EXHIBIT 10(A)
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE, AND WILL BE OFFERED AND SOLD BY THE COMPANY IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF FEDERAL AND STATE
LAW BY VIRTUE OF THE COMPANY'S INTENDED COMPLIANCE WITH THE PROVISIONS OF
SECTION 4(2) UNDER THE ACT. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY ANY REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
STOCK PURCHASE AGREEMENT
BriteSmile, Inc. January 12, 2000
000 Xxxxx Xxxxx Xxxx
Xxxxxx Xxxxx, XX 00000
Gentlemen:
In connection with the offer and proposed issuance (the "Offering") of
shares of common stock, par value $.001 per share ("Common Stock") of
BriteSmile, Inc., a Utah corporation ("BriteSmile" or the "Company"), in
reliance on exemptions from the registration requirements of the U.S. Securities
Act of 1933, as amended (the "Act"), the purchasers identified on Exhibit A
attached hereto (each, a "Purchaser") and the Company agree as follows:
1. Purchase of Securities. Subject to the terms and conditions of this
Agreement, each Purchaser hereby agrees, severally and not jointly, to purchase
from the Company, and the Company agrees to issue and sell to each Purchaser,
the number of shares of Common Stock (the "Shares") set forth opposite the
Purchaser's name on Exhibit A. The aggregate purchase price for the Shares shall
be Twenty Million Dollars ($20,000,000), allocated as set forth opposite each
Purchaser's name on Exhibit A, the purchase price per Share (the "Purchase
Price") being the lesser of: (i) Six Dollars ($6.00) per Share, or (ii)
Eighty-five Percent (85%) of the average closing sale price per share of the
Common Stock on the American Stock Exchange ("AMEX") during the period of (5)
trading days immediately preceding the Closing. Each Purchaser shall pay the
Purchase Price for all Shares to be acquired by such Purchaser in full prior to
or at Closing, via wire transfer to an account of the Company designated by the
Company. Wire instructions shall be provided prior to Closing.
2. Registration Rights. The Shares shall be entitled to certain
registration rights, as provided in a Registration Rights Agreement in such form
as is mutually acceptable to the parties hereto, be dated as of the Closing Date
(the "Registration Rights Agreement"). The Registration
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Rights Agreement, together with this Agreement and the Voting and Co-Sale
Agreement referred to in Section 8.10 hereof, constitute the "Transaction
Documents").
3. Board Nominee Rights. The Company covenants and agrees that for so
long as the Purchasers, their affiliates and permitted transferees collectively
are the beneficial owners of Fifty Percent (50%) or more of the Shares, (i) the
Purchasers shall have the right, at any time after the Closing Date and upon
delivery of written notice to the Company, to designate one person (the
"Purchasers' Director") to be appointed as a Director of the Company, (ii) the
Purchasers shall have the right to designate the Purchasers' Director for
election to the Board of Directors of the Company at any shareholders meeting at
which Company Directors are elected, (iii) the Purchasers shall have the
exclusive right to remove any Purchasers' Director from the Board of Directors
at any time by written notice to the Board of Directors, and (iv) in the event
of the death, disability, legal incapacity, resignation or removal of a
Purchasers' Director, the Purchasers shall have the exclusive right to designate
a successor nominee for election as a director of the Company (which successor,
upon such election, shall be a Purchasers' Director). In consideration of the
services to be rendered by the Purchasers' Director, and any successor
Purchasers' Director, the Company agrees to grant stock options to such
Purchasers (or to such designee(s)) as may be specified by Purchasers' Director,
at such times and in such amounts customarily granted to the Company's outside
directors.
4. Closing. Payment for the Shares by the Purchasers and delivery of
the Shares by the Company shall be deemed to complete the transactions
contemplated by this Agreement (the "Closing"). The Closing shall occur on or
before January 14, 2000, provided that at such time all of the conditions
precedent set forth in Sections 8 and 9 shall have been satisfied or waived, or
such later date as such conditions precedent shall have been satisfied or waived
(the "Closing Date"). At the Closing, the Company shall deliver to each
Purchaser a certificate or certificates representing the Shares purchased by
such Purchaser.
5. Representations and Warranties of Purchasers. To induce the
Company's acceptance of this Agreement, each Purchaser hereby represents and
warrants, severally and not jointly, to the Company, its agents and attorneys,
as follows:
5.1 Investor Status. It is an "accredited investor"
within the meaning of Section 501(a) of Regulation D promulgated under
the Act.
5.2 Liquidity. It presently has sufficient liquid assets
to pay the Purchase Price for all Shares to be purchased by it
hereunder. It has adequate means of providing for its current needs
and contingencies and has no need for liquidity in its investment in
the Company or for a source of income from the Company. It is capable
of bearing the economic risk and the burden of the investment
contemplated by this Agreement including, but not limited to, the
possibility of the complete loss of the value of the Shares and the
limited transferability of the Shares, which may make the liquidation
of the Shares impossible in the near future.
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5.3 Authorization. It has the requisite power and authority
(corporate, partnership or other) to enter into this Agreement, acquire
the Shares, and execute and deliver any documents or instruments in
connection with this Agreement. The execution and delivery of this
Agreement, and all other documents and instruments executed by such
Purchaser in connection with any of the transactions contemplated by
this Agreement, have been duly authorized by all required action of
such Purchaser and, if applicable, such Purchaser's owners or managers.
The person executing this Agreement and any other documents or
instruments in connection with this Agreement is duly authorized to do
so on behalf of such Purchaser.
5.4 Absence of Conflicts. Neither the execution and delivery
of the Transaction Documents or any other agreement or instrument to be
executed in connection therewith, nor the consummation of the
transactions contemplated thereby and compliance with the requirements
thereof, will violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on it, or the provision of any
indenture, instrument or agreement to which it is a party or is
subject, or by which it or any of its properties is bound, or conflict
with or constitute a material default thereunder, or result in the
creation or imposition of any lien pursuant to the terms of any such
indenture, instrument or agreement, or constitute a breach of any
fiduciary duty owed by or to it to any third party, or require the
approval of any third party pursuant to any material contract,
agreement, instrument, relationship or legal obligation to which it is
subject or to which any of its properties, operations or management may
be subject. If Purchaser is, or is purchasing Shares on behalf of, a
mutual fund, venture capital fund, investment partnership, or other
entity formed for the purpose of group investing on behalf of fund
equity owners (an "Investment Fund"), Purchaser has made its own
determination of the suitability of an investment in Shares for the
Investment Fund and an investment in Shares satisfies all
diversification, liquidity and other requirements applicable to an
investment by such Investment Fund.
5.5 Sole Party in Interest. It is the sole and true party in
interest with respect to the Shares being issued to it, and no other
person or entity has or will have upon such issuance beneficial
ownership (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) in such Shares
or any portion thereof.
5.6 Investment Purpose. It represents that it is acquiring the
Shares for its own account, for investment purposes, and not for the
account or benefit of any other person or entity or for or with a view
to resale or distribution thereof, and it has no present intention to
effect any distribution of the Shares, provided that the disposition of
the Shares owned by such Purchaser shall at all times be and remain
within its control, subject to the provisions of this Agreement and the
Registration Rights Agreement.
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5.7 Knowledge and Experience. It is experienced in evaluating
and making speculative investments, and has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment in the Company. It
understands that an investment in the Company is speculative and has
concluded that its proposed investment is appropriate in light of its
overall investment objectives and financial situation.
5.8 Disclosure; Access to Information. It has received, read
and understands this Agreement. All documents, records, books and other
information pertaining to its investment in the Company requested by it
have been made available for inspection and copying and there are no
additional materials or documents that have been requested by it that
have not been made available by or on behalf of the Company. It further
acknowledges that the Company is subject to the periodic reporting
requirements of the Exchange Act, and it has reviewed or received
copies of any such reports that have been requested by it. Without
limiting the generality of the foregoing, it acknowledges that it has
received and reviewed copies of the following documents and materials,
all of which are incorporated herein by reference:
(a) Articles of Amendment Adopting Revised
Articles of Incorporation of the Company,
filed on August 11, 1998 with the Utah
Division of Corporations and Commercial
Code;
(b) Bylaws of the Company, as amended;
(c) Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1999 (the "1999
10-KSB");
(d) Quarterly Reports on Form 10-QSB for the
quarters ended June 30 and September 30,
1999 (the "1999 10-QSBs");
(e) Current Report on Form 8-K dated June 4,
1999 (the "June 1999 8-K");
(f) The Company's Proxy Statement, dated August
4, 1999, for the Company's 1999 Annual
Meeting of Shareholders held on August 25,
1999 (the "1999 Proxy Statement"); and
(g) All of the documents (the "Disclosure
Documents") submitted to Purchaser by the
Company in response to the Pequot Private
Equity Due Diligence Checklist delivered to
the Company on November 30, 1999, including
those documents, disclosures, and/or
exceptions relating to the Company's
representations and warranties herein, and
listed or otherwise identified in those
certain
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Schedules to the Disclosure Documents
attached separately to this Agreement as
Exhibit B (the "Disclosure Schedules").
5.9 Exclusive Reliance on this Agreement. In making the
decision to purchase the Shares, it has relied exclusively upon
information, representations, warranties and covenants included in the
Transaction Documents or incorporated therein by reference, and not on
any other representations, promises or information, whether written or
verbal, by any person.
5.10 Accuracy of Representations and Information. All
representations made by it in this Agreement, and all information
provided by it to the Company concerning it are correct and complete in
all material respects as of the date hereof. If there is any material
change in such information before the Closing Date and the issuance of
the Shares, it immediately will provide such information to the
Company.
5.11 Tax Matters. It has reviewed and understands the U.S.
federal and any applicable state income tax aspects of its purchase of
the Shares, and has received such advice in this regard as it deems
necessary from qualified sources such as attorneys, tax advisors or
accountants, and is not relying on any representative or employee of
the Company for such advice.
5.12 No Brokers or Finders. Neither the Purchaser nor any
person acting on its behalf has employed any broker, agent or finder,
or incurred any liability for any brokerage fees, agents' commissions
or finders' fees, in connection with the transactions contemplated
herein.
5.13 Certain Risk Factors. It understands that there are risks
associated with an investment in the Company, including those disclosed
in documents incorporated herein by reference pursuant to Section 5.8
of this Agreement.
5.14 Manner of Sale. At no time was such Purchaser presented
with or solicited by or through any leaflet, public promotional
meeting, television advertisement or any other form of general
solicitation or advertising.
6. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers, except as disclosed in the Disclosure
Schedules and specifically identified in the particular section of this
Agreement to which exception is to be taken, as follows. Except where the
context requires otherwise, references in this Section 6 to "person" shall
include any individual, corporation, or other entity.
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6.1 Organization, Standing, Etc..
(a) The Company is duly organized, validly
existing, and in good standing under the
laws of the State of Utah and, except
as disclosed in Schedule 1A of the
Disclosure Schedule, has the requisite
corporate power and authority to own
operate, lease and encumber its properties
and carry on its business as now conducted,
to enter into and perform the
Transaction Documents, and to execute and
perform its obligations under the
documents, instruments and agreements
related to the Transaction Documents. The
Company is duly qualified to do business
and in good standing in each
jurisdiction in which the ownership of its
properties or the conduct of its
business requires such qualification.
(b) The Company has three wholly-owned
subsidiaries; namely, BriteSmile, Inc., a
Delaware corporation ("BriteSmile
Delaware"), BriteSmile International, Inc.,
a company organized under the laws
of Ireland ("BriteSmile International"), and
BriteSmile Management, Inc., a Utah
corporation ("BriteSmile Management")
(individually, a "Subsidiary" and
collectively, the "Subsidiaries").
BriteSmile Delaware and BriteSmile
Management are inactive shell corporations,
having no assets, liabilities, nor
current business operations. BriteSmile
International is duly organized, validly
existing, and in good standing under the
laws of Ireland. Other than the
Subsidiaries named herein, the Company
has no ownership interests in any other
business entities.
6.2 Authorization. The execution, delivery and performance of
the Transaction Documents and the consummation of the transactions
contemplated therein have been duly authorized by all requisite
corporate action of the Company, and each of the Transaction Documents
and all instruments and agreements to be delivered in connection
therewith constitute its legally, valid and binding obligations,
enforceable against the Company in accordance with their respective
terms, subject to laws of general application relating to the rights of
creditors. The form of Amended and Restated Articles of Incorporation
of the Company (the "New Articles," attached hereto as Exhibit C) to be
presented to shareholders for approval at a Special Meeting of the
shareholders of the Company to be held January 31, 1999 (the "Special
Meeting") referred to in Sections 7.7 and 8.9 herein, the proxy
materials to be delivered to Company shareholders in connection
therewith, and the calling of the Special Meeting, have been duly
authorized by all requisite action by the directors of the Company.
6.3 Absence of Conflicts. Neither the execution and
delivery of the Transaction Documents or any other agreement or
instrument to be delivered to the
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Purchaser in connection therewith, nor the consummation of the
transactions contemplated thereby, by the Company, will (i) conflict
with or result in a breach of or constitute a violation or default
under (A) any provision of the Articles of Incorporation or By-laws,
each as amended to date, of the Company, or of the New Articles, or of
the comparable governing documents of any Subsidiary, or (B) the
provision of any indenture, instrument or agreement to which the
Company or a Subsidiary is a party or by which any of their properties
is bound, or (C) any order, writ, judgment, award, injunction, decree,
law, statute, rule or regulation, license or permit applicable to the
Company; (ii) result in the creation or imposition of any lien pursuant
to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by the Company to any
third party, (iii) require the approval of any third party pursuant to
any material contract, agreement, instrument, relationship or legal
obligation to which the Company or any Subsidiary is subject or to
which it or any of its properties, operations or management may be
subject; (iv) result in a breach or violation of, a default under, or
the triggering of any payment or other obligations pursuant to, or
accelerate vesting under, any employment agreement, any compensation
plan or any grant or award made under any of the foregoing; or (v)
require any consent, approval or authorization of, or declaration,
filing or registration with, any government or state, of or in the
United States, or any agency, authority, commission, department or
similar body or instrumentality thereof, or any government tribunal or
court (each of the foregoing, a "Government Authority"), other than any
filings required under the Act, the Exchange Act, state securities laws
("Blue Sky Laws") or the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended (the "HSR Act") (collectively, the "Regulatory
Filings").
6.4 Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock par value $.001
per share. As of December 23, 1999, 20,140,925 shares of Common Stock
were issued and outstanding, no shares were held in the Company's
treasury, and, as of December 23, 1999 7,414,517 shares were reserved
for issuance pursuant to any outstanding options or other rights to
acquire or receive Common Stock. All of the outstanding shares of
Common Stock are, and the Shares will be, when paid for, issued and
delivered, duly authorized by all requisite corporate action on the
part of the Company, validly issued, fully paid and non-assessable and
free of any preemptive rights. Exhibit D attached hereto is a
Capitalization Table of the Company immediately prior to and
immediately following the Closing. The information set forth in the
Capitalization Table is true correct and complete. Except as listed in
Schedule 1(G) of the Disclosure Schedules, there are no outstanding
options, warrants, subscription rights, calls or commitments of any
character whatsoever relating to, or securities or rights convertible
into, shares of Common Stock of the Company, or contracts by which the
Company is or may become bound to issue additional shares of its Common
Stock or options, warrants or other rights to purchase or acquire any
shares of its Common Stock.
7
6.5 SEC Reports and Financial Statements. The Company's 1999
Form 10-KSB, 1999 10-QSBs, June 1999 8-K, and 1999 Proxy Statement,
copies of which have been filed with or furnished to the Securities and
Exchange Commission ("SEC") (collectively, the "SEC Reports"), were
when filed with the SEC accurate in all material respects and did not
include any untrue statement of material fact or omit to state any
material fact necessary to make the statements therein not misleading.
The Company has not filed with nor furnished to the SEC any other
document since January 1, 1999, except for the preliminary proxy
materials relating to the Special Meeting which were filed with the SEC
on December 30, 1999, and the definitive proxy materials relating to
such meeting which were filed with the SEC and mailed to the Company's
shareholders on January 11, 2000. True and correct copies of the
preliminary and definitive proxy materials have been furnished to
Purchasers. The financial statements included in the SEC Reports (the
"Financial Statements") present fairly the financial position of the
Company at their respective dates and the results of its operations and
cash flows for the periods then ended, in conformity with generally
accepted accounting principles applied on a consistent basis throughout
the periods covered by such statements (subject, in the case of
unaudited financial statements, to the absence of notes and year-end
adjustments which, in the aggregate, will not be material in amount or
effect). The SEC Reports were filed with the SEC in a timely manner and
constitute all forms, reports and documents required to be filed by the
Company under the Act, the Exchange Act, and the rules and regulations
promulgated thereunder. Except (i) as set forth in the Financial
Statements or in the notes attached thereto and (ii) for liabilities
incurred in the normal course of business, or in connection with this
Agreement or the transactions contemplated hereby, the Company has no
liabilities or obligations (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known, whether due or to
become due and regardless of when asserted).
6.6 Litigation, Etc. Except as disclosed in the SEC Reports,
or in Schedules 18B or 18C of the Disclosure Schedules, there are no
(a) suits, actions or legal, administrative, arbitration or other
proceedings or governmental investigations or other controversies
pending, or to the knowledge of the Company threatened, or as to which
the Company or any Subsidiaries has received any notice, claim or
assertion, or (b) obligations or liabilities (other than obligations
and liabilities arising in the ordinary course of business), whether
accrued, contingent or otherwise, which, in either case (a) or (b),
involve a potential cost or liability to the Company or any
Subsidiaries which would, individually or in the aggregate, materially
and adversely affect the financial condition, results of operations,
business or prospects of the Company and its Subsidiaries, or which
challenges the validity or enforcability of the Transaction Documents
or the transactions comtemplated therein. Neither the Company nor any
Subsidiary is in default with respect to any order, writ, injunction or
decree of any court or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting or relating to it which
is material to the financial condition, results of operations or
business of the Company.
8
6.7 No Brokers and Finders. Neither the Company, any
Subsidiary, nor any person acting on behalf of the Company or its
Subsidiaries has employed any broker, agent or finder, or incurred any
liability for any brokerage fees, agents' commissions or finders' fees,
in connection with the transactions contemplated herein.
6.8 Regulatory Compliance. To the best knowledge of the
Company, it and its Subsidiaries have operated and are currently
operating in compliance in all material respects with all laws, rules,
regulations, orders, decrees, licenses or permits applicable to it or
to its business. Neither the Company nor any of its Subsidiaries has
received any notice from the U.S. Food and Drug Administration or any
other governmental agency or authority of any noncompliance by the
Company or any Subsidiary with any law, rule, regulation, order,
decree, license or permit applicable to it or its business or
properties.
6.9 Articles of Incorporation and By-laws. The Company has
delivered to each Purchaser copies of its Articles of Incorporation and
all amendments thereto and comparable governing documents of its
Subsidiaries, which copies are complete and correct. Except as
disclosed in Schedule I(A) of the Disclosure Schedules, the Company is
not in default under or in violation of any provisions of its Articles
of Incorporation or comparable governing documents of its Subsidiaries.
The Company's Articles of Incorporation have not been amended since the
date of the Amendments thereof delivered to the Purchasers and except
as disclosed in Schedule I(A) or Section 8.9 herein, no action has been
taken for the purpose of effecting any amendment thereto. The Company
has delivered to the Purchaser copies of its By-laws and all amendments
thereto and comparable governing documents of its Subsidiaries, which
copies are complete and correct. The Company and its Subsidiaries are
not in default under or in violation of any provision of their Bylaws
or comparable governing documents.
6.10 Product Liability. Neither the Company nor any of its
Subsidiaries has received any notice, claim or assertion regarding an
actual or alleged material liability of the Company with respect to any
of its products.
6.11 Manufacturing Relationships. Neither the Company nor any
of its Subsidiaries has received any notice, claim or assertion from or
with respect to any original equipment manufacturer counterparty of the
Company or its Subsidiaries regarding any intention of such party to
either discontinue its relationship with the Company or its
Subsidiaries or develop or market products in competition with the
Company or its Subsidiaries.
6.12 Patents and Proprietary Rights. The Company has no reason
to believe that any of its patents or proprietary rights nor those of
any Subsidiaries infringe upon or otherwise violate the patents or
proprietary rights of any other party. Neither the Company nor any of
its Subsidiaries has received any notice, claim or assertion that its
patents or proprietary rights or products or proposed products infringe
upon or otherwise
9
violate the patents or proprietary rights of any other party. For
purposes of this Section 6.12, "Intellectual Property" shall mean,
collectively: (I) all U.S. and foreign registered, unregistered and
pending (i) trade names, trade dress, trademarks, service marks,
assumed names, business names and logos, and all registrations and
applications therefor, together with all goodwill symbolized thereby,
(ii) computer software, data files, source and object codes, user
interfaces, manuals and other specifications and documentation and all
know-how relating thereto (collectively, the "Computer Software"),
(iii) copyrights (including without limitation those in Computer
Software, and all registrations and applications therefor), (iv)
utility and design patents, registered designs and invention
disclosures (including without limitation those relating to Computer
Software), and all grants, registrations and applications therefor
(collectively, the "Patents"), (v) trade secrets, inventions,
processes, formulae, know-how, concepts, ideas, research and
development, designs, business plans, strategies, marketing and other
information and customer lists (collectively, the "Trade Secrets"), and
(vi) other intellectual property, including without limitation adequate
research and development facilities; and (II) all license, assignment,
distribution or other agreements (collectively, the "Contracts")
relating to any of the items set forth in this Section 6.12.
(a) Schedules 17H and 17I of the Disclosure
Schedules includes a complete and accurate
list of (i) all Intellectual Property in
which the Company or any of its Subsidiaries
has an ownership interest,
indicating the owner thereof, and all
applications, registrations and grants with
respect thereto (collectively, the "Owned
Property"), provided that the Schedule need
not identify non-material unregistered
copyrights unless such copyrights relate to
proprietary Computer Software, or Trade
Secrets unless presently being commercially
used by the Company and not disclosed in
Patents, (ii) all Intellectual Property
(other than the Owned Property) which
is used in or relates to the business of the
Company (including the business of any
Subsidiary), indicating the owner or
licensor thereof, and (iii) all Contracts
with respect to the Intellectual Property
Preferred to in clauses (i) and (ii) above.
The Intellectual Property included in
clauses (i) and (ii) above is collectively
referred to herein as the "Company
Intellectual Property".
(b) Except as set forth in Schedules 17H and
17I, the Company or a Subsidiary is the sole
and exclusive owner of the Owned Property,
and is listed in the records of the
appropriate U.S. and/or foreign governmental
agencies as the sole and exclusive owner of
record for each registration, grant and
application listed in such Schedules.
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(c) To the Company's best knowledge, no act has
been done or omitted to be done by the
Company or any Subsidiary, or any licensee
thereof, which has had or could have the
effect of impairing or dedicating to the
public, or entitling any U.S. or foreign
governmental authority or any other person
to cancel, forfeit, modify or consider
abandoned, any Owned Property, or give any
person any rights with respect thereto
(other than pursuant to a Contract
identified in Schedule 17F), and all of the
Company's or a Subsidiary's rights in the
Company Intellectual Property are valid,
enforceable and free of defects. Neither
the Company nor any Subsidiary has any
knowledge of any facts or claims which
cause or would cause any Company
Intellectual Property to be invalid or
unenforceable, and neither the Company nor
any Subsidiary has received any notice that
any person may bring such a claim.
(d) The Company and each of its Subsidiaries
owns or otherwise has the valid right to use
through a Contract listed in Schedule 17F
any and all Intellectual Property that is
used in or is necessary or advisable for the
conduct of the business as currently
conducted and as contemplated to be
conducted, free and clear of any lien,
encumbrance, royalty or other payment
obligations (except for royalties payable in
respect of off-the-shelf Computer Software
at standard commercial rates) and otherwise
on commercially reasonable terms.
(e) To the Company's best knowledge, none of the
Company, any of its Subsidiaries or the
business of the Company as currently
conducted or as contemplated to be
conducted, is in conflict with or in
violation or infringement of, or has
violated or infringed, nor has the Company
or any of its Subsidiaries received any
notice of any conflict with or violation or
infringement of, nor are proceedings or
claims pending, nor have any such
proceedings or claims been instituted or
asserted in writing against the Company
or any of its Subsidiaries, nor are any
proceedings threatened, alleging any
violation, nor is there any valid basis for
any such proceeding or claim, of any rights
or asserted rights of any other person with
respect to any Intellectual Property of such
other person.
(f) No proceedings or claims in which the
Company or any of its Subsidiaries alleges
that any person is infringing upon, or
otherwise violating, any Company
Intellectual Property are
11
pending, and none have been served by,
instituted or asserted by the Company or any
such Subsidiary, nor are any proceedings
threatened alleging any such violation or
infringement, nor does the Company or any
such Subsidiary know of any valid basis for
any such proceeding or claim.
(g) To the Company's best knowledge, neither the
Company nor any of its Subsidiaries has,
prior to the date hereof, divulged,
furnished to or made accessible to any
person, any Trade Secrets included in
the Company Intellectual Property without
having obtained an enforceable agreement of
confidentiality from such person, the
form of which confidentiality agreements is
included in Schedule 15(C) or 16(G) of the
Disclosure Schedules. All key personnel
employed by the Company and its Subsidiaries
have signed such an enforceable agreement of
confidentiality.
(h) The Company and each of its Subsidiaries
have obtained from all individuals who
participated in any respect in the invention
or authorship of any Owned Property (as
employees of the Company or one of its
Subsidiaries, as consultants, as employees
of consultants or otherwise) effective
waivers of any and all ownership rights of
such individuals in such Owned Property, and
assignments to the Company or one of its
Subsidiaries of all rights with respect
thereto, other than from such individuals
whose copyrightable works the Company hereby
represent to be "works made for hire" within
the meaning of Section 101 of the Copyright
Act of 1976. No officer or employee of the
Company or any Subsidiary is subject to any
agreement with any other person which
requires such officer or employee to assign
any interest in inventions or other
intellectual property or keep confidential
any trade secrets, proprietary data,
customer lists or other business information
or which restricts such officer or employee
from engaging in competitive activities or
solicitation of customers.
(i) To the Company's best knowledge, the Company
and each of its Subsidiaries has taken all
actions which are necessary or advisable in
order to fully protect the Company
Intellectual Property in a manner consistent
with prudent commercial practice.
6.13 Unincorporated Documents or Materials. With respect
to any document or other materials received by the Purchaser from the
Company or its representatives which are not incorporated herein by
reference, (i) the Company has no reason to believe any of
12
such documents and materials or any projections contained therein
contain errors or misstatements or do not adequately describe the
transactions contemplated by this Agreement or the status of the
development of the Company's technology and products, and (ii) such
documents, materials and projections were prepared by the Company and
its management in good faith.
6.14 Information. The information concerning the Company and
its Subsidiaries set forth in or incorporated by reference in this
Agreement or in any certificate or instrument furnished to the
Purchaser in connection with the Transaction Documents, when considered
together, is complete and accurate in all material respects and does
not contain any untrue statement of a material fact or omit to state a
material fact required to make the statements made, in the light of the
circumstances under which they were made, not misleading.
6.15 No Adverse Changes. Since the dates of the Financial
Statements and SEC Reports, the Company and each of its Subsidiaries
has conducted its business only in the ordinary course, and there has
not been:
(a) any change in the assets, liabilities,
financial condition or operations of the
Company from that reflected in the Financial
Statements, except changes in the ordinary
course of business, which have not been,
either in any case or in the aggregate,
materially adverse;
(b) any declaration, setting aside or payment of
any dividend or other distribution with
respect to the Common Stock;
(c) any commitment, contractual obligation,
borrowing, capital expenditure or
transaction (each, a "Commitment") entered
into by the Company or any of its
Subsidiaries outside the ordinary course of
business, or any material change in the
Company's accounting principles, practices
or methods;
(d) any damage, destruction, or loss, whether or
not covered by insurance, materially and
adversely affecting the properties or
business of the Company; or
(e) any other event, change, circumstance or
condition of any character which has
materially and adversely affected the
business, prospects, condition, affairs,
operations, properties or assets of the
Company.
13
6.16 Tax Returns and Payments. Except as disclosed in Schedule
22B of the Disclosure Schedules, the Company and its subsidiaries have
timely filed all tax returns and reports as required by Federal, state
and local law; the returns and reports which have been filed are true
and correct in all material respects; and the Company has timely paid
all taxes and other assessments due and payable and has no knowledge of
any liability for any tax to be imposed upon the Company or its
properties or assets as of the date of this Agreement that is not
adequately provided for. The Company has not been advised (i) that any
of its returns, federal, state or other, have been or are being audited
as of the date hereof, or (ii) of any deficiency in assessment or
proposed judgment to its federal, state or other taxes.
6.17 Title to Property and Assets
(a) Schedules 10A and 10D of the Disclosure
Schedules set forth a complete and accurate
list and the address of all real property
leased or owned by the Company or any of its
Subsidiaries or otherwise used by the
Company or its Subsidiaries in the conduct
of their respective businesses or operations
(collectively, and together with the land at
each address referenced in such Schedules
and all buildings, structures and other
improvements and fixtures located on or
under such land and all easements, rights
and other appurtenances to such land, the
"Company Properties" and, individually, a
"Company Property"). Neither the Company nor
any of its Subsidiaries owns, holds or
occupies any real property or
any interest in real property other than
such leasehold interests. All of such leases
are in full force and effect with no default
by the Company or any Subsidiary and, to the
Company's knowledge, no material default by
any other party thereto.
(b) The Company has no knowledge (i) that any
currently required certificate, permit or
license (including building permits and
certificates of occupancy for tenant spaces)
from any Government Authority having
jurisdiction over any Company Property or
any agreement, easement or other right which
is necessary to permit the lawful use,
occupancy or operation of the existing
buildings, structures or other improvements
which constitute a part of any of
the Company Properties or which are
necessary to permit the lawful use and
operation of utility service to any Company
Property or of any existing driveways, roads
or other means of egress and ingress to and
from any of the Company Properties has
not been obtained or is not in full force
and effect, or of any pending modification
or cancellation of any of same, or (ii) of
any violation by any Company Property of any
United States or
14
Canadian federal, state or municipal law,
ordinance, order, regulation or requirement,
including any applicable zoning law or
building code, as a result of the use or
occupancy of such Company Property or
otherwise. The Company has no knowledge of
uninsured physical damage to any Company
Property.
(c) The Company has no knowledge that any
condemnation, eminent domain or re-zoning
proceedings are pending or threatened with
respect to any of the Company Properties.
(d) Schedule 3K of the Disclosure Schedule sets
forth the Company's capital expenditure
budget and schedule, which describes the
capital expenditures which the Company has
made or anticipates making from July 1, 1999
through December 31, 2000.
(e) The Company and each of its Subsidiaries
have good and sufficient title to all the
personal and non-real properties and assets
reflected in their books and records as
being owned by them (including those
reflected in the balance sheets of the
Company and its subsidiaries as of September
30, 1999, except as since sold or otherwise
disposed of in the ordinary course of
business), free and clear of all liens,
mortgages, loans and encumbrances, except
such encumbrances and liens which arise in
the ordinary course of business and do not
materially impair the Company's ownership or
use of such property or assets.
(f) All facilities, machinery, equipment,
fixtures, vehicles and other assets owned,
leased or used by the Company or a
Subsidiary, which are reasonably required to
operate the Company's or a Subsidiary's
business as presently conducted, or proposed
to be conducted, are in good operating
condition and repair and are reasonably fit
and usable for the purposes for which they
are being used. With respect to the
respective assets they lease, the Company
and its Subsidiaries are in compliance with
such leases and each holds a valid leasehold
interest free of any liens, claims or
encumbrances.
6.18 Insurance. The Company has in full force and effect
insurance policies, including liability policies, covering all the
assets, business, equipment, properties, operations, employees,
officers and directors of the Company and each of its Subsidiaries
(collectively, the "Insurance Policies") which are of a type and in
amounts customarily carried by persons conducting businesses similar to
those of the Company. There is no material claim by the Company or any
of its Subsidiaries pending under any of the material Insurance
Policies as to which coverage has been questioned, denied or disputed
15
by the underwriters of such policies. The Company maintains directors
and officers liability insurance in the amount of $5,000,000. The
Company will cause such policies to be maintained and renewed. Such
policies shall be owned by the Company and shall name the Company as
beneficiary and loss payee and shall not be subject to cancellation by
the Company without prior approval of the Company's Board of Directors.
6.19 Permits. The Company and each Subsidiary have all
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 materially and adversely affect the business, assets,
properties, prospects or financial condition of the Company and its
Subsidiaries, and each believes that it can obtain, without undue
burden or expense, any similar authority for the conduct of its
business as planned to be conducted. Neither the Company nor any of its
Subsidiaries is in default under any of such franchises, permits,
licenses or other similar authority.
6.20 Confidential Information and Invention Assignment
Agreements. All key employees, consultants and officers of the Company
or a Subsidiary have executed an agreement with the Company or such
Subsidiary, as the case may be, regarding confidentiality and
proprietary information substantially in the form or forms delivered to
the counsel for the Purchasers. The Company is not aware that any
employee, consultant, or officer of the Company or any Subsidiary is in
violation thereof, and the Company will use its best efforts to prevent
any such violation. Except as may be specifically provided in the
employee, consulting, invention assignment or service provider
agreements identified and disclosed to Purchasers pursuant to Schedules
12(A), 15(C), 16(G), or 16(I) of the Disclosure Schedules, no current
employee, consultant or officer of the Company or a Subsidiary has
excluded works or inventions made prior to his or her employment with
the Company or a Subsidiary from his or her confidential information
and invention assignment agreement.
6.21 Environmental and Safety Laws. To its knowledge, neither
the Company nor any Subsidiary is in violation of any applicable
statute, law or regulation relating to the environment or occupational
health and safety, and no material expenditures are or will be required
in order to comply with any such existing statute, law or regulation.
No Hazardous Materials (as defined below) are used or have been used,
stored or disposed of by the Company or a Subsidiary or, to the
Company's or a Subsidiary's knowledge, by any other person on or from
any property owned, leased or used by the Company or a Subsidiary. For
the purposes of the preceding sentence, "Hazardous Material" 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.
16
6.22 Corporate Documents. The current Amended and Restated
Articles of Incorporation and Bylaws of the Company are in the form set
forth in Schedule 1A of the Disclosure Schedules. The copies of the
minutes and actions by written consent of the Company provided to the
Purchasers' counsel under Tab 1C of the Disclosure Documents contain
minutes of all meetings of directors and shareholders and all actions
by written consent without a meeting by the directors and shareholders
since May 2, 1996, and reflect all actions by the directors (and any
committee of directors) and shareholders with respect to all
transactions referred to in such minutes accurately in all material
respects.
6.23 Employees. Neither the Company nor a Subsidiary has a
collective bargaining agreement with any of its employees. There is no
labor union organizing activity pending or, to the Company's or any
Subsidiary's knowledge, threatened with respect to the Company or a
Subsidiary. Other than employment offer letters and those employment
agreements identified in Schedules 1G, 15C, 15D or 16E of the
Disclosure Schedules, no employee has any agreement or contract,
written or verbal, regarding his employment. Other than the Revised
1997 Stock Option and Incentive Plan of the Company, neither the
Company nor a Subsidiary 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 a Subsidiary, nor any
consultant with whom the Company or a Subsidiary 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 a Subsidiary; and to the Company's knowledge, the continued
employment by the Company or a Subsidiary of its present employees, and
the performance of the Company's contracts with its independent
contractors, will not result in any such violation. Neither the Company
nor a Subsidiary has received any notice alleging that any such
violation has occurred. Except as may be provided in the employment
agreements to which the Company or a Subsidiary is a party, no employee
of the Company or a Subsidiary has been granted the right to continued
employment by the Company or a Subsidiary or to any material
compensation following termination of employment with the Company or a
Subsidiary. The Company is not aware that any officer or key employee,
or that any group of key employees, intends to terminate his, her or
their employment with the Company or a Subsidiary, nor does the Company
nor a Subsidiary have a present intention to terminate the employment
of any officer, key employee or group of key employees. To the best of
its knowledge, the Company and its Subsidiaries has complied in all
material respects with all applicable state and Federal equal
employment opportunity and other laws related to employment.
6.24 Y2K Compliance. To the Company's knowledge, all
information technology used by the Company or its Subsidiaries,
including without limitation, in all products and services (i) provided
by the Company or Subsidiary, whether to third parties or for internal
use or (ii) used in combination with any information technology of its
17
clients, customers, suppliers or vendors, accurately processes or will
process date and time data (including, but not limited to calculating,
comparing and sequencing) from, into and between the years 1999 and
2000 and the twentieth century and the twenty-first century, including
leap years calculations and neither the performance nor functionality
of such technology will be affected by dates prior to, during and after
the year 2000. Neither the Company nor any Subsidiary has any
obligation under the warranty agreements, service agreements or
otherwise to remedy any information technology defect relating to the
year 2000.
6.25 ERISA. Schedules 16E and 16K of the Disclosure Schedule
sets forth, if any, each compensation or benefit plan, agreement,
arrangement or commitment (including, but not limited to, "employee
benefit plans", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), which is maintained
by the Company or a Subsidiary for any present or former employees,
officers or directors of the Company or a Subsidiary ("Company
Personnel") or with respect to which the Company or a Subsidiary has
liability or makes or has an obligation to make contributions
("Employee Plans"). All contributions or payments owed with respect to
any periods prior to the Closing under any Employee Plan have been
made, or appropriately accrued. Each Employee Plan by its terms and
operation is in compliance with all applicable laws (including, but not
limited to, ERISA, the Code and the Age Discrimination in Employment
Act of 1967, as amended), and all filings have been made on a timely
basis. Neither the Company nor any Subsidiary, nor any entity that is
or was at any time treated as a single employer with the Company or any
Subsidiary under Section 414(b), (c), (m) or (o) of the Code (an "ERISA
Affiliate") has at any time maintained, contributed to or been required
to contribute to, or had any liability with respect to, any plan which
is subject to Title IV of ERISA or Section 412 of the Code (an "ERISA
Plan") (including, without limitation, any multiemployer plan (within
the meaning of Section 3(37) of ERISA)). Neither the Company nor any
Subsidiary, nor any other person, including any fiduciary, has engaged
in any "prohibited transaction" (as defined in Section 4975 of the Code
or Section 406 of ERISA), which could subject the Company, or any
person who the Company has an obligation to indemnify, to any tax or
penalty imposed under Section 4975 of the Code or Section 502 of ERISA.
The events contemplated by this Agreement (either alone or together
with any other event) will not (i) entitle any Company Personnel to
severance pay, unemployment compensation, or other similar payments
under any Employee Plan or law, (ii) accelerate the time of payment or
vesting or increase the amount of compensation or benefits due under
any Employee Plan, or (iii) result in any payments (including parachute
payments within the meaning of Section 280G of the Code) under any
Employee Plan.
The Company and each of its Subsidiaries is in compliance with
all laws and orders relating to the employment of labor and
classification of persons as employees, including, without limitation,
all such laws and orders relating to wages, hours,
18
discrimination, civil rights, safety and the collection and payment of
withholding and/or Social Security taxes and similar taxes and
provision of employee benefits.
6.26 No Change of Control: Since September 30, 1999 no Change
of Control of the Company has occurred, and to the Company's knowledge,
no event has occurred which is reasonably likely to lead to a Change of
Control, where "Change of Control" shall mean any transaction as the
result of which a person, group or entity (i) shall acquire beneficial
ownership, or the right to acquire beneficial ownership, of 30% or more
of the outstanding shares of Common Stock or (ii) shall have the right
or the ability to elect, or shall have elected, more than one half of
the members of the Company's Board.
6.27 Compliance with Agreements; Material Agreements:
(a) The Company and each of its Subsidiaries have filed
all material reports, registrations and statements,
together with any amendments required to be made
with respect thereto, that they were required
to file with any Government Authority and all other
material reports and statements required to be filed
by, including any report or statement required to
be filed pursuant to the laws, rules or regulations
of the United States, and have paid all fees or
assessments due and payable in connection
therewith (provided that this representation does
not cover tax matters, which are addressed in
Section 6.16 above). No regulatory agency has
asserted that the Company or any Subsidiary is
in violation of any requirement of law.
(b) The Financial Statements, the SEC Reports, and
Schedules 11 and 21B of the Disclosure Schedules set
forth (i) a description of all material indebtedness
of the Company and each of its Subsidiaries, whether
unsecured, or secured or collateralized by mortgages,
deeds of trust or other security interests in any
assets of the Company or of its subsidiaries,
or otherwise and (ii) each Commitment entered into by
the Company or any of its Subsidiaries (including any
guarantees of any third party's debt or any
obligations in respect of letters of credit issued
for the Company's or any Subsidiary's account) which
may result in total payments or liability in excess
of $100,000. True and complete copies of the
documents relating to the foregoing have been
delivered or made available to Purchasers prior to
the date hereof. Neither the Company nor any of its
Subsidiaries is in default, and, to the Company's
knowledge, no event has occurred which, with the
giving of notice or the lapse of time or both,
would constitute a default, under any of the
documents described in clause (i) or (ii) of this
paragraph or in respect of any payment obligations
thereunder. There are no material joint venture or
partnership agreements to which the Company or any of
its Subsidiaries is a party as of the date hereof. To
the Company's knowledge, the other parties to such
19
agreements are not in breach of any of their
respective obligations thereunder, except as would
not, individually or in the aggregate, reasonably be
expected to result in a material adverse effect.
There is no condition with respect to the Company's
Subsidiaries (including with respect to the
partnership agreements for the Company's Subsidiaries
that are partnerships) that could, individually or in
the aggregate, result in a material adverse effect.
(c) Schedules 11 and 12A of the Disclosure Schedules set
forth a complete and accurate list of all material
agreements to which the Company or any of its
Subsidiaries is a party relating to (i) the purchase
or lease of products or services from third parties;
(ii) the provision of products or services to
customers; and (iii) any agency agreements relating
to any of the foregoing. True and complete copies of
such agreements have been provided to Purchasers.
(d) Except as set forth in the Disclosure Schedules, each
agreement set forth or referenced in this Section
6.27 is in full force and effect as against the
Company or its Subsidiaries, as applicable, and to
the Company's knowledge, as against the other parties
thereto; no payments, if any, thereunder are
delinquent; the Company is not in default thereunder;
and no notice of default thereunder has been sent or
received by the Company or any of its Subsidiaries.
Except as may be set forth in the Disclosure
Schedules, no event has occurred which, with notice
or lapse of time or both, would constitute a default
by the Company under any agreement set forth or
referenced in this Section 6.27. To the Company's
knowledge, the other parties to such agreements are
not in breach of their respective obligations
thereunder, except as could not, individually or in
the aggregate, result in a material adverse effect.
True and complete copies of each such agreement have
been provided to Purchasers prior to the date
hereof.
(e) Schedules 15C, 15D, 15F and 16E of the Disclosure
Schedules set forth a complete and accurate list of
all agreements of the Company or a Subsidiary in
effect on the date hereof relating to transactions
with affiliates and potential conflicts of interest.
Each such agreement or arrangement is in full force
and effect, and the Company, each of its
Subsidiaries, and, to the Company's knowledge, the
other parties thereto are in compliance with such
agreements. True and complete copies of each such
agreement or arrangement have been provided to
Purchaser.
(f) There are no change of control or similar provisions
in any employment, severance, stock option, stock
incentive, or other agreement or
20
arrangement to which the Company or any of its
Subsidiaries is a party which would be triggered by
the transactions contemplated by this Agreement.
There are no Company obligations (including any
payment or other obligation, forgiveness of debt,
other release from obligations, or acceleration of
vesting) which are created, accelerated, triggered,
modified or released by the execution, delivery or
performance of this Agreement or the consummation of
the transactions contemplated hereby or thereby.
7. Covenants.
7.1 Restricted Shares. Each Purchaser understands and
acknowledges that the Shares have not been registered under the Act, or
any state securities laws, and that they will be issued in reliance
upon certain exemptions from the registration requirements of those
laws, and thus cannot be resold unless they are registered under the
Act or unless the Company has first received an opinion of competent
securities counsel reasonably satisfactory in form and substance to the
Company that registration is not required for such resale. Each
Purchaser agrees that it will not resell any Shares unless such resale
transaction is in accordance with Rule 144 under the Act, pursuant to
registration under the Act, or pursuant to another available exemption
from registration. With regard to the restrictions on resales of the
Shares, each Purchaser is aware (i) of the limitations and
applicability of Securities and Exchange Commission Rule 144; (ii) that
the Company will issue stop transfer orders to its stock transfer
agent; and (iii) that a restrictive legend will be placed on
certificates representing the Shares, to the extent such restrictions
apply, which legend will read substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
PURSUANT TO A CLAIM OF EXEMPTION FROM THE REGISTRATION OR QUALIFICATION
PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
STATE SECURITIES LAWS AND THEREFORE HAVE NOT BEEN REGISTERED UNDER THE
ACT OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT
BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT
COMPLIANCE WITH THE PROVISIONS OF RULE 144 UNDER THE ACT, COMPLIANCE
WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF THE ACT AND
APPLICABLE STATE LAWS, OR PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS. THE COMPANY WILL INSTRUCT ITS STOCK
TRANSFER AGENT NOT TO RECOGNIZE ANY SALE OF THESE SECURITIES UNLESS
SUCH SALE IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR THE COMPANY HAS FIRST RECEIVED AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE
21
COMPANY IN FORM AND SUBSTANCE, THAT SUCH REGISTRATION IS
NOT REQUIRED.
The company will terminate such stock transfer orders and remove such
legend with respect to such of the Shares as to which any of the
foregoing conditions have been satisfied.
7.2 Nondisclosure. Except as required by applicable securities
laws, rules and regulations, prior to the Closing Date no press release
or other announcement concerning the proposed transactions will be
issued (i) by the Company without advance notice to and consultation
with the Purchasers or (ii) by any Purchaser without the consent of the
Company. This Agreement and all negotiations and discussions between
the parties in connection with this Agreement shall be strictly
confidential and will not be disclosed in any manner prior to the
Closing Date, except to employees and agents of the parties on a
need-to-know basis, as required by applicable law or regulations or as
otherwise agreed by the parties. After Closing, disclosure shall be at
the sole discretion of the Company.
7.3 Confidentiality. Subject to the requirements of law,
pending consummation of the transactions herein contemplated, each
Purchaser will keep confidential, and will cause its representatives to
keep confidential, all non-public information and documents obtained
pursuant to Section 5.8 unless such information (i) was already known
to such Purchaser, (ii) becomes available to Purchaser from other
sources not known by Purchaser to be bound by a confidentiality
obligation, (iii) is independently acquired by such Purchaser as a
result of work carried out by any employee or representative of such
Purchaser to whom no disclosure of such information has been made, (iv)
is disclosed with the prior written approval of the Company or (v) is
or becomes readily ascertainable from published information or trade
sources. Upon any termination of this Agreement, each Purchaser will
collect and deliver to the Company all documents obtained by it from
the Company or any of its representatives then in their possession and
any copies thereof. The covenants of this Section shall survive any
termination of this Agreement pursuant to Section 11.6.
7.4 Use of Proceeds. The Company shall use all of the proceeds
from the sale of the Shares for the funding and development of the
Company's organizational infrastructure, to build out the Company's
directly managed whitening centers and associated centers, and for
working capital for the Company's current business.
7.5 Right of First Refusal. The Company shall not, directly or
indirectly, without the prior written consent of Purchaser, offer,
sell, or otherwise dispose of any of its equity or equity-equivalent
securities (a "Subsequent Offering") for a period of eighteen (18)
months after the Closing Date, except (i) the granting of options to
employees, officers, directors, or consultants, and the issuance of
shares upon exercise of options granted, under any stock option plan
heretofore or hereinafter duly adopted by the Company, (ii) shares
issued upon exercise of any currently outstanding options or
22
warrants, (iii) shares issued in connection with the creation or
capitalization of a joint venture, an acquisition of assets of a person
(excluding an individual), a merger or any public offering, unless (A)
the Company delivers to Purchaser a written notice (the "Subsequent
Offering Notice") of its intention to effect such Subsequent Offering,
which Subsequent Offering Notice shall describe in reasonable detail
the proposed terms of such Subsequent Offering, the amount of proceeds
intended to be raised thereunder, the person with whom such Subsequent
Offering shall be effected, and a term sheet or similar document
relating thereto (which shall be attached to such Subsequent Offering
Notice) and (B) Purchaser shall not have notified the Company by 5:00
p.m. (Walnut Creek, CA time) within ten days after its receipt of the
Subsequent Offering Notice of its willingness to provide (or to cause
its sole designee to provide) financing to the Company on substantially
the terms set forth in the Subsequent Offering Notice subject to
completion of mutually acceptable, customary and appropriate
documentation therefor. If Purchaser does not notify the Company of its
intention to enter into such negotiations within such time period, the
Company may effect the Subsequent Offering substantially upon the terms
and to the persons (or affiliates of such persons) set forth in the
Subsequent Offering Notice, provided that such transaction is effected
within 45 days of the date of the Subsequent Offering Notice, and such
additional time period as reasonably may be required to obtain
necessary regulatory or third party consents, permits or approvals.
7.6 Conduct of Business of the Company. During the period from
the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing, except as expressly
contemplated by this Agreement or the Disclosure Schedules, the Company
shall not do, cause or permit any of the following, or permit any of
its Subsidiaries to cause or permit any of the following, in each case
without the prior written consent of Purchaser:
(a) Material Contracts. Enter into any material contract
or commitment, or violate, amend or otherwise modify
or waive any of the terms of any of its material
contracts, other than in the ordinary course of
business consistent with past practices.
(b) Issuance of Securities. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale
of, or purchase or propose the purchase of, any
shares of its capital stock or securities convertible
into, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or
other convertible securities, other than, in the case
of the Company, in the ordinary course of business
consistent with past practices and the Revised 1997
Stock Option and Incentive Plan of the Company.
23
(c) Exclusive Rights. Enter into or amend any agreements
pursuant to which any other party is granted
exclusive marketing or other exclusive rights of any
type or scope with respect to any of its products or
technology;
(d) Dispositions. Sell, lease, license or otherwise
dispose of or encumber any of its properties or
assets which are material individually or in the
aggregate, to its business, except, in the case of
the Company, in the ordinary course of business
consistent with past practice;
(e) Indebtedness. Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or
sell any debt securities or guarantee any debt
securities of others;
(f) Agreements. Enter into, terminate or amend, in a
manner which will adversely affect the business of
the Company or a Subsidiary: (i) any agreement or
agreements involving, individually or in the
aggregate, an obligation to pay or the right to
receive $100,000 or more, (ii) any agreement relating
to the license, transfer or other disposition or
acquisition of intellectual property rights or rights
to market or sell Company products, or (iii) any
other agreement which is material to the business or
prospects of the Company;
(g) Payment of Obligations. Pay, discharge or satisfy in
an amount or amounts in excess of $200,000 in the
aggregate for the Company and its Subsidiaries, any
claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of
business, other than the payment, discharge or
satisfaction of liabilities reflected or reserved
against in the Financial Statements;
(h) Capital Expenditures. Make any capital expenditures,
capital additions or capital improvements except in
the ordinary course of business and consistent with
past practice;
(i) Insurance. Materially reduce the amount of any
material insurance coverage provided by existing
insurance policies;
(j) Termination or Waiver. Terminate or waive any right
of substantial value, other than in the ordinary
course of business;
(k) Employee Benefit Plans; New Hires; Pay Increases.
Adopt or amend any employee benefit or stock purchase
or option plan, or hire any new employee or
employees, pay any special bonus or special
remuneration (except payments made pursuant to
written agreements outstanding on the
24
date hereof), or increase the salaries or wage rates
of its employees, except in the ordinary course of
business in accordance with past practice;
(l) Severance Arrangements. Grant any severance or
termination pay (i) to any director or officer or
(ii) to any other employee except (A) payments made
pursuant to written agreements outstanding on the
date hereof or (B) grants which are made in the
ordinary course of business in accordance with its
past practice;
(m) Acquisitions or Dispositions. Acquire or dispose of,
or agree to acquire or dispose of, by merging or
consolidating with, by purchasing or selling a
substantial portion of the assets of, or by any other
manner, the Company, any Subsidiary, or any business
or any corporation, partnership, association or other
business organization or division thereof or
otherwise acquire or dispose of or agree to acquire
or dispose of any assets which are material
individually or in the aggregate, to its business;
(n) Taxes. Other than in the ordinary course of business
make or change any material election in respect of
taxes, adopt or change any accounting method in
respect of taxes, file any material tax return or any
amendment to a material tax return, enter into any
closing agreement, settle any material claim or
assessment in respect of taxes, or consent to any
extension or waiver of the limitation period
applicable to any material claim or assessment in
respect of taxes;
(o) Revaluation. Revalue any of its assets, including
without limitation writing down the value of
inventory or writing off notes or accounts receivable
other than in the ordinary course of business; or
(p) Other. Take or agree in writing or otherwise to take,
any of the actions described in Sections 7.6(a)
through (p) above, or any action which would cause a
material breach of its representations or warranties
contained in this Agreement or prevent it from
materially performing or cause it not to materially
perform its covenants hereunder.
7.7 Calling of Special Shareholders Meeting to Adopt the New
Articles. Prior to Closing, the Company shall file with the SEC a
definitive proxy statement, substantially in the form of the
Preliminary Proxy Statement heretofore filed with the SEC, and shall,
as soon as possible under applicable SEC and AMEX rules, mail Notice of
a Special Meeting of Shareholders for the purpose of amending the
Company's Articles of Incorporation in the form of the New Articles.
7.8 Filing New Articles of Incorporation. The Company
shall file the New Articles with the Utah Department of Commerce,
Division of Corporations, immediately
25
upon adoption of the New Articles by the shareholders of the Company at
the Special Meeting of Shareholders.
7.9 Disclosure Schedule Supplements. From the date of this
Agreement to the Closing Date, the Company shall amend and supplement
the Disclosure Schedule attached hereto as Exhibit B on such date or
dates, if any, as may be necessary to keep the disclosures made therein
and in the representations and warranties contained herein true,
accurate, and complete, as if they were to be made on such date or
dates.
7.10 Copies of SEC Filings. From and after the date of this
Agreement, and for so long as the Purchasers, their affiliates and
permitted transferees collectively are the beneficial owners of Fifty
Percent (50%) or more of the Shares, the Company shall provide to
Purchasers and their permitted transferees copies of all filings made
by the Company with the SEC.
8. Purchaser's Conditions to Closing. Each Purchaser's obligations
under this Agreement shall be subject to satisfaction by the Company, or waiver
by the Purchaser, prior to Closing, of the following conditions precedent:
8.1 Approvals, Waivers, Etc. The Company shall have delivered
to each Purchaser evidence of all approvals, including waivers and
consents, of its board of directors, government or third parties which
may be required for the sale of the Shares, in full force and effect as
of the Closing Date, including but not limited to any required filings
with the Federal Trade Commission.
8.2 Absence of Litigation and Government Orders or
Proceedings. No litigation nor any order or proceeding of any
governmental authority or self-regulatory organization shall have been
entered or threatened or shall be pending challenging the purchase of
the Shares contemplated by the Transaction Agreements or which could
have a material adverse effect on the Company.
8.3 No Bankruptcy. The Company shall not have filed for
bankruptcy protection, the appointment of a trustee or receiver,
assignment for the benefit of creditors, nor have taken any other
action designed to protect the Company, its property or assets from the
rights of creditors; and no other person shall have made any such
filing or taken any such action in respect of the Company.
8.4 Compliance with Covenants. The Company shall have
performed or satisfied in all material respects all covenants to be
performed by the Company prior to Closing under the Transaction
Agreements.
8.5 Representations and Warranties. The representations and
warranties of the Company originally made herein, without giving effect
to the updating contemplated by Section 7.9, shall be true and correct
in all material respects (disregarding, for purposes of
26
such determination of materiality, all qualifications in such
representations and warranties regarding "material") as of the date of
this Agreement and as of the Closing Date as though made on and as of
the Closing Date (except that representations and warranties originally
made herein that by their terms speak as of the date of this Agreement
or some other date shall be true and correct only as of such date),
disregarding all changes in the representations and warranties made
pursuant to Section 7.9.
8.6 AMEX Additional Listing Application. The Company shall
have made all appropriate filings under the rules of the American Stock
Exchange and shall have received notification from the Nasdaq-Amex
Group that the Shares have been approved for listing, subject to notice
of issuance.
8.7 Opinions. The Company shall have delivered to the
Purchasers an opinion of counsel to the Company, satisfactory in form
and substance to the Purchasers, to the effect that (i) the Company has
been duly incorporated, is validly existing and in good standing in the
jurisdiction of its incorporation, and, except as may be qualified
therein in terms reasonably acceptable to the Purchasers, has full
corporate power and authority to conduct its business as presently
conducted, (ii) the Company's authorized capital consists of 50,000,000
shares of Common Stock, of which, as of the Closing Date, a stated
number of shares are issued and outstanding (subject to adjustment to
reflect the exercise of outstanding options or warrants in the ordinary
course of business), and that the Shares, when paid for and issued,
will be validly issued, fully paid and non-assessable, and that, except
as theretofore disclosed to Purchasers in the Disclosure Schedules,
there are no authorized nor outstanding subscriptions, warrants,
options, convertible securities or other rights (contingent or
otherwise) to purchase or acquire common stock, nor any obligation by
the Company to issue such rights, (iii) the execution, delivery, and
performance of the Transaction Documents has been duly authorized by
all necessary corporate action, (iv) the Transaction Documents have
been duly executed and delivered by the Company and constitute valid
and legally binding obligations of the Company, enforceable in
accordance with their terms, subject to customary qualifications, (v)
the execution, delivery, and performance of the Transaction Documents
do not violate any applicable law, rule, or regulation binding on the
Company, nor any determination, award, writ, decree, injunction,
judgment or order of which counsel has knowledge after due inquiry, nor
any indenture, lease, agreement, or other instrument to which the
Company is a party of which counsel has knowledge after due inquiry,
nor the Articles of Incorporation or Bylaws of the Company, (vi) except
as has been obtained, no consent, approval, authorization or filing
with federal, state or local governmental authorities is required by
the Company for the execution, delivery, and performance by the Company
of the Transaction Documents, and (vi) there is no action, proceeding,
or investigation pending in the federal or state courts of Utah, nor,
except as disclosed in the Disclosure Schedules, any action,
proceeding, or investigation pending or overtly threatened against the
Company of which counsel has knowledge after due inquiry.
27
8.9 Calling of Special Shareholders Meeting to Adopt the New
Articles; No Adverse Change. At least 3 days shall have elapsed since
the Company shall have filed with the SEC a definitive proxy statement,
and shall have mailed Notice of a Special Meeting of Shareholders for
the purpose of amending its Articles of Incorporation in the form of
the New Articles attached hereto as Exhibit C and by this reference
made a part hereof (see Section 6.5), during which 3-day period there
shall have been no event, change, circumstance or condition regarding
or relating to the proposed adoption of the New Articles which has
materially and adversely affected the business, prospects, condition,
affairs, operations, properties or assets of the Company.
8.10 Transaction Documents. The Company shall have executed
and delivered the Transaction Documents, including (i) this Agreement,
and (ii) the Registration Rights Agreement among the parties hereto,
and the Voting and Co-sale Rights Agreement among the parties hereto
and LCO Investments Ltd, such agreements under (ii) herein to be in a
form mutually and reasonably acceptable to the parties hereto.
9. Company's Conditions to Closing. The Company's obligations under
this Agreement shall be subject to satisfaction or waiver, prior to Closing, of
the following conditions precedent:
9.1 Approvals, Waivers, Etc. Purchaser shall have delivered to
the Company evidence of all approvals, including waivers and consents,
of third parties which may be required for the purchase of the Shares,
in full force and effect as of the Closing Date, including but not
limited to any required filings with the Federal Trade Commission.
9.2 Compliance with Covenants. Purchaser shall have performed
or satisfied in all material respects all covenants to be performed by
Purchaser prior to Closing under the Transaction Documents.
9.3 Representations and Warranties. The representations and
warranties of the Purchasers shall be true and correct in all material
respects (disregarding, for purposes of such determination of
materiality, all qualifications in such representations and warranties
regarding "material") as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except that
representations and warranties that by their terms speak as of the date
of this Agreement or some other date shall be true and correct only as
of such date).
9.4 Transaction Documents. The Purchasers shall have executed
and delivered the Transaction Documents, including (i) this Agreement,
and (ii) the Registration Rights Agreement among the parties hereto,
and the Voting and Co-sale Rights Agreement among the parties hereto
and LCO Investments Ltd, such agreements under (ii) herein to be in a
form mutually and reasonably acceptable to the parties hereto.
10. Indemnification.
28
10.1 Indemnification by the Company. The Company agrees to
indemnify each Purchaser, its officers, employees and agents, and any
persons controlling such Purchaser, and hold them harmless from and
against any and all liability, damage, cost or expense, including
attorney's fees, incurred on account or arising out of any inaccuracy
or omission in or breach of the declarations, covenants, agreements,
representations, and warranties by the Company set forth or
incorporated by reference herein. The Company agrees to indemnify each
Purchaser, its directors, officers and controlling persons, against any
claim by any third person for any commission, brokerage fee, finders
fee, or other payment with respect to this Agreement or the
transactions contemplated hereby based upon any alleged agreement or
understanding between such party and such third person, whether
expressed or implied, arising from the actions of such party. The
covenants set forth in this Section shall survive the Closing Date and
any termination of this Agreement.
10.2 Indemnification by Purchasers. Each Purchaser agrees to
indemnify the Company, its officers, affiliates, employees and agents,
and hold them harmless from and against any and all liability, damage,
cost or expense, including attorney's fees, incurred on account or
arising out of any inaccuracy or omission in or breach of the
declarations, covenants, agreements, representations, and warranties by
the Purchasers set forth or incorporated by reference herein. Each
Purchaser agrees to indemnify the Company against any claim by any
third person for any commission, brokerage fee, finders fee, or other
payment with respect to this Agreement or the transactions contemplated
hereby based upon any alleged agreement or understanding between such
party and such third person, whether expressed or implied, arising from
the actions of such party. The covenants set forth in this Section
shall survive the Closing Date and any termination of this Agreement.
11. General Provisions.
11.1 Attorneys' Fees. In the event of a default in the
performance of this Agreement or any document or instrument executed in
connection with this Agreement, the defaulting party, in addition to
all other obligations and liabilities it shall have hereunder or under
applicable laws, shall pay reasonable attorneys' fees and costs
incurred by the non-defaulting party.
11.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah applicable
to contracts wholly to be performed in such state.
11.3 Counterparts. This Agreement may be executed in one or
more counterparts, each of which when so signed shall be deemed to be
an original, and such counterparts together shall constitute one and
the same instrument.
29
11.4 Entire Agreement. The Transaction Documents, the
Disclosure Schedules and the other attachments referred to herein (all
of which are incorporated in this Agreement by reference) collectively
set forth the entire agreement between the parties as to the subject
matter hereof, supersede any and all prior or contemporaneous
agreements or understandings of the parties relating to the subject
matter of this Agreement, and may not be amended except by an
instrument in writing signed by all of the parties to this Agreement.
11.5 Expenses. Each party shall be responsible for and shall
pay its own costs and expenses, including without limitation attorneys'
fees and accountants' fees and expenses, in connection with the conduct
of the due diligence inquiry, negotiation, execution and delivery of
this Agreement and the instruments, documents and agreements executed
in connection with this Agreement; provided, however, that whether or
not the transactions contemplated by this Agreement are consummated,
the Company shall, promptly upon request therefore, reimburse the
Purchasers for their reasonable costs and expenses (including, without
limitation, the fees and expenses of their counsel) in connection with
this transaction, up to an amount not to exceed $50,000 in the
aggregate. The Company shall bear all expenses in connection with the
listing of the Shares on AMEX. Notwithstanding the foregoing, the
Company shall pay any expenses which the Company is obligated to pay
under the Registration Rights Agreement with respect to the Shares.
11.6 Termination. This Agreement may be terminated at any time
prior to the Closing by mutual agreement of the Company and all
Purchasers set forth in writing. This Agreement may also be terminated
by the Company or by the Purchasers by written notice to the other
parties hereto, in the event that the Closing shall not have occurred
on or prior to January 31, 2000. Each provision hereof expressly stated
to survive the termination, shall survive the termination of this
Agreement.
11.7 Headings. The headings of the sections and paragraphs of
this Agreement have been inserted for convenience of reference only and
do not constitute a part of this Agreement.
11.8 Notices. All notices or other communications provided for
under this Agreement shall be in writing, and mailed, telecopied or
delivered by hand delivery or by overnight courier service, (i) if to
any Purchaser, to its address indicated on Exhibit A, or (ii) if to the
Company, to its address indicated below or, in any case, at such other
address as the parties may designate in writing:
BriteSmile, Inc
Attn. Xxxx Xxxx, CEO
000 Xxxxx Xxxxx Xxxx
Xxxxxx Xxxxx, Xxxxxxxxxx
30
Fax: 000-000-0000
Phone: 000-000-0000
With copies to:
Xxxxxxx X. Xxxxx, Esq.
Xxxxx X. Xxxx, Esq.
DURHAM, XXXXX & XXXXXXX, P.C.
Key Bank Tower, Suite 800
00 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
All notices and communications shall be effective as follows: When
mailed, on the third business day after the day of deposit in the mail
(postage prepaid); when telecopied, upon confirmed transmission of the
telecopied notice; when hand delivered, upon delivery; and when sent by
overnight courier, the next business day after deposit of the notice
with the overnight courier.
11.9 Severability. If any one or more of the provisions of
this Agreement is determined to be illegal or unenforceable, all other
provisions of this Agreement shall be given effect separately from the
provision or provisions determined to be illegal or unenforceable and
shall not be affected thereby.
11.10 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors, but
shall not be assignable by any Purchaser without the prior written
consent of the Company.
11.11 Survival of Representations, Warranties and Covenants
Closing. All warranties, representations, indemnities and agreements
made in this Agreement by a party hereto shall survive the date of this
Agreement, the Closing Date, the consummation of the transactions
contemplated by this Agreement and the issuance by the Company of the
Shares.
31
IN WITNESS WHEREOF, the parties named below have signed this Agreement
as of the date first above written.
PEQUOT PRIVATE EQUITY FUND II, L.P., a "Purchaser"
BY: PEQUOT CAPITAL MANAGEMENT, INC.
ITS: INVESTMENT MANAGER
By: /s/ Xxxxx X. Xxxxx
-----------------------------------------------------------
Xxxxx X. Xxxxx, Chief Financial Officer
Date: January 12, 2000
PEQUOT PARTNERS FUND, L.P., a "Purchaser"
BY: PEQUOT CAPITAL MANAGEMENT, INC.
ITS: INVESTMENT MANAGER
By: /s/ Xxxxx X. Xxxxx
-----------------------------------------------------------
Xxxxx X. Xxxxx, Chief Financial Officer
Date: January 12, 2000
PEQUOT INTERNATIONAL FUND, INC., a "Purchaser"
BY: PEQUOT CAPITAL MANAGEMENT, INC.
ITS: INVESTMENT ADVISOR
By: /s/ Xxxxx X. Xxxxx
-----------------------------------------------------------
Xxxxx X. Xxxxx, Chief Financial Officer
Date: January 12, 2000
32
ACCEPTED AND AGREED:
BRITESMILE, INC.
By: /s/ Xxxx X. Xxxxx
-----------------------------------------------------------------------------
Xxxx X. Xxxxx, Chief Financial Officer
Date: January 12, 2000
33
EXHIBITS
A. Purchasers
B. Disclosure Schedule
C. Amended and Restated Articles of Incorporation
D. Capitalization Table
34
Exhibit A
Purchaser and Address Number of Shares Aggregate Purchase Price
Pequot Private Equity 1,666,667 $10,000,000
Fund II, L.P.
Pequot Partners Fund, 833,333 $ 5,000,000
L.P.
Pequot International 833,333 $ 5,000,000
Fund, Inc.
Any Pequot Notices to:
[Name of Purchaser]
c/o Pequot Capital Management, Inc.
Attn. Xxxxx X. Xxxxx, Chief Financial Officer
000 Xxxxx Xxxx Xxxx
Xxxxxxxx, XX 00000
Phone: 000-000-0000
Fax: 000-000-0000
Copies to:
Xxxxx Xxxxxxxxxx LLP
Attn: Xxx Xxxx, Esq. or Xxxxxxx X. Xxxxxx, Esq.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Tel: 000-000-0000
Fax: 000-000-0000
35
