PIPELINE DATA, INC.
SECURITIES PURCHASE AGREEMENT
August 31, 2004
Table of Contents Page
1. Agreement to Sell and Purchase...........................................................................1
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2. Fees and Warrant.........................................................................................1
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3. Closing, Delivery and Payment............................................................................2
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3.1 Closing.......................................................................................2
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3.2 Delivery......................................................................................2
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4. Representations and Warranties of the Company............................................................2
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4.1 Organization, Good Standing and Qualification.................................................3
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4.2 Subsidiaries..................................................................................3
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4.3 Capitalization; Voting Rights.................................................................4
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4.4 Authorization; Binding Obligations............................................................4
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4.5 Liabilities...................................................................................5
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4.6 Agreements; Action............................................................................5
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4.7 Obligations to Related Parties................................................................6
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4.8 Changes.......................................................................................6
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4.9 Title to Properties and Assets; Liens, Etc....................................................7
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4.10 Intellectual Property.........................................................................8
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4.11 Compliance with Other Instruments.............................................................8
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4.12 Litigation....................................................................................9
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4.13 Tax Returns and Payments......................................................................9
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4.14 Employees.....................................................................................9
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4.15 Registration Rights and Voting Rights........................................................10
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4.16 Compliance with Laws; Permits................................................................10
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4.17 Environmental and Safety Laws................................................................10
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4.18 Valid Offering...............................................................................11
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4.19 Full Disclosure..............................................................................11
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4.20 Insurance....................................................................................11
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4.21 SEC Reports..................................................................................11
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4.22 Listing......................................................................................12
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4.23 No Integrated Offering.......................................................................12
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4.24 Stop Transfer................................................................................12
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4.25 Dilution.....................................................................................12
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4.26 Patriot Act .......................................................................................12
5. Representations and Warranties of the Purchaser.........................................................13
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5.1 No Shorting..................................................................................13
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5.2 Requisite Power and Authority................................................................13
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5.3 Investment Representations...................................................................13
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5.4 Purchaser Bears Economic Risk................................................................14
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5.5 Acquisition for Own Account..................................................................14
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5.6 Purchaser Can Protect Its Interest...........................................................14
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5.7 Accredited Investor..........................................................................14
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5.8 Legends......................................................................................14
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6. Covenants of the Company................................................................................15
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6.1 Stop-Orders..................................................................................15
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6.2 Listing......................................................................................15
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6.3 Market Regulations...........................................................................16
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6.4 Reporting Requirements.......................................................................16
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6.5 Use of Funds.................................................................................16
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6.6 Access to Facilities.........................................................................16
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6.7 Taxes........................................................................................16
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6.8 Insurance....................................................................................17
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6.9 Intellectual Property........................................................................18
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6.10 Properties...................................................................................18
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6.11 Confidentiality..............................................................................18
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6.12 Required Approvals...........................................................................18
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6.13 Reissuance of Securities.....................................................................19
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6.14 Opinion......................................................................................19
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6.15..... Margin Stock................................................................................19
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6.16..... Restricted Cash Disclosure..................................................................19
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6.17..... Financing Right of First Refusal............................................................19
7. Covenants of the Purchaser..............................................................................21
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7.1 Confidentiality..............................................................................21
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7.2 Non-Public Information.......................................................................21
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8. Covenants of the Company and Purchaser Regarding Indemnification........................................21
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8.1 Company Indemnification......................................................................21
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8.2 Purchaser's Indemnification..................................................................21
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9. Conversion of Convertible Note..........................................................................21
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9.1 Mechanics of Conversion......................................................................21
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10. Registration Rights.....................................................................................23
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10.1 Registration Rights Granted..................................................................23
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10.2 Offering Restrictions........................................................................23
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11. Miscellaneous...........................................................................................23
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11.1 Governing Law................................................................................23
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11.2 Survival.....................................................................................24
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11.3 Successors...................................................................................24
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11.4 Entire Agreement.............................................................................24
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11.5 Severability.................................................................................24
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11.6 Amendment and Waiver.........................................................................24
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11.7 Delays or Omissions..........................................................................24
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11.8 Notices......................................................................................24
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11.9 Attorneys' Fees..............................................................................25
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11.10 Titles and Subtitles.........................................................................26
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11.11 Facsimile Signatures; Counterparts...........................................................26
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11.12 Broker's Fees................................................................................26
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11.13 Construction.................................................................................26
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LIST OF EXHIBITS
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Form of Convertible Term Note....................................................................... Exhibit A
Form of Warrant..................................................................................... Exhibit B
Form of Opinion..................................................................................... Exhibit C
Form of Escrow Agreement............................................................................ Exhibit D
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of August 31, 2004, by and between PIPELINE DATA, INC., a
Delawarecorporation (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 Three Million Dollars
($3,000,000) (as amended, modified or supplemented from time to time, the
"Note"), which Note is convertible into shares of the Company's common stock,
$0.01 par value per share (the "Common Stock") at an initial fixed conversion
price of $1.00 per share of Common Stock ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to purchase
up to 600,000 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
$3,000,000 convertible in accordance with the terms thereof into shares of
the Company's Common Stock in accordance with the terms of the Note and
this Agreement. 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 Warrant and 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 600,000 shares of Common Stock in connection with the
Offering (as amended, modified or supplemented from time to time, 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.
All the representations, covenants, warranties, undertakings, and
indemnification, and other rights made or granted to or for the
benefit of the Purchaser by the Company are hereby also made and
granted in respect of the Warrant and shares of the Company's Common
Stock issuable upon exercise of the Warrant (the "Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall pay to
Laurus Capital Management, L.L.C., the manager of the Purchaser, a
closing payment in an amount equal to three and one-half percent
(3.50%) 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 expenses
(including legal fees and expenses) incurred in connection with the
preparation and negotiation of this Agreement and the Related
Agreements (as hereinafter defined), and 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 be $20,000 for such expenses
referred to in this Section 2(c).
(d) The Closing Payment and the expenses referred to in the preceding
clause (c) (net of deposits previously paid by the Company) shall be
paid at closing out of funds held pursuant to a Escrow Agreement (as
defined below) and a disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the closing of
the transactions contemplated hereby (the "Closing"), shall take place
on the date hereof, at such time or place as the Company and Purchaser
may mutually agree (such date is hereinafter referred to as the
"Closing Date").
3.2 Delivery. Pursuant to the Escrow Agreement, 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 $3,000,000 and a Warrant in the form
attached as Exhibit B in the Purchaser's name representing 600,000
Warrant Shares and the Purchaser will deliver to the Company, among
other things, the amounts set forth in the Disbursement Letter by
certified funds or wire transfer (it being understood that $2,500,000
of the proceeds of the Note shall be placed in the Restricted Account
(as defined in the Restricted Account Agreement referred to below)).
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows (which representations
and warranties are supplemented by the Company's filings under the
Securities Exchange Act of 1934 made prior to the date of this Agreement
(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, to execute and deliver
(i) this Agreement,
(ii) the Note and the Warrant to be issued in connection with this
Agreement,
(iii)each Security Agreement dated as of the date hereof between the
Company and/or certain Subsidiaries of the Company, on the one
hand and the Purchaser, on the other hand (each, as amended,
modified or supplemented from time to time, collectively, the
"Security Agreements"),
(iv) the Registration Rights Agreement relating to the Securities
dated as of the date hereof between the Company and the Purchaser
(as amended, modified or supplemented from time to time, the
"Registration Rights Agreement"),
(v) each Guaranty dated as of the date hereof made by certain
Subsidiaries of the Company (each, as amended, modified or
supplemented from time to time, collectively, the "Guaranty"),
(vi) each Stock Pledge Agreement dated as of the date hereof among the
Company and/or certain Subsidiaries of the Company, on the one
hand, and the Purchaser, on the other hand (each, as amended,
modified or supplemented from time to time, collectively, the
"Stock Pledge Agreement"),
(vii)the Escrow Agreement dated as of the date hereof among the
Company, the Purchaser and the escrow agent referred to therein,
substantially in the form of Exhibit D hereto (as amended,
modified or supplemented from time to time, the "Escrow
Agreement"),
(viii) the Restricted Account Agreement dated as of the date hereof
among the Company, the Purchaser and North Fork Bank (as amended,
modified or supplemented from time to time, the "Restricted
Account Agreement"),
(ix) the Restricted Account Side Letter related to the Restricted
Account Agreement dated as of the date hereof between the Company
and the Purchaser (as amended, modified or supplemented from time
to time, the "Restricted Account Side Letter") and
(x) all other agreements related to this Agreement and the Note and
referred to herein (the preceding clauses (ii) through (x),
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 consists of 100,000,000 shares, of which 95,000,000 are
shares of Common Stock, par value $0.01 per share,
24,705,251shares of which are issued and outstanding as of June
30, 2004, and 5,000,000 are shares of preferred stock, par value
$0.01 per share of which 0 shares of preferred stock are issued
and outstanding. All the issue capital stock of each Subsidiary
of the Company is wholly owned by the Company.
(b) Except as disclosed on Schedule 4.3, other than: (i) the shares
reserved for issuance under the Company's stock option plans; 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
any 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, partnership or
limited liability company, as the case may be, action on the part of
the Company and each of its Subsidiaries (including the respective
officers and directors) necessary for the authorization of this
Agreement and the Related Agreements, the performance of all
obligations of the Company and its Subsidiaries 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 Related
Agreements, when executed and delivered and to the extent it is a
party thereto, will be valid and binding obligations of each of the
Company and each of its Subsidiaries, enforceable against each such
person 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. Neither the Company nor any of its Subsidiaries has any
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 4.5 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 (x) obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in
the ordinary course of business or (y) obligations with respect
to proposed transactions in an aggregate amount outstanding of
less than $500,000); 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) (except in the
case of that certain suit in the United States District Court of
Arizona by Net MoneyIn, Inc. (Plaintiff) v. Melon Financial Corp.
et al., (defendants) (case no CV-01-401-TUC-RCC); 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 June 30, 2004, 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,
other than the sale of its inventory 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, 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 June 30, 2004 , 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 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 (except in the case of that certain suit in the United
States District Court of Arizona by Net MoneyIn, Inc. (Plaintiff)
v. Melon Financial Corp. et al., (defendants) (case no
CV-01-401-TUC-RCC). 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
(except in the case of that certain suit in the United States
District Court of Arizona by Net MoneyIn, Inc. (Plaintiff) v.
Melon Financial Corp. et al., (defendants) (case no
CV-01-401-TUC-RCC).
(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. 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,
including all information the Company and its Subsidiaries believe is
reasonably necessary to make such investment decision. 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 ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, as amended (the
"Exchange Act"). The Company has furnished the Purchaser with copies
of: (i) its Annual Reports on Form 10-KSB for its fiscal years ended
December 31, 2003 ; and (ii) its Quarterly Reports on Form 10-QSB for
its fiscal quarter ended June 30, 2004 , and the Form 8-K filings
which it has made during the fiscal year 2004 to date (collectively,
the "SEC Reports"). Except as set forth on Schedule 4.21, each SEC
Report was, at the time of its filing, in substantial compliance with
the requirements of its respective form and none of the SEC Reports,
nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, 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 traded on the NASD Over The
Counter Bulletin Board ("OTCBB") and satisfies all requirements for
the continuation of such trading. The Company has not received any
notice that its Common Stock will be ineligible to trade on the OTCBB
or that its Common Stock does not meet all requirements for continued
trading.
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 to
directly engage in "short sales" of 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 of 1933, as amended
(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. The Purchaser represents that 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 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.
--------------------
Purchaser represents that it is an accredited investor within the
meaning of Regulation D under theSecurities Act.
5.8 Legends.
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(a) 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 PIPELINE DATA, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(b) 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 PIPELINE DATA, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) 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 PIPELINE
DATA, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company.
------------------------
The Company covenants and agrees with the Purchaser as follows:
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 OCTBB (the "Principal Market") upon
which shares of Common Stock are traded and shall maintain such
trading so long as any other shares of Common Stock shall be so
listed. The Company will maintain the trading of its Common Stock on
the Principal Market, and 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,
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 purposes
only (it being understood that $2,500,000 of the proceeds of the Note
will be deposited in the Restricted Account on the Closing Date and
shall be subject to the terms and conditions of the Restricted Account
Agreement and the Restricted Account Side Letter).
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 a bond in such amounts as is customary in the case of
companies engaged in businesses similar to the Company's or the
respective Subsidiary's insuring against larceny, embezzlement or
other criminal misappropriation of insured's officers and employees
who may either singly or jointly with others at any time have access
to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such
funds or to direct generally the disposition of such assets; (iii)
maintain public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (iv)
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 (v)
furnish Purchaser 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 policies 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, and (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 its security agreement,
with any surplus funds to be applied toward payment of the obligations
of the Company to Purchaser. 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
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 tohave 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, shall not, and shall not
permit any of its Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends, other
than dividends paid to the Parent or any of its wholly-owned
Subsidiaries, (ii) issue any preferred stock that is mandatorialy
redeemable prior to the one year anniversary of Maturity Date (as
defined in the Note) or (iii) redeem any of its preferred stock
or other equity interests
(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 Related Agreement or any of the
agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole;
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the
purchase of equipment (not in excess of ten percent (10%) of the
fair market value of the Company's and its Subsidiaries' assets)
whether secured or unsecured other than (x) the Company's
indebtedness to the Purchaser, (y) indebtedness set forth on
Schedule 6.12(e) 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; (ii) cancel any debt owing to it in excess of $50,000
in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently
liable in connection with any obligations of any other Person,
except the endorsement of negotiable instruments by the Company
for deposit or collection or similar transactions in the ordinary
course of business or guarantees of indebtedness otherwise
permitted to be outstanding pursuant to this clause (e);
(f) 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 executes a Security Agreement, Stock Pledge
Agreement and Guaranty (or becomes party thereto), (either by
executing a counterpart of any such document, executing an
assumption or joinder agreement with respect to any such
document, or executing documents substantially similar to the
Security Agreements, Stock Pledge Agreements and Guaranty
executed on the Closing Date) 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; and
(g) make investments in, make any loans or advances to, or transfer
assets to, EXS Acquisition, Inc., a Delaware corporation ("EXS"),
other than any immaterial investments, loans, advances and/or
asset transfers made in the ordinary course of business, unless
EXS complies with Section 6.12(f) as if EXS was created or
acquired after the date hereof.
6.13 Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section
5.8 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 acceptable to the Purchaser from the Company's
external legal counsel. The Company will provide, at the Company's
expense, such other legal opinions in the future as are deemed
reasonably necessary by the Purchaser (and acceptable to the
Purchaser) in connection with 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.
Restricted Cash Disclosure. The Company agrees that, in connection
with its filing of its 8-K Report with the SEC concerning the
transactions contemplated by this Agreement and the Related Agreements
(such report, the "Laurus Transaction 8-K") in a timely manner after
the date hereof, it will disclose in such Laurus Transaction 8-K the
amount of the proceeds of the Note issued to the Purchaser that has
been placed in a restricted cash account and is subject to the terms
and conditions of this Agreement and the Related Agreements.
Furthermore, the Company agrees to disclose in all public filings
required by the Commission (where appropriate) following the filing of
the Laurus Transaction 8-K, the existence of the restricted cash
referred to in the immediately preceding sentence, together with the
amount thereof.
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
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 in any exhibits or schedules attached hereto or any
Related Agreement; or (ii) any breach or default in performance by
Purchaser of any covenant or undertaking to be performed by Purchaser
hereunder, or any other agreement entered into by the Company and Purchaser
relating hereto.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company 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 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 Company will issue
instructions to the transfer agent accompanied by an opinion of
counsel within one (1) business day of the date of the delivery
to the Company 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) $250 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.
9.2 Maximum Conversion. The Purchaser shall not be entitled to convert on
a Conversion Date, that amount of a Note in connection with that
number of shares of Common Stock which would be (a) in excess of the
sum of: (i) the number of shares of Common Stock beneficially owned by
the Purchaser on a Conversion Date; and (ii) the number of shares of
Common Stock issuable upon the conversion of the Note with respect to
which the determination of this proviso is being made on a Conversion
Date, which would result in beneficial ownership by the Purchaser of
more than 4.99% of the outstanding shares of Common Stock of the
Company on such Conversion Date and (b) (ii) exceed twenty five
percent (25%) of the aggregate dollar trading volume of the Common
Stock for the ten (10) day trading period immediately preceding
delivery of a Notice of Conversion to the Borrower. For the purposes
of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and
Regulation 13d-3 thereunder. Upon an Event of Default under a Note,
the conversion limitation in this Section 9.2 shall become null and
void.
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. The Company hereby grants 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").
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) only as to conversion notices, when sent by confirmed facsimile
if sent during normal business hours of the recipient, if not,
then on the next business day, with the original of such notice
to be sent through a reputable national overnight courier to
arrive the next 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: Pipeline Data, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile:(▇▇▇) ▇▇▇-▇▇▇▇
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
▇.▇. ▇▇▇ ▇▇▇ ▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇
South Church Street
Grand Cayman, Cayman Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
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 Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party
under or with respect to this Agreement, including, without
limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs
and expenses of appeals.
11.10Titles 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.
11.11Facsimile 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.
11.12Broker's Fees. Except as set forth on Schedule 11.12 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 11.12 being untrue.
11.13Construction. 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:
PIPELINE DATA, INC. LAURUS MASTER FUND, LTD.
By: By:
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Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Name:
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Title: CEO Title:
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A-1
EXHIBIT A
FORM OF CONVERTIBLE NOTE
B-1
EXHIBIT B
FORM OF WARRANT
C-1
EXHIBIT C
FORM OF OPINION
1. Each of the Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of [Delaware] [other jurisdiction] and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted.
2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the part
of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements. The Note Shares and the Warrant Shares, when issued pursuant
to and in accordance with the terms of the Agreement and the Related Agreements
and upon delivery shall be validly issued and outstanding, fully paid and non
assessable.
3. The execution, delivery and performance by each of the Company and each
of its Subsidiaries of the Agreement and the Related Agreements to which it is a
party and the consummation of the transactions on its part contemplated by any
thereof, will not, with or without the giving of notice or the passage of time
or both:
(a) Violate the provisions of their respective charter or bylaws;
or
(b) Violate any judgment, decree, order or award of any court
binding upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is
qualified] or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its Subsidiaries
(to the extent such person is a party thereto), and are enforceable against each
of the Company and each of its Subsidiaries in accordance with their respective
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.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any preemptive rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement 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.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any of the Related Agreements, or to consummate
the transactions contemplated thereby. To such counsel's knowledge, the Company
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
8. The terms and provisions of the Master Security Agreement and the Stock
Pledge Agreement create a valid security interest in favor of the Purchaser, in
the respective rights, title and interests of the Company and its Subsidiaries
in and to the Collateral (as defined in each of the Master Security Agreement
and the Stock Pledge Agreement). Each UCC-1 Financing Statement naming the
Company or any Subsidiary thereof as debtor and the Purchaser as secured party
are in proper form for filing and assuming that such UCC-1 Financing Statements
have been filed with the Secretary of State of [Delaware], the security interest
created under the Master Security Agreement will constitute a perfected security
interest under the Uniform Commercial Code in favor of the Purchaser in respect
of the Collateral that can be perfected by filing a financing statement. After
giving effect to the delivery to the Purchaser of the stock certificates
representing the ownership interests of each Subsidiary of the Company (together
with effective endorsements) and assuming the continued possession by the
Purchaser of such stock certificates in the State of New York, the security
interest created in favor of the Purchaser under the Stock Pledge Agreement
constitutes a valid and enforceable first perfected security interest in such
ownership interests (and the proceeds thereof) in favor of the Purchaser,
subject to no other security interest. No filings, registrations or recordings
are required in order to perfect (or maintain the perfection or priority of) the
security interest created under the Stock Pledge Agreement in respect of such
ownership interests.
9. Assuming that North Fork Bank is a "bank" (as such term is defined in
Section 9-102(a)(8) of the UCC), and that the Restricted Account (as defined in
the Restricted Account Agreement) constitutes a "deposit account" (as such term
is defined in Section 9-102(a)(29) of the UCC), under the Uniform Commercial
Code, the due execution and delivery of the Restricted Account Agreement
perfects the Purchaser's security interest in the Restricted Account. .
