The Company's Common Stock is listed for trading on the National
Association of Securities Dealers, Inc. Over-the-Counter Bulletin Board ("OTC
BB") and satisfies all requirements for the continuation of such listing. The
Company has not received any notice that its Common Stock will be delisted from
OTC BB or that its Common Stock does not meet all requirements for listing.
4.23 NO INTEGRATED OFFERING
Neither the Company, nor any of its Subsidiaries or affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement or any of the Related Agreements to be integrated with prior offerings
by the Company for purposes of the Securities Act which would prevent the
Company from selling the Securities pursuant to Rule 506 under the Securities
Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or Subsidiaries
take any action or steps that would cause the offering of the Securities to be
integrated with other offerings.
4.24 STOP TRANSFER
The Securities are restricted securities as of the date of this
Agreement. Neither the Company nor any of its Subsidiaries will issue any stop
transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by state and
federal securities laws.
4.25 DILUTION
The Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Note and exercise of the
Warrant is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company.
4.26 PATRIOT ACT
The Company certifies that, to the best of Company's
knowledge, neither the Company nor any of its Subsidiaries has been designated,
and is not owned or controlled, by a "suspected terrorist" as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and agrees that: (i) none of the cash or property that the Company or
any of its Subsidiaries will pay or will contribute to the Purchaser has been or
shall be derived from, or related to, any activity that is deemed criminal under
United States law; and (ii) no contribution or payment by the Company or any of
its Subsidiaries to the Purchaser, to the extent that they are within the
Company's and/or its Subsidiaries' control shall cause the Purchaser to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations ceases to be true
and accurate regarding the Company or any of its Subsidiaries. The Company
agrees to provide the Purchaser any additional information regarding the Company
or any of its Subsidiaries that the Purchaser deems necessary or convenient to
ensure compliance with all applicable laws concerning money laundering and
similar activities. The Company understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
similar activities, the Purchaser may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of the Purchaser's investment in the Company. The
Company further understands that the Purchaser may release confidential
information about the Company and its Subsidiaries and, if applicable, any
underlying beneficial owners, to proper authorities if the Purchaser, in its
sole discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and regulations under the laws set forth in subsection
(ii) above.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
5.1 NO SHORTING
The Purchaser or any of its affiliates and investment partners has not,
will not and will not cause any person or entity, directly or indirectly, to
engage in "short sales" of the Company's Common Stock, or any other hedging
strategies utilizing the Company's Common Stock, as long as the Note shall be
outstanding.
5.2 REQUISITE POWER AND AUTHORITY
The Purchaser has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and the
Related Agreements and to carry out their provisions. All corporate action on
Purchaser's part required for the lawful execution and delivery of this
Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) as limited by general principles of equity that restrict
the availability of equitable and legal remedies.
5.3 INVESTMENT REPRESENTATIONS
Purchaser understands that the Securities are being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon Purchaser's representations contained in the Agreement, including,
without limitation, that the Purchaser is an "accredited investor" within the
meaning of Regulation D under the Securities Act. The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant, respectively. The Purchaser further confirms that
it has had an opportunity to ask questions and receive answers from the Company
regarding the Company's and its Subsidiaries' business, management and financial
affairs and the terms and conditions of the Offering, the Note, the Warrant and
the Securities and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Purchaser or to
which the Purchaser had access.
5.4 PURCHASER BEARS ECONOMIC RISK
The Purchaser has substantial experience in evaluating and investing in
private placement transactions of securities in companies similar to the Company
so that it is capable of evaluating the merits and risks of its investment in
the Company and has the capacity to protect its own interests. The Purchaser
must bear the economic risk of this investment until the Securities are sold
pursuant to: (i) an effective registration statement under the Securities Act;
or (ii) an exemption from registration is available with respect to such sale.
5.5 ACQUISITION FOR OWN ACCOUNT
The Purchaser is acquiring the Note and Warrant and the Note Shares and
the Warrant Shares for the Purchaser's own account for investment only, and not
as a nominee or agent and not with a view towards or for resale in connection
with their distribution.
5.6 PURCHASER CAN PROTECT ITS INTEREST
By reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and risks of
its investment in the Note, the Warrant and the Securities and to protect its
own interests in connection with the transactions contemplated in this Agreement
and the other Related Agreements. Further, Purchaser is aware of no publication
of any advertisement in connection with the transactions contemplated in the
Agreement or the Related Agreements.
5.7 ACCREDITED INVESTOR
The Purchaser is an accredited investor within the meaning of
Regulation D under the Securities Act.
5.8 LEGENDS
The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO FRONT PORCH DIGITAL, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(a) The Note Shares and the Warrant Shares, if not issued by
DWAC system (as hereinafter defined), shall bear a legend which shall
be in substantially the following form until such shares are covered by
an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO FRONT PORCH DIGITAL, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO FRONT
PORCH DIGITAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
6. COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that, so long as
the Note remains outstanding:
6.1 STOP-ORDERS
The Company will advise the Purchaser, promptly after it receives
notice of issuance by the Securities and Exchange Commission (the "SEC"), any
state securities commission or any other regulatory authority of any stop order
or of any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
6.2 LISTING
The Company shall promptly secure the listing of the shares of Common
Stock issuable upon conversion of the Note and upon the exercise of the Warrant
on the trading market (the "Principal Market") upon which shares of Common Stock
are listed (subject to official notice of issuance), if applicable, and shall
maintain such listing so long as any other shares of Common Stock shall be so
listed. The Company will maintain the listing of its Common Stock on the
Principal Market or on Nasdaq or any securities exchange, and, to the extent
applicable to the Company, will comply in all material respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3 MARKET REGULATIONS
The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, to the extent applicable to
the Company, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Purchaser and promptly provide copies thereof
to the Purchaser.
6.4 REPORTING REQUIREMENTS
The Company will timely file with the SEC all reports required to be
filed pursuant to the Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination.
6.5 USE OF FUNDS
The Company agrees that it will use the proceeds of the sale of the
Note and the Warrant for general working capital and general business purposes.
6.6 ACCESS TO FACILITIES
Each of the Company and each of its Subsidiaries will permit any
representatives designated by the Purchaser (or any successor of the Purchaser),
upon reasonable notice and during normal business hours, at such person's
expense and accompanied by a representative of the Company, to:
(a) visit and inspect any of the properties of the Company or
any of its Subsidiaries;
(b) examine the corporate and financial records of the Company
or any of its Subsidiaries (unless such examination is not permitted by
federal, state or local law or by contract) and make copies thereof or
extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company
or any of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 TAXES
Each of the Company and each of its Subsidiaries will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company and its Subsidiaries; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company and/or such Subsidiary shall have set aside on
its books adequate reserves with respect thereto, and provided, further, that
the Company and its Subsidiaries will pay all such taxes, assessments, charges
or levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
6.8 INSURANCE
Each of the Company and its Subsidiaries will keep its assets which are
of an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in similar business similarly situated as the Company and
its Subsidiaries; and the Company and its Subsidiaries will maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
which the Company reasonably believes is customary for companies in similar
business similarly situated as the Company and its Subsidiaries and to the
extent available on commercially reasonable terms. The Company and each of its
Subsidiaries will jointly and severally bear the full risk of loss from any loss
of any nature whatsoever with respect to the assets pledged to the Purchaser as
security for its obligations hereunder and under the Related Agreements. At the
Company's and each of its Subsidiaries' joint and several cost and expense in
amounts and with carriers reasonably acceptable to Purchaser, the Company and
each of its Subsidiaries shall (i) keep all its insurable properties and
properties in which it has an interest insured against the hazards of fire,
flood, sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to the Company's or the respective
Subsidiary's including business interruption insurance; (ii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others, in each case consistent with past practices;
(iii) maintain all such worker's compensation or similar insurance as may be
required under the laws of any state or jurisdiction in which the Company or the
respective Subsidiary is engaged in business; and (iv) furnish Purchase with (x)
copies of all policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) excepting the Company's
workers' compensation policy, endorsements to such polices naming Purchaser as
"co insured" or "additional insured" and appropriate loss payable endorsements
in form and substance satisfactory to Purchaser, naming Purchaser as loss payee,
an (z) evidence that as to Purchaser the insurance coverage shall not be
impaired or invalidated by any act or neglect of the Company or any Subsidiary
and the insurer will provide Purchaser with at least thirty (30) days notice
prior to cancellation. The Company and each Subsidiary shall instruct the
insurance carriers that in the event of any loss thereunder, the carriers shall
make payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery upon
any such insurance, the Purchaser has not declared an Event of Default with
respect to this Agreement or any of the Related Agreements, then the Company
and/or such Subsidiary shall be permitted to direct the application of such loss
recovery proceeds toward investment in property, plant and equipment that would
comprise "Collateral" secured by Purchaser's security interest pursuant to is
security agreement, with any surplus funds to be applied by the Company for
working capital purposes. In the event that Purchaser has properly declared an
Event of Default with respect to this Agreement or any of the Related
Agreements, then all loss recoveries received by Purchaser upon any such
insurance thereafter may be applied to the obligations of the Company hereunder
and under the Related Agreements, in such order as the Purchaser may determine.
Any surplus (following satisfaction of all Company obligations to Purchaser)
shall be paid by Purchaser to the Company or applied as may be otherwise
required by law. Any deficiency thereon shall be paid by the Company or the
Subsidiary, as applicable, to Purchaser, on demand.
6.9 INTELLECTUAL PROPERTY
Each of the Company and each of its material Subsidiaries shall
maintain in full force and effect its existence, rights and franchises and all
licenses and other rights to use Intellectual Property owned or possessed by it
and reasonably deemed to be necessary to the conduct of its business.
6.10 PROPERTIES
Each of the Company and each of its Subsidiaries will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and each of the Company and
each of its Subsidiaries will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
6.11 CONFIDENTIALITY
The Company agrees that it will not disclose, and will not include in
any public announcement, the name of the Purchaser, unless expressly agreed to
by the Purchaser or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Company may disclose Purchaser's identity and
the terms of this Agreement to its current and prospective debt and equity
financing sources.
6.12 REQUIRED APPROVALS
For so long as twenty-five percent (25%) of the principal amount of the
Note is outstanding, the Company, without the prior written consent of the
Purchaser (which consent shall not be unreasonably withheld), shall not:
(a) Directly or indirectly declare or pay any dividends, other
than dividends paid to the Company or any of its wholly owned
Subsidiaries;
(b) liquidate, dissolve or effect a material reorganization
(it being understood that in no event shall the Company dissolve,
liquidate or merge with any other person or entity (unless the Company
is the surviving entity);
(c) become subject to (including, without limitation, by way
of amendment to or modification of) any agreement or instrument which
by its terms would (under any circumstances) restrict the Company's or
any of its Subsidiaries right to perform the provisions of this
Agreement, any other Related Agreement or any of the agreements
contemplated hereby or thereby;
(d) (i) create, incur, assume or suffer to exist any secured
indebtedness (exclusive of trade debt and debt incurred to finance the
purchase of equipment (not in excess of five percent (5%) per annum of
the fair market value of the Company's assets) other than (x) the
Company's indebtedness to Laurus, (y) indebtedness set forth on
SCHEDULE 6.12(c) attached hereto and made a part hereof and any
refinancings or replacements thereof on terms no less favorable to the
Purchaser than the indebtedness being refinanced or replaced, and (z)
any debt incurred in connection with the purchase of assets in the
ordinary course of business, or any refinancings or replacements
thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; or (ii) cancel any debt
owning to it in excess of $250,000 in the aggregate during any 12 month
period; and
(e) create or acquire any Subsidiary after the date hereof
unless (i) such Subsidiary is a wholly-owned Subsidiary of the Company
and (ii) such Subsidiary becomes party to the Master Security Agreement
(either by executing a counterpart thereof or an assumption or joinder
agreement in respect thereof), executes and delivers to the Purchaser a
guarantee agreement substantially in the form attached hereto as
Exhibit F and, to the extent required by the Purchaser, satisfies each
condition of this Agreement and the Related Agreements as if such
Subsidiary were a Subsidiary on the Closing Date.
6.13 REISSUANCE OF SECURITIES
The Company agrees to reissue certificates representing the Securities
without the legends set forth in Section 5.7 above at such time as:
(a) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement
after such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14 OPINION
On the Closing Date, the Company will deliver to the Purchaser an
opinion in the form attached hereto as Exhibit C. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Warrant.
6.15 MARGIN STOCK.
The Company will not permit any of the proceeds of the Note or the
Warrant to be used directly or indirectly to "purchase" or "carry" "margin
stock" or to repay indebtedness incurred to "purchase" or "carry" "margin stock"
within the respective meanings of each of the quoted terms under Regulation U of
the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.
6.16 PLEDGE OF SUBSIDIARY CAPITAL STOCK.
The Company will use its reasonable best efforts to pledge to
the Purchaser as additional collateral to secure its obligations under the Note,
or otherwise grant to the Purchaser a security interest in, within 60 days of
the date hereof, all of the shares of capital stock of the Company's
wholly-owned subsidiary, Front Porch Digital International, Inc.
6.17 NOTICE OF DEFAULT
The Company shall from time to time diligently review its
obligations hereunder and under the Related Agreements to confirm its compliance
in all material respects with its duties hereunder and thereunder, and shall
promptly notify the Purchaser of any event or circumstance that has resulted in,
or could reasonably be expected to result in, the occurrence of any default or
Event of Default (as defined in the Note) hereunder or thereunder. For purposes
of this Section 6.17, the term "default" shall mean an event or condition the
occurrence of which is, or with the lapse of time or the giving of notice or
both would be, an Event of Default.
7. COVENANTS OF THE PURCHASER
The Purchaser covenants and agrees with the Company as follows:
7.1 CONFIDENTIALITY
The Purchaser agrees that it will not disclose, and will not include in
any public announcement, the name of the Company, unless expressly agreed to by
the Company or unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
7.2 NON-PUBLIC INFORMATION
The Purchaser agrees not to effect any sales in the shares of the
Company's Common Stock while in possession of material, non-public information
regarding the Company if such sales would violate applicable securities law.
8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING
INDEMNIFICATION
8.1 COMPANY INDEMNIFICATION
The Company agrees to indemnify, hold harmless, reimburse and defend
the Purchaser, each of the Purchaser's officers, directors, agents, affiliates,
control persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which results, arises out of
or is based upon: (i) any misrepresentation by the Company or any of its
Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries
in this Agreement, any other Related Agreement or in any exhibits or schedules
attached hereto or thereto; or (ii) any breach or default in performance by
Company or any of its Subsidiaries of any covenant or undertaking to be
performed by the Company or any of its Subsidiaries hereunder, under any other
Related Agreement or any other agreement entered into by the Company and/or any
of its Subsidiaries and Purchaser relating hereto or thereto.
8.2 PURCHASER'S INDEMNIFICATION
Purchaser agrees to indemnify, hold harmless, reimburse and defend the
Company and each of the Company's officers, directors, agents, affiliates,
control persons and principal shareholders, at all times against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which results,
arises out of or is based upon: (i) any misrepresentation by Purchaser or breach
of any warranty by Purchaser in this Agreement or any Related Agreement or in
any exhibits or schedules attached hereto; or (ii) any breach or default in
performance by Purchaser of any covenant or undertaking to be performed by
Purchaser hereunder, under any Related Agreement or any other agreement entered
into by the Company and Purchaser relating hereto or thereto.
8.3 PROCEDURES
The procedures and limitations set forth in Section 10.2(c) and (d)
shall apply to the indemnifications set forth in Sections 8.1 and 8.2 above.
9. CONVERSION OF CONVERTIBLE NOTE
9.1 MECHANICS OF CONVERSION
(a) Provided the Purchaser has notified the Company in writing
of the Purchaser's intention to sell the Note Shares and the Note
Shares are included in an effective registration statement or are
otherwise exempt from registration when sold: (i) upon the conversion
of the Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action (including the issuance of an
opinion of counsel reasonably acceptable to the Purchaser following a
request by the Purchaser) to assure that the Company's transfer agent
shall issue shares of the Company's Common Stock in the name of the
Purchaser (or its nominee) or such other persons as designated by the
Purchaser in accordance with Section 9.1(b) hereof and in such
denominations to be specified representing the number of Note Shares
issuable upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will be given
to the transfer agent of the Company's Common Stock and that, subject
to Section 7(d) of the Registration Rights Agreement, after the
Effectiveness Date (as defined in the Registration Rights Agreement)
the Note Shares issued will be freely transferable subject to the
prospectus delivery requirements of the Securities Act and the
provisions of this Agreement, and will not contain a legend restricting
the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to
be converted to the Company (the "Notice of Conversion"). The Purchaser
will not be required to surrender the Note until the Purchaser receives
a credit to the account of the Purchaser's prime broker through the
DWAC system (as defined below), representing the Note Shares or until
the Note has been fully satisfied. Each date on which a Notice of
Conversion is telecopied or delivered to the Company in accordance with
the provisions hereof shall be deemed a "Conversion Date." Pursuant to
the terms of the Notice of Conversion, the Borrower will issue
instructions to the transfer agent accompanied by an opinion of counsel
(if required) within two (2) business days of the date of the delivery
to Borrower of the Notice of Conversion and shall cause the transfer
agent to transmit the certificates representing the Conversion Shares
to the Holder by crediting the account of the Purchaser's prime broker
with the Depository Trust Company ("DTC") through its Deposit
Withdrawal Agent Commission ("DWAC") system within three (3) business
days after receipt by the Company of the Notice of Conversion (the
"Delivery Date").
(c) The Company understands that a delay in the delivery of
the Note Shares in the form required pursuant to Section 9 hereof
beyond the Delivery Date could result in economic loss to the
Purchaser. In the event that the Company fails to direct its transfer
agent to deliver the Note Shares to the Purchaser via the DWAC system
within the time frame set forth in Section 9.1(b) above and the Note
Shares are not delivered to the Purchaser by the Delivery Date, as
compensation to the Purchaser for such loss, the Company agrees to pay
late payments to the Purchaser for late issuance of the Note Shares in
the form required pursuant to Section 9 hereof upon conversion of the
Note in the amount equal to the greater of: (i) $500 per business day
after the Delivery Date; or (ii) the Purchaser's actual damages from
such delayed delivery. Notwithstanding the foregoing, the Company will
not owe the Purchaser any late payments if the delay in the delivery of
the Note Shares beyond the Delivery Date is solely out of the control
of the Company and the Company is actively trying to cure the cause of
the delay. The Company shall pay any payments incurred under this
Section in immediately available funds upon demand and, in the case of
actual damages, accompanied by reasonable documentation of the amount
of such damages. Such documentation shall show the number of shares of
Common Stock the Purchaser is forced to purchase (in an open market
transaction) which the Purchaser anticipated receiving upon such
conversion, and shall be calculated as the amount by which (A) the
Purchaser's total purchase price (including customary brokerage
commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the Note,
for which such Conversion Notice was not timely honored.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
10. REGISTRATION RIGHTS
10.1 REGISTRATION RIGHTS GRANTED
At the Closing, the Company shall grant registration rights to the
Purchaser pursuant to a Registration Rights Agreement dated as of even date
herewith between the Company and the Purchaser.
10.2 OFFERING RESTRICTIONS
Except as previously disclosed in the SEC Reports or in the Exchange
Act Filings, or stock or stock options granted to employees or directors of the
Company (these exceptions hereinafter referred to as the "Excepted Issuances"),
neither the Company nor any of its Subsidiaries will issue any securities with a
continuously variable/floating conversion feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement) prior to the full repayment or conversion of the
Note (together with all accrued and unpaid interest and fees related thereto)
(the "Exclusion Period").
10.3 RESTRICTED CASH ACCOUNT
At Closing, the Company will place $3,500,000 in a restricted account
at North Fork Bank, and, subject to the terms of the Note and the Restricted
Account Agreement dated as of the date hereof between the Purchaser and the
Company, maintain such amount in the restricted account for as long as the
Purchaser shall hold the Note. The account shall be pledged to Purchaser as
security for the performance of the Company's obligations.
11. MISCELLANEOUS
11.1 GOVERNING LAW
THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY
AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND
EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR
IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY
JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
11.2 SURVIVAL
The representations, warranties, covenants and agreements made herein
shall survive any investigation made by the Purchaser and the closing of the
transactions contemplated hereby to the extent provided therein. All statements
as to factual matters contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate or
instrument.
11.3 SUCCESSORS
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, heirs,
executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the
Securities from time to time, other than the holders of Common Stock which has
been sold by the Purchaser pursuant to Rule 144 or an effective registration
statement. Purchaser may not assign its rights hereunder to a competitor of the
Company.
11.4 ENTIRE AGREEMENT
This Agreement, the Related Agreements, the exhibits and schedules
hereto and thereto and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
11.5 SEVERABILITY
In case any provision of the Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
11.6 AMENDMENT AND WAIVER
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written
consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the written
consent of the Company.
11.7 DELAYS OR OMISSIONS
It is agreed that no delay or omission to exercise any right, power or
remedy accruing to any party, upon any breach, default or noncompliance by
another party under this Agreement or the Related Agreements, shall impair any
such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. All remedies,
either under this Agreement or the Related Agreements, by law or otherwise
afforded to any party, shall be cumulative and not alternative.
11.8 NOTICES
All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by
registered or certified mail, return receipt requested, postage
prepaid; or
(d) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written
verification of receipt.
All communications shall be sent as follows:
IF TO THE COMPANY, TO: Front Porch Digital, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Chief Financial Officer
Facsimile: (000) 000-0000
WITH A COPY TO: Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
IF TO THE PURCHASER, TO: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services ltd.
X.X. Xxx 0000 G.T.
Xxxxxxxxxx Xxxxx, Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx
Facsimile: 000-000-0000
WITH A COPY TO: Xxxx X. Xxxxxx, Esq.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: 000-000-0000
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 TITLES AND SUBTITLES
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
11.10 FACSIMILE SIGNATURES; COUNTERPARTS
This Agreement may be executed by facsimile signatures and in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
11.11 BROKER'S FEES
Except as set forth on Schedule 11.11 hereof, each party hereto
represents and warrants that no agent, broker, investment banker, person or firm
acting on behalf of or under the authority of such party hereto is or
will be entitled to any broker's or finder's fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 11.11 being untrue.
11.12 CONSTRUCTION
Each party acknowledges that its legal counsel participated in the
preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
FRONT PORCH DIGITAL, INC. LAURUS MASTER FUND, LTD.
By: /s/ Xxxxxx X. Xxxxxxx III By: /s/ Xxxxx Grin
---------------------------- -----------------------------
Name: Xxxxxx X. Xxxxxxx III Name: Xxxxx Grin
---------------------------- -----------------------------
Title: Chairman Title: Director
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