SERIES B PREFERRED STOCK AND COMMON STOCK WARRANTS
PURCHASE AGREEMENT
This Series B Preferred Stock and Common Stock Warrants Purchase
Agreement (this "AGREEMENT") is made and entered into as of August 12, 2004, by
and among LoyaltyPoint, Inc., a Delaware corporation (the "COMPANY"), and the
parties listed on the Schedule of Investors attached to this Agreement as
Exhibit A (each hereinafter individually referred to as an "INVESTOR" and
collectively referred to as the "INVESTORS").
WHEREAS, the Company desires to sell to the Investors, and the
Investors desire to purchase from the Company, shares of the Company's Series B
Preferred Stock on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
1.1 AUTHORIZATION. As of the Closing (as defined below) the
Company will have authorized the issuance, pursuant to the terms and conditions
of this Agreement, of up to 30,769,231 shares of the Company's Series B
Preferred Stock, par value $0.001 per share (the "PURCHASED SHARES"), having the
rights, preferences, privileges and restrictions set forth in the Certificate of
Designation of Incorporation of the Company, as amended by the Certificate of
Correction of Certificate of Designation, attached to this Agreement as Exhibit
B ( collectively, the "CERTIFICATE OF DESIGNATION").
1.2 AGREEMENT TO PURCHASE AND SELL. The Company agrees to sell
to each Investor at the Closing, and each Investor agrees, severally and not
jointly, to purchase from the Company at the Closing, the number of Purchased
Shares set forth beside such Investor's name on Exhibit A, at a price of $0.13
per share (the "PURCHASE PRICE"). The shares of Common Stock issuable upon
conversion of the Purchased Shares will be collectively hereinafter referred to
as the "CONVERSION SHARES".
1.3 WARRANTS. At the Closing, the Company shall issue to each
Investor, for no additional consideration, three warrants to purchase the
Company's Common Stock (individually the "WARRANT" and collectively the
"WARRANTS"), exercisable for the numbers of shares of Common Stock, with the per
share exercise prices, set forth on Exhibit A hereto. The Warrants shall be in
the form attached hereto as Exhibit C. The term "WARRANT SHARES" means the
shares of Common Stock issuable on exercise or conversion of the Warrants.
2. CLOSING. The purchase and sale of the Purchased Shares and
Warrants will take place at the offices of Fenwick & West LLP, 801 California
Street, Mountain View, California, or remotely via the exchange of documents and
signatures, at 10:00 a.m. Pacific Time, on August 11, 2004 or at such other time
and place as the Company and Investors who have agreed to purchase a majority of
the Purchased Shares listed on Exhibit A mutually agree upon (which time and
place are referred to in this Agreement as the "CLOSING"). At the Closing, the
Company will deliver to each Investor a certificate representing the number of
Purchased Shares that such Investor has agreed to purchase hereunder as shown on
Exhibit A and three Warrants reflecting the number of shares and exercise prices
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as shown on Exhibit A against delivery to the Company by such Investor of the
full purchase price of such Purchased Shares, paid by (a) a cashiers check
payable to the Company's order, (b) wire transfer of funds to the Company, or
(c) any combination of the foregoing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor that, except as set forth in the
Schedule of Exceptions (the "SCHEDULE OF EXCEPTIONS") attached to this Agreement
as Exhibit D (which Schedule of Exceptions shall be deemed to be representations
and warranties to the Investors by the Company under this Section 3), the
statements in the following paragraphs of this Section 3 are all true and
complete.
3.1 ORGANIZATION, GOOD STANDING, CORPORATE POWER AND
QUALIFICATION. The Company has been duly incorporated and organized, and is
validly existing in good standing, under the laws of the State of Delaware.
Except as set forth under Section 3.3 of the Schedule of Exceptions, the
subsidiaries of the Company are duly incorporated and organized, and are in
validly existing in good standing, under the laws of their respective States of
incorporation. The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Investors' Rights Agreement and the
Warrants, to own and operate its properties and assets, and to carry on its
business as currently conducted and as presently proposed to be conducted. The
Company and its subsidiaries are duly qualified to do business as foreign
corporations in good standing in all jurisdictions in which they are required to
be qualified to do intrastate business as the businesses of the Company and its
subsidiaries are currently conducted, except for jurisdictions in which failure
to so qualify could not reasonably be expected to have a material adverse effect
on the business, operations, assets (intangible or otherwise), properties,
liabilities, financial condition, or prospects of the Company and its
subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT").
3.2 CAPITALIZATION. The capitalization of the Company
immediately prior to the Closing consists of the following:
(a) Preferred Stock. A total of 50,000,000 shares of
preferred stock, $0.001 par value per share (the "PREFERRED STOCK"), 3 of which
are designated Series A Preferred Stock and 30,769,231 of which are designated
"Series B Preferred Stock" will be authorized upon the filing of the Certificate
of Designation with the Delaware Secretary of State. All of the Series A will be
issued and outstanding and none of the Series B Preferred Stock will be issued
and outstanding. Upon the Closing, the rights, preferences and privileges of the
Preferred Stock will be as stated in the Amended and Restated Certificate of
Incorporation, as amended by the Amendment to Amended and Restated Certificate
of Incorporation, and the Certificate of Designation and as provided by law.
(b) Common Stock. A total of 200,000,000 authorized
shares of Common Stock, $0.001 par value per share (the "COMMON STOCK"), of
which 96,107,193 shares will be issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except for
(i) the conversion privileges of the Series B Preferred Stock, (ii) the
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2,800,000 shares of Common Stock reserved for issuance under the Company's
Equity Incentive Plan (the "PLAN"), (iii) the 2,439,869 shares of Common Stock
agreed to be issued to former FUNDever, Inc. and current Schoolpop, Inc.
employees, and (iv) those options and warrants set forth under Section 3.2(c) of
the Schedule of Exceptions, there are no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements (oral or written) for
the purchase or acquisition from the Company of any shares of its capital stock
or any securities convertible into or ultimately exchangeable or exercisable for
any shares of the Company's capital stock. Of the 2,800,000 shares of Common
Stock reserved for issuance under the Plan, (x) 2,711,683 of such shares are
reserved for issuance upon exercise of currently outstanding options and (y)
88,317 shares remain available for future stock options and other awards
permitted under the Plan. The Plan has been duly adopted by the Company's board
of directors (the "BOARD") and adopted by its stockholders. Section 3.2(c) of
the Schedule of Exceptions sets forth options and warrants as adjusted to date.
Except as set forth under Section 3.2(c) of the Schedule of Exceptions, the
Company has never adjusted or amended the exercise price of any stock options
previously awarded that are currently outstanding, whether through amendment,
cancellation, replacement grant, re-pricing or any other means. The Company has
not made any representations regarding equity incentives to any officer,
employee, director or consultant that are inconsistent with the options and
warrants set forth under Section 3.2(c) of the Schedule of Exceptions or the
employment agreements set forth in Section 3.28 of the Schedule of Exceptions.
Except as set forth under Section 3.2(c) of the Schedule of Exceptions, the
consummation of the transactions contemplated by this Agreement and the Warrants
will not trigger the anti-dilution provisions or other price adjustment
mechanisms of any outstanding rights, options, warrants, preemptive rights,
conversion rights, rights of first refusal or similar rights for the purchase or
acquisition from the Company of any securities of the Company.
(d) Restrictions on Outstanding Shares. No shares of
the Company's outstanding capital stock, or stock issuable upon exercise or
exchange of any outstanding options, warrants or rights, or other stock issuable
by the Company, are subject to any preemptive rights, rights of first refusal or
other rights to purchase such stock (whether in favor of the Company or any
other person), pursuant to any agreement or commitment of the Company.
(e) Duly and Validly Authorized. The outstanding
shares of the capital stock of the Company (i) are duly authorized and validly
issued, fully paid and nonassessable; (ii) have been approved by all requisite
stockholder action; and (iii) assuming the accuracy of the representations and
warranties and the compliance with the covenants made by the original purchasers
of such shares, were issued in accordance with the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended (the "SECURITIES
Act") or in compliance with applicable exemptions therefrom, and the
registration and qualification requirements of all applicable securities laws of
states of the United States and all other provisions of applicable laws of the
United States and the individual States thereof, including, without limitation,
anti-fraud provisions.
(f) No Voting Agreements. The Company is not a party
or subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons and/or entities that
affects or relates to the voting or giving of written consents with respect to
any security or by any director of the Company.
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(g) No Acceleration. Except for agreements set forth
under Section 3.2(c) of the Schedule of Exceptions which have already resulted
in accelerated vesting, no stock purchase, stock option or other plan or
agreement or understanding between the Company and any holder of any equity
securities of the Company or rights to purchase equity securities of the Company
provides for the acceleration or other changes in the vesting provisions
(including the lapse of a repurchase right) or other terms of such securities as
a result of (i) any merger, sale of stock or assets, change in control or other
similar transaction by the Company, (ii) any termination of employment or change
of the nature or terms of employment, or (iii) the occurrence of any other event
or combination of events.
(h) Section 83(b) Elections. To the Company's
knowledge, all individuals who have purchased unvested shares of the Company's
Common Stock have timely filed elections under Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "CODE").
3.3 SUBSIDIARIES. Except as set forth under Section 3.3 of the
Schedule of Exceptions, the Company does not presently own or control, directly
or indirectly, any interest in any other corporation, limited liability company,
partnership, trust, joint venture, association, or other entity. The Company
owns all of the capital stock of its subsidiaries and owns such capital stock
free and clear of all mortgages, liens, loans and encumbrances or any other
rights.
3.4 DUE AUTHORIZATION. All corporate action on the part of the
Company's directors and stockholders necessary for (a) the authorization,
execution, delivery of, and the performance of all obligations of the Company to
be performed at or prior to the Closing under this Agreement and the Warrants;
(b) the authorization, issuance, reservation for issuance and delivery of all of
the Purchased Shares being sold under this Agreement and of the Conversion
Shares, the Warrants and Warrant Shares; and (c) the filing of the Certificate
of Designation has been taken or will have been taken prior to the Closing.
3.5 ENFORCEABILITY. This Agreement, along with the Investors'
Rights Agreement and the Warrants, when executed and delivered, will constitute,
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, except (a) as may be limited by applicable
bankruptcy, insolvency, reorganization or others laws of general application
relating to or affecting the enforcement of creditors' rights generally, (b) to
the extent that the indemnification provisions of the Investors' Rights
Agreement may be limited by applicable federal or state securities laws limits
on indemnification; and (c) as may be limited by the effect of rules of law or
equity governing the availability of equitable remedies.
3.6 VALID ISSUANCE OF STOCK.
(a) The Purchased Shares, when paid for and then
issued, as provided in this Agreement, will be (i) duly authorized and validly
issued, fully paid and nonassessable and (ii) free of restrictions on transfer
other than restrictions on transfer under the Certificate of Designation, this
Agreement, the Investors' Rights Agreement and applicable state and federal
securities laws and other than those imposed through the action or inaction of
the holders thereof. The Conversion Shares and Warrant Shares have been duly and
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validly reserved for issuance upon conversion of the Purchased Shares and
exercise or conversion of the Warrants, respectively, and, when issued upon such
conversion in accordance with the Certificate of Designation (assuming no change
in the Certificate of Designation or in applicable law) or when issued upon
exercise or conversion of the Warrants pursuant to the terms set forth therein,
will be (x) duly authorized and validly issued, fully paid and nonassessable and
(y) free of restrictions on transfer other than restrictions on transfer under
the this Agreement, the Investors' Rights Agreement and applicable State and
federal securities laws and other than those imposed through the action or
inaction of the holders thereof.
(b) Based in part on the representations made by the
Investors in Section 4 hereof, the offer and sale of the Purchased Shares and
Warrants solely to the Investors in accordance with this Agreement and (assuming
no change in currently applicable law or regulations or the Certificate of
Designation, no change in the status of an Investor as an accredited investor as
that term is defined in Rule 502 promulgated under the Securities Act, no
transfer of Purchased Shares or Warrants by any holder thereof and no commission
or other remuneration is paid or given, directly or indirectly, for soliciting
the issuance of Conversion Shares upon conversion of the Purchased Shares or the
Warrant Shares upon conversion of the Warrants) the issuance of the Conversion
Shares and the Warrant Shares are exempt from the registration and prospectus
delivery requirements of the Securities Act and the securities registration and
qualification requirements of the currently effective provisions of the
securities laws of the states in which the Investors are resident based upon
their addresses set forth on the Schedule of Investors attached hereto as
Exhibit A.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority is required on
the part of the Company in order to enable the Company to execute, deliver and
perform its obligations under this Agreement except for such qualifications or
filings under applicable securities laws as may be required in connection with
the transactions contemplated by this Agreement and the filing of the
Certificate of Designation with the Secretary of the State of Delaware. All such
qualifications will be effective on the Closing. All such filings will be made
within the time prescribed by law.
3.8 DISCLOSURE. The Company has provided each Investor with
all the information that such Investor has requested in writing for deciding
whether to purchase the Purchased Shares and the Warrants, including without
limitation, the due diligence requests of special counsel to the Investors, and
all information that the Company believes is reasonably necessary to enable such
Investor to make such decision. This Agreement, the Exhibits and the
certificates made or delivered in connection herewith (when read together) do
not contain any untrue statement of a material fact and do not omit to state a
material fact necessary to make the statements herein or therein not misleading
in light of the circumstances under which they were made.
3.9 BROKERS OR FINDERS. The Company has not incurred, and will
not incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges (including any commitment to issue
securities of the Company) in connection with the transactions contemplated by
this Agreement.
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3.10 LITIGATION. Except as set forth under Section 3.10 of the
Schedule of Exceptions: (i) there is no action, suit, proceeding, claim,
arbitration or investigation (an "ACTION") pending (or, to the Company's
knowledge, threatened) against the Company or any of its subsidiaries (or any of
their officers or directors relating to the Company or its subsidiaries), their
activities or their properties before any court or governmental agency, nor is
the Company aware of any basis for any of the foregoing, (ii) to the Company's
knowledge, there is no Action pending (or currently threatened) before any court
or governmental agency against any officer, director or employee of the Company
or any of its subsidiaries in connection with such officer, director or
employee's relationship with, or actions taken on behalf of, the Company or its
subsidiaries, (iii) neither the Company nor any of its subsidiaries is a party
to or subject to the provisions of any order, writ, injunction, judgment, or
decree of any court or government agency or instrumentality and (iv) the Company
and its subsidiaries currently have no Actions before any court or governmental
agency and have no current plan to initiate any such Action.
3.11 INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT. Each
of (a) the current and former employees of the Company and its subsidiaries (b)
and each current and former consultant or contractor of the Company or its
subsidiaries who was or is engaged in product development, has entered into and
executed an Invention Assignment and Confidentiality Agreement in the form
attached to this Agreement as Exhibit E or a similar invention assignment and
confidentiality agreement or employment or consulting agreement containing
substantially similar terms. No such current for former employee, consultant or
contractor has excluded any inventions or intellectual property from assignment
to the Company or its subsidiaries under the terms of such agreement.
3.12 STATUS OF PROPRIETARY ASSETS.
(a) Status. The Company and its subsidiaries have
full title and ownership of, or is duly licensed under or otherwise authorized
to use, all patents, patent applications, trademarks, service marks, trade
names, and copyrights, mask works, trade secrets, moral rights, confidential and
proprietary information, compositions of matter, formulas, designs and
proprietary rights (all of the foregoing collectively hereinafter referred to as
the "PROPRIETARY ASSETS"), necessary to enable them to carry on their businesses
as now conducted and as proposed to be conducted. Section 3.13(a) of the
Schedule of Exceptions contains a list of all patents, patent applications,
trademarks, and copyrights (whether registered or not) of the Company and its
subsidiaries.
(b) Licenses; Other Agreements. Neither the Company
nor its subsidiaries has granted, any options, licenses or other agreements of
any kind relating to any of its Proprietary Assets other than normal
nonexclusive end use customer licenses entered into in the ordinary course, nor
is the Company or any of its subsidiaries bound by or a party to any option,
license or agreement of any kind with respect to any of its Proprietary Assets.
Neither the Company nor any of its subsidiaries is obligated to pay any
royalties or other payments to third parties with respect to the marketing,
sale, distribution, manufacture, license or use of any Proprietary Asset or any
other property or rights. The Company is not subject to any "open source"
obligations with respect to any of its software or hardware.
6
(c) No Infringement. Except as set forth under
Section 3.12(c) of the Schedule of Exceptions: (i) neither the Company nor any
of its subsidiaries has violated or infringed, and is not currently violating or
infringing, any Proprietary Asset of any other person or entity, (ii) neither
the Company nor its subsidiaries has received any communications alleging that
the Company or its subsidiaries (or any of their employees or consultants) has
violated or infringed or, by conducting its business as currently conducted or
proposed to be conducted, would violate or infringe any Proprietary Asset of any
other person or entity, and (iii) to the Company's knowledge, other parties have
not infringed the Proprietary Assets of the Company or its subsidiaries.
(d) No Breach by Employee. The Company is not aware
that any employee or consultant of the Company or its subsidiaries is obligated
under any agreement (including licenses, covenants or commitments of any nature)
or subject to any judgment, decree or order of any court or administrative
agency, or any other restriction that would interfere with the use of his or her
best efforts to carry out his or her duties for the Company or its subsidiaries
or to promote the interests of the Company or its subsidiaries, or that would
conflict with the businesses of the Company or its subsidiaries as presently
conducted or as proposed to be conducted. The carrying on of the business of the
Company and its subsidiaries by the employees, consultants and contractors of
the Company and its subsidiaries and the conduct of the businesses of the
Company and its subsidiaries as presently conducted or as proposed to be
conducted, will not, to the Company's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees,
consultants, or contractors or the Company or its subsidiaries is now obligated.
The Company does not believe it is or will be necessary to utilize any
inventions of any employees of the Company or its subsidiaries (or persons the
Company currently intends to hire) made prior to their employment by the Company
or its subsidiaries, as applicable. To the Company's knowledge, at no time
during the conception of or reduction to practice of any of the Proprietary
Assets of the Company or its subsidiaries was any developer, inventor or other
contributor to such patents operating under any grants from any governmental
entity or agency or private source, performing research sponsored by any
governmental entity or agency or private source, or subject to any employment
agreement, invention assignment, non-disclosure agreement, or other obligation
with any third party that could reasonably be expected to adversely affect the
rights of the Company or its subsidiaries in such Proprietary Assets.
3.13 TITLE TO PROPERTY AND ASSETS. Except as set forth under
Section 3.13 of the Schedule of Exceptions, the Company and its subsidiaries own
their properties and assets free and clear of all mortgages, deeds of trust,
liens, encumbrances and security interests except for statutory liens for the
payment of current taxes that are not yet delinquent and liens, encumbrances and
security interests that arise in the ordinary course of business and that do not
materially impair their ownership or use of such properties or assets. With
respect to the property and assets they lease, the Company and its subsidiaries
are in material compliance with such leases and, to the Company's knowledge,
holds a valid leasehold interest free of any liens, encumbrances, security
interests or claims of any party other than the lessors of such property and
assets, subject to the exceptions set forth in the preceding sentence. All
material facilities, machinery, equipment, fixtures, vehicles and other
properties owned, leased or used by the Company or its subsidiaries are in good
operating condition and repair, ordinary wear and tear excepted, and are
reasonably fit and usable for the purposes for with they are being used.
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3.14 COMPLIANCE WITH LAW. The Company and its subsidiaries are
in compliance with all applicable statutes, laws, regulations and executive
orders of the United States of America and all states, foreign countries or
other governmental bodies and agencies having jurisdiction over their businesses
or properties where such violation could reasonably be expected to have a
Material Adverse Effect. Neither the Company nor its subsidiaries has received
any notice of any violation of any such statute, law, regulation or order that
has not been remedied prior to the date hereof. The execution, delivery and
performance of this Agreement and the Investors' Rights Agreement and Warrants
and the consummation of the transactions contemplated hereby or thereby will not
result in any such violation.
3.15 PERMITS. The Company and its subsidiaries have all
franchises, permits, business licenses, and any similar authority necessary for
the conduct of their businesses as now being conducted and as proposed to be
conducted, the lack of which could reasonably be expected to have a Material
Adverse Effect, and the Company believes that it and its subsidiaries can
obtain, without undue burden or expense, any similar authority for the conduct
of their businesses as presently conducted and as proposed to be conducted.
Except as set forth under Section 3.12(c) of the Schedule of Exceptions, neither
the Company nor its subsidiaries is in default in any material respect under any
of such franchises, permits, business licenses or other similar authority.
3.16 COMPLIANCE WITH DOCUMENTS. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, both as amended to-date. The execution, delivery and performance of this
Agreement and the Investors' Rights Agreement and the Warrants and the
consummation of the transactions contemplated hereby or thereby will not (a) be
in conflict with or result in a violation or breach of, with or without the
passage of time or the giving of notice or both, the Company's Certificate of
Incorporation, as amended by the Certificate of Designation, or Bylaws, any
judgment, order or decree of any court or arbitrator to which the Company or any
of its subsidiaries is a party or is subject, or any Material Agreement (as
defined in Section 3.21), or (b) constitute an event that results in the
creation of any lien, charge or encumbrance upon any asset of the Company or its
subsidiaries.
3.17 REGISTRATION RIGHTS. Except as provided in the Investors'
Rights Agreement or as set forth under Section 3.17 of the Schedule of
Exceptions, the Company is not under any obligation to register under the
Securities Act any of its currently outstanding securities or any securities
issuable upon exercise, exchange or conversion of its currently outstanding
securities. The Company is not obligated to register or qualify any such
securities under any state securities or blue-sky laws.
3.18 FINANCIAL STATEMENTS. The Company has furnished to each
Investor the Company's audited consolidated balance sheets and statements of
operations and cash flows of the Company and FUNDever, Inc, with such balance
sheets and statements of operations and subsidiaries dated as of December 31,
2003 (the "BALANCE SHEET DATE"). The Company has furnished to each Investor the
unaudited balance sheets and statements of operations and cash flows for the
Company dated as of June 30, 2004 and The National Scrip Center, Inc. dated as
of June 30, 2003. All of the financial statements described in the preceding two
sentences are collectively referred to herein as the "FINANCIAL STATEMENTS". The
Financial Statements, except those of The National Scrip Center, Inc, (a) are in
accordance with the books and records of the Company and National Scrip Center,
8
Inc., as applicable, (b) present fairly the financial condition of the Company
and its subsidiaries at the date or dates therein indicated and the results of
operations for the period or periods therein specified, (c) have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis, and (d) are accurate in all material respects.
3.19 MATERIAL LIABILITIES. Except as set forth on the
Financial Statements or as set forth under Section 3.19 of the Schedule of
Exceptions, the Company and its subsidiaries have no material liabilities,
contingent or otherwise. Except as disclosed in the Financial Statements,
neither the Company nor its subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person or entity.
3.20 CHANGES. Since the Balance Sheet Dates, and except as (i)
contained in the financial statements set forth in Form 8K/A filed with the SEC
on July 14, 2004, (ii) contained in the Financial Statements and (iii) set forth
under Section 3.20 of the Schedule of Exceptions, there has not been:
(a) any change in the assets, liabilities, financial
condition, or operating results of the Company and its subsidiaries taken as a
whole, except changes in the ordinary course of business that have not been and
are not expected to, individually, or in the aggregate, have a Material Adverse
Effect;
(b) the incursion by the Company or its subsidiaries
of any currently-outstanding indebtedness for money borrowed or of any other
liabilities individually in excess of $20,000, or $50,000 in the aggregate,
where all indebtedness and other liabilities 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 preceding
individual minimum dollar amount;
(c) any satisfaction or discharge of any lien, claim
or encumbrance or payment of any obligation by the Company or its subsidiaries,
except such a satisfaction, discharge or payment made in the ordinary course of
business that is not material to the business, operations, assets (intangible or
otherwise), properties, liabilities, financial condition, or prospects of the
Company or its subsidiaries; and
(d) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business,
operations, assets (intangible or otherwise), properties, liabilities, financial
condition, or prospects of the Company or its subsidiaries (as such businesses
are presently conducted and as proposed to be conducted);
(e) any change in any method of accounting, method of
tax accounting or accounting principles or practice by the Company or its
subsidiaries, except for any such change required by reason of a concurrent
change in generally accepted accounting principles;
(f) the sale, exchange or other disposition by the
Company or its subsidiaries of any material assets or rights other than the sale
of inventory in the ordinary course of its business;
9
(g) any waiver or compromise by the Company or its
subsidiaries of a valuable right or of a material debt owed to it;
(h) any dividends declared or paid by the Company or
its subsidiaries, or the authorization or making of any distribution by the
Company or its subsidiaries upon or with respect to any class or series of its
capital stock;
(i) the making of any loans or advances by the
Company or its subsidiaries to any person other than ordinary advances for
travel expenses;
(j) the entrance by the Company or its subsidiaries
into any material transactions with any of its officers, directors, or employees
or any entity controlled by any of such individuals;
(k) any change in any compensation arrangement or
agreement with any present or prospective key employee, officer or director of
the Company or any of its subsidiaries, including any approval or action to put
into effect any bonus, service award, percentage compensation or other benefit
paid, granted or accrued to or for the benefit of any present or prospective key
employee, officer or director;
(l) any approval or action to put into effect any
general increase in any compensation or benefits payable to any class or group
of employees of the Company or its subsidiaries;
(m) the resignation or termination of employment of
any key employee or officer of the Company or its subsidiaries;
(n) any material change or amendment to a material
contract or arrangement by which the Company or any of its subsidiaries or any
of their assets or properties is bound or subject;
(o) receipt of notice by the Company or any of its
subsidiaries that there has been a loss of, or material order cancellation by,
any of its major customers;
(p) any material change by the Company or its
subsidiaries in the manner of its business or operations;
(q) the agreement or commitment by the Company or any
of its subsidiaries to do any of the things described above in this Section
3.21; or
(r) to the Company's knowledge, any other event or
condition of any character that could reasonably be expected to result in a
Material Adverse Effect.
3.21 MATERIAL AGREEMENTS.
(A) LIST OF MATERIAL AGREEMENTS. Set forth under
Section 3.21(a) of the Schedule of Exceptions is a complete list of all
agreements, contracts, leases, licenses, instruments, proposed transactions, and
10
commitments (oral or written) ("AGREEMENTS") to which the Company or its
subsidiaries is a party or by which they is bound, that, individually or in the
aggregate, are material to the business, properties, financial condition,
results of operation, affairs or prospects of the Company or its subsidiaries
(the "MATERIAL AGREEMENTS"), including without limitation, all such items that
may involve (i) obligations (contingent or otherwise) of, or payments to, the
Company or its subsidiaries on or after the date hereof in excess of $50,000,
where all Agreements 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 preceding individual minimum dollar
amount; (ii) the transfer or license of any Proprietary Asset to or from the
Company or its subsidiaries (other than licenses arising from the purchase of
"off the shelf" or other standard products); (iii) the grant of rights to
manufacture, produce, assemble, license, market or sell the products or services
of the Company or its subsidiaries to any other person or entity; (iv) the
restriction of or otherwise affecting the exclusive right of the Company and its
subsidiaries to develop, manufacture, assemble, distribute, market, sell, or
otherwise exploit their products or services (whether by territorial restriction
or otherwise) or that prohibit the Company or its subsidiaries from freely
engaging in any business or competing anywhere in the world; or (v) the
indemnification by the Company or its subsidiaries with respect to infringements
of Proprietary Assets (other than indemnification obligations arising from
purchase, sale or license agreements entered into in the ordinary course of
business). Neither the Company nor any of its subsidiaries is a party to or is
bound by any contract, agreement, instrument or arrangement that could
reasonably be anticipated to have a Material Adverse Effect. Except as set forth
under Section 3.21(a) of the Schedule of Exceptions, neither the Company nor any
of its subsidiaries is subject to any "earn-out" or similar agreements or
obligations.
(B) NO BREACH. Neither the Company nor its
subsidiaries has breached any term or condition of any Material Agreement that
could reasonably be anticipated to have a Material Adverse Effect. The Company
is not aware of any claim or threat that the Company or its subsidiaries has
breached any term or condition of any Material Agreement. Each Material
Agreement is in full force and effect and is enforceable by the Company or its
subsidiaries, as applicable, in accordance with its respective terms, except as
may be limited by (i) applicable bankruptcy, insolvency, reorganization or
others laws of general application relating to or affecting the enforcement of
creditors' rights generally, or (ii) the effect of rules of law governing the
availability of equitable remedies. To the Company's knowledge, no other party
to a Material Agreement is in default thereunder or in actual or anticipated
breach thereof, except to the extent that such default or breach could
reasonably be anticipated to have a Material Adverse Effect.
3.22 CUSTOMERS AND SUPPLIERS. Neither Company nor any of its
subsidiaries has received any customer complaints concerning alleged defects in
its products (or the design thereof) or services that, if true, could reasonably
be expected to result in a Material Adverse Effect. No material supplier of, or
provider of services to, the Company or its subsidiaries has indicated that it
shall stop, or materially decrease the rate of, supplying materials, products or
services to the Company.
3.23 INSURANCE. The Company and its subsidiaries have in full
force and effect fire, casualty and liability insurance policies, in such
amounts (subject to reasonable deductibles) as are carried by similar companies.
11
Neither the Company nor any of its subsidiaries is in default with respect to
any material provision contained in any such policy, nor has it failed to give
any notice or present any claim under any such policy in a timely fashion or in
the manner or detail required by such policy. There are no outstanding claims
under any such policy. Neither the Company nor its subsidiaries has received any
notice of cancellation or non-renewal under any such policy.
3.24 TAX RETURNS AND PAYMENTS. The Company and its
subsidiaries have timely filed all tax returns and reports required by law,
except for those returns or reports that the failure to timely file would not
have a Material Adverse Effect on the Company and its subsidiaries taken as a
whole. All tax returns and reports of the Company and its subsidiaries are true
and correct in all material respects. The Company and its subsidiaries have paid
all taxes and other assessments due, except those, if any, that are currently
being contested by them in good faith and that are listed in the Schedule of
Exceptions. Neither the Company nor its subsidiaries has had any tax deficiency
proposed or assessed against it and has not executed any waiver of any statute
of limitations on the assessment or collection of any tax or governmental
charge. Except as set forth under Section 3.24 of the Schedule of Exceptions,
none of the federal income tax returns of the Company or its subsidiaries and
none of their state income, franchise, sales, or use tax returns are currently
subject to audit by governmental authorities. The Company and its subsidiaries
have not incurred any taxes, assessments or governmental charges other than in
the ordinary course of business and the Company has made adequate provisions on
its books of account for all taxes, assessments and governmental charges with
respect to the businesses, properties and operations of the Company and its
subsidiaries for such period. The Company and its subsidiaries have withheld or
collected from each payment made to each of their employees, the amount of all
taxes (including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
3.25 TAX ELECTIONS. Neither the Company nor its subsidiaries
has elected pursuant to the Code, to be treated as an "S" corporation or a
collapsible corporation pursuant to Section 341(f) or Section 1362(a). Neither
the Company nor any of its subsidiaries has made any other elections pursuant to
the Code (other than elections which relate solely to matters of accounting,
depreciation or amortization) that would have a Material Adverse Effect.
3.26 REAL PROPERTY HOLDING CORPORATION STATUS. Since its
inception, the Company has not been a "United States real property holding
corporation", as defined in Section 897(c)(2) of the Code, and in Section
1.897-2(b) of the Treasury Regulations issued thereunder (the "REGULATIONS").
The Company has filed with the Internal Revenue Service all statements, if any,
with its United States income tax returns that are required under Section
1.897-2(h) of the Regulations.
3.27 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any
of its subsidiaries is bound by or subject to any contract, commitment or
arrangement with any labor union. To the Company's knowledge, no labor union has
requested, sought or attempted to represent any employees, representatives or
agents of the Company or its subsidiaries. There is no strike or other labor
dispute involving the Company or its subsidiaries pending or, to the Company's
12
knowledge, threatened. The Company is not aware of any labor organization
activity involving its employees or those of its subsidiaries.
3.28 EMPLOYEES; EMPLOYMENT MATTERS. The Company is not aware
that any officer or key employee of the Company or its subsidiaries, or that any
group of employees of the Company or its subsidiaries, intends to terminate his,
her or their employment with the Company or its subsidiaries. Neither the
Company nor any of its subsidiaries has the intention to terminate the
employment of any of the foregoing. Each officer and key employee of the Company
and its subsidiaries is currently devoting substantially all of his or her
business time to the conduct of the businesses of the Company or its
subsidiaries. The Company is not aware that any of the officers or key employees
of it or its subsidiaries is planning to work less than full-time for the
Company or its subsidiaries in the future. Except as set forth under Section
3.28 of the Schedule of Exceptions, subject to general principles related to the
wrongful termination of employees, the employment of each officer and employee
of the Company or its subsidiaries is terminable at the will of the Company or
its subsidiaries, as applicable. Except as set forth under Section 3.28 of the
Schedule of Exceptions, no employee, officer or director of the Company or its
subsidiaries or member of his or her immediate family is entitled to any cash or
other payment or other compensation (including the vesting of stock options and
restricted stock) as the result of (a) any merger, sale of stock or assets,
change in control or other similar transaction by the Company or its
subsidiaries, (b) any termination of employment or change of the nature or terms
of employment, or (c) the occurrence of any other event or combination of
events. Except as set forth under Section 3.28 of the Schedule of Exceptions,
neither the Company nor its subsidiaries is a party to or bound by any currently
effective employment contract, deferred compensation agreement, bonus plan,
service plan, percentage compensation plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation plan or agreement. The
Company and its subsidiaries have complied in all material respects with all
applicable state and federal equal opportunity, minimum wage, immigration and
other laws related to employment and termination of employment. To the Company's
knowledge, no employee or officer of the Company or any of its subsidiaries is
or will be in violation of any judgment, decree, or order, or any term of any
employment contract, patent disclosure or assignment agreement, or other
contract or agreement relating to the relationship of any such employee with the
Company or its subsidiaries, or any other party because of the nature of the
businesses conducted or proposed to be conducted by the Company or its
subsidiaries or to the use by the employee of his or her best efforts with
respect to such businesses.
3.29 ERISA PLANS. Section 3.29 of the Schedule of Exceptions
sets forth each Employee Pension Benefit Plan as defined in Section 3 of the
Employee Retirement Income Security Act of 1974, as amended, of the Company.
3.30 ENVIRONMENTAL AND SAFETY LAWS. The Company and its
subsidiaries are not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety. To the Company's
knowledge, no material expenditures are or will be required in order to comply
with any such statute, law or regulation.
3.31 INTERESTED PARTY TRANSACTIONS. Except as set forth under
Section 3.31 of the Schedule of Exceptions, to the knowledge of the Company, no
Covered Person has, either directly or indirectly, an interest in: (a) any
13
person or entity that purchases from or sells, licenses or furnishes to the
Company or any of its subsidiaries any goods, property, technology, intellectual
or other property rights or services; or (b) any contract or agreement to which
the Company or any of its subsidiaries is a party or by which it may be bound or
affected. No employee or stockholder of the Company or its subsidiaries or any
Covered Person is indebted to the Company. There are no obligations of the
Company or its subsidiaries to their employees or stockholders or any Covered
Person (or commitments to make loans or extend or guarantee credit) other than
for (w) payment of salary for services rendered, (x) reimbursement for
reasonable expenses incurred on behalf of the Company or its subsidiaries, (y)
other standard employee benefits made generally available to all employees
(including stock option or purchase agreements outstanding under the Plan, the
2004 Plan or any stock option approved by the Board), and (z) obligations
pursuant to the employment agreements described in Section 3.29 of the Schedule
of Exceptions. Except as set forth under Section 3.31 of the Schedule of
Exceptions, to the knowledge of the Company, no employee or stockholder of the
Company or any of its subsidiaries or any Covered Person has any direct or
indirect ownership interest in any firm or entity with which the Company or any
of its subsidiaries is affiliated or with which the Company or any of its
subsidiaries has a business relationship, or any firm or entity that competes
with the Company or any of its subsidiaries. "COVERED PERSON" shall mean any
officer or director of the Company or any of its subsidiaries, or any
"affiliate" or "associate" (as such terms are defined in Rule 405 promulgated
under the Securities Act) or member of the "immediate family" (as defined in
Rule 16a-1 promulgated under the Exchange Act of 1934, as amended) of any such
officer or director.
3.32 THIRD PARTY TRANSACTIONS. Except as set forth under
Section 3.32 of the Schedule of Exceptions, the Company has not negotiated a
term sheet, letter of intent or similar document in the past three months
regarding (a) the merger, consolidation or other business combination of the
Company or any of its subsidiaries with or into another business entity or
entities, (b) the sale, conveyance, or disposition of all or substantially all
of the Company's assets (or the assets of any of its subsidiaries), or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company would be disposed of, or (c) any other
form of acquisition, liquidation, dissolution or winding up of the Company or
any of its subsidiaries.
3. 33 SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as set forth
under Section 3.33 of the Schedule of Exceptions, each of the Company and its
predecessors have timely filed all reports, schedules, forms, statements and
other documents (including without limitation, exhibits to the foregoing)
required to be filed by it with the Securities and Exchange Commission (the
"SEC") pursuant to the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), that were required to be filed since January 1, 2004 and has
filed all registration statements and other documents (including without
limitation, exhibits to the foregoing) required to be filed by it with the SEC
pursuant to the Securities Act. All of the foregoing reports (without regard to
such January 1, 2004 limitation) on Forms 10-KSB, 10-QSB and 8-K and proxy
statements filed prior to the date hereof, together with all registration
statements filed prior to the date hereof, and in each case all amendments
thereto, exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein, are hereinafter
14
referred to herein as the "SEC DOCUMENTS". As of their respective dates, except
as set forth under Section 3.33 of the Schedule of Exceptions, the SEC Documents
complied in all material respects with the requirements of the Exchange Act or
the Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, except to the extent that
such SEC Documents were later amended and such amended SEC Documents were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Any statements made in any such SEC Documents that are or
were required to be updated or amended under the Exchange Act or the Securities
Act, as the case may be, have been so updated or amended. The financial
statements of the Company included in the SEC Documents comply in all material
respects with applicable accounting requirements and the rules and regulations
of the SEC with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present in
all material respects the financial positions of the Company and its successors
and their respective consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.
3.34 XXXXXXXX-XXXXX; INTERNAL ACCOUNTING CONTROLS. The Company
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
("SOX") that are applicable to it. The Company and its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (a) transactions are executed in accordance with management's
general or specific authorizations, (b) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (c) access to assets is permitted only in
accordance with management's general or specific authorization, and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. Notwithstanding the foregoing, the Company does not comply with
Section 404 of SOX. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company's most recently filed
periodic report under the Exchange Act, as the case may be, is being prepared.
The Company's certifying officers have evaluated the effectiveness of the
Company's controls and procedures as of the date prior to the filing date of the
most recently filed periodic report under the Exchange Act (such date, the
"EVALUATION DATE"). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company's internal controls (as such term is
defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the
Company's knowledge, in other factors that would significantly affect the
Company's internal controls.
15
3.35 LISTING AND MAINTENANCE REQUIREMENTS. The Company's
Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge is likely
to have the effect of, terminating the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that the SEC is
contemplating terminating such registration. The Company's Common Stock is
quoted on the OTC Bulletin Board ("BULLETIN BOARD"). Since the filing of the
Company's Form 10-QSB/A for the quarter ended March 31, 2004, the Company has
not received any oral or written notice that its Common Stock will cease to be
quoted by the Bulletin Board nor that its Common Stock does not meet all
requirements for the continuation of such quotation and the Company satisfied
the requirements for continued quoting of its Common Stock on the Bulletin
Board.
3.36 NO INTEGRATED OFFERING. Assuming the accuracy of the
Investors' representations and warranties set forth in Section 4, neither the
Company, nor any of its affiliates, nor any person or entity 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 this offering of the Purchased Shares and/or Warrants to be
integrated with prior offerings by the Company for purposes of the Securities
Act, nor will the Company or any of its affiliates take any action or steps that
would cause the offer and/or sale of the Purchased Shares and Warrants to be
integrated with other offerings. The Company will not conduct any offering other
than the transactions contemplated hereby that will be integrated with the offer
or issuance of the Purchased Shares or Warrants.
3.37 STOCKHOLDER APPROVAL NOT REQUIRED. No approval of the
stockholders of the Company is required in connection with (a) this Agreement,
the Investor Rights Agreement and the consummation of the transactions
contemplated hereby and thereby and/or (b) any other pending or proposed
issuance of equity securities of the Company, except such approvals as have been
obtained as of the date of this Agreement.
3.38 NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are
no disagreements of any kind presently existing, or reasonably anticipated by
the Company, to arise, between the accountants and lawyers presently, or to the
Company's knowledge formerly, employed by the Company.
3.39 INVESTMENT COMPANY. The Company is not, and is not an
affiliate of, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF
INVESTORS. Each Investor hereby represents and warrants to, and agrees with, the
Company, severally and not jointly, that:
4.1 AUTHORIZATION. Such Investor has the full power and
authority to enter into this Agreement and the Investors' Rights Agreement. Each
such agreement constitutes such Investor's valid and legally binding obligation,
enforceable in accordance with its terms, except (a) as may be limited by
applicable bankruptcy, insolvency, reorganization or others laws of general
application relating to or affecting the enforcement of creditors' rights
generally, (b) to the extent that the indemnification provisions of the Rights
16
Agreement may be limited by applicable federal or state securities laws limits
on indemnification; and (c) as may be limited by the effect of rules of law
governing the availability of equitable remedies.
4.2 PURCHASE FOR OWN ACCOUNT. The Purchased Shares and
Warrants to be purchased by such Investor hereunder will be acquired for
investment for such Investor's own account, not as a nominee or agent, and not
with a view to the public resale or distribution thereof within the meaning of
the Securities Act, and such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. Such Investor
does not have any contract, undertaking agreement or arrangement with any person
to sell, transfer or grant participations to such person or any third person
with respect to the Purchased Shares or Warrants. Such Investor represents that
such Investor has not been formed for the specific purpose of acquiring
Purchased Shares and Warrants.
4.3 DISCLOSURE OF INFORMATION. Such Investor 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 Purchased Shares and
Warrants to be purchased by such Investor under this Agreement. Such Investor
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Purchased Shares and
Warrants and to obtain additional information necessary to verify any
information furnished to such Investor or to which such Investor had access. The
foregoing, however, does not in any way limit or modify the representations and
warranties made by the Company in Section 3.
4.4 INVESTMENT EXPERIENCE. Such Investor understands that the
purchase of the Purchased Shares and Warrants involves substantial risk. Such
Investor: (a) has experience as an investor in securities of companies in the
development stage and acknowledges that such Investor is able to fend for
itself, can bear the economic risk of such Investor's investment in the
Purchased Shares and Warrants and has such knowledge and experience in financial
or business matters that such Investor is capable of evaluating the merits and
risks of its investment in the Purchased Shares and Warrants and protecting its
own interests in connection with this investment and/or (b) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables such
Investor to be aware of the character, business acumen and financial
circumstances of such persons.
4.5 ACCREDITED INVESTOR STATUS. Each Investor is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act.
4.6 RESTRICTED SECURITIES. Such Investor understands that the
Purchased Shares are characterized as "restricted securities" under the
Securities Act inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may be resold without
registration under the Securities Act only in certain limited circumstances. In
this connection, such Investor represents that such Investor is familiar with
Rule 144 of the SEC, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. Such Investor understands
17
that the Company is under no obligation to register any of the securities sold
hereunder except as provided in the Investors' Rights Agreement.
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. The
obligations of each Investor under Sections 1 and 2 of this Agreement with
respect to the Closing are subject to the fulfillment or waiver, on or before
the Closing, of each of the following conditions, the waiver of which shall not
be effective against any Investor who does not consent to such waiver, which
consent may be given by written, oral or telephone communication to the Company
or its counsel:
5.1 REPRESENTATIONS AND WARRANTIES TRUE. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and complete on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 CERTIFICATE OF DESIGNATION EFFECTIVE. The Certificate of
Designation shall have been duly adopted by the Company by all necessary
corporate action of its Board of Directors and stockholders, and shall have been
duly filed with and accepted by the Secretary of State of the State of Delaware,
and shall not have been amended.
5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered
to each Investor at the Closing a certificate signed on its behalf by its
President, Chief Executive Officer, or Chief Financial Officer certifying that
the conditions specified in Sections 5.1, 5.2, 5.3, 5.7, 5.8, 5.12, 5.14 and
5.17 have been fulfilled and stating that there shall have been no Material
Adverse Effect not previously disclosed to the Investors in writing.
5.5 SECURITIES EXEMPTIONS. Subject to the accuracy of the
representation set forth in Section 4.5, the offer and sale of the Purchased
Shares and Warrants to the Investors pursuant to this Agreement shall be exempt
from the registration requirements of the Securities Act, and the registration
and/or qualification requirements of all applicable state securities laws.
5.6 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to each Investor and to the Investors' special counsel, and they shall
each have received all such counterpart originals and certified or other copies
of such documents as they may reasonably request. Such documents shall include
(but not be limited to) the following:
(a) Certified Charter Documents. A copy of the
Certificate of Incorporation, the Certificate of Designation and the Bylaws of
the Company (as amended through the date of the Closing), certified by the
Secretary or Assistant Secretary of the Company as true and complete copies
thereof as of the Closing.
18
(b) Corporate Actions. A copy of the resolutions of
the Board and, if required, the stockholders of the Company evidencing the
amendment to the Company's Certificate of Incorporation and the Certificate of
Designation providing for the authorization of the Purchased Shares, the
approval of this Agreement, the Investors' Rights Agreement and the Warrants,
the issuance of the Purchased Shares and the Warrants and the other matters
contemplated hereby, certified by the Secretary or Assistant Secretary of the
Company as true and complete copies thereof as of the Closing.
(c) Good Standing Certificates. Except as set forth
under Section 5.6(c) of the Schedule of Exceptions, good standing certificates
issued by the Delaware Secretary of State and any States in which the Company or
any of its subsidiaries are qualified to do business as foreign corporations,
each dated within five (5) business days of the Closing.
5.7 BYLAWS. The Bylaws of the Company shall be in the form
previously presented to special counsel to the Investors and shall, together
with resolutions of the Board, provide that the authorized number of members of
the Board of Directors of the Company shall be five persons.
5.8 BOARD OF DIRECTORS. The directors of the Company shall be
Xxxx Xxxxxxxx, Xxxxxx Xxxxxxx, Xxxxxx Xxxxxxxx and Xxxx X. Xxxxxxxx.
5.9 OPINION OF COMPANY COUNSEL. Each Investor shall have
received an opinion from each of Xxxxx Xxxxxx & Associates, P.A. and Xxxxxxx
Xxxxxx, P.A., counsels for the Company, dated as of the date of the Closing, in
the forms attached hereto as Exhibit F-1 and F-2, respectively.
5.10 INVESTORS' RIGHTS AGREEMENT. The Company and each
Investor shall have executed and delivered the Investors' Rights Agreement in
the form attached to this Agreement as Exhibit G (the "INVESTORS' RIGHTS
AGREEMENT").
5.11 [INTENTIONALLY OMITTED]
5.12 PAYMENT OF EXPENSES. The Company shall have paid the
fees, costs and expenses identified in Section 8.8 of this Agreement.
5.13 COMPLETION OF DUE DILIGENCE. Each Investor shall have
completed to its satisfaction its legal, financial and due diligence inquiries
with respect to the Company and its subsidiaries with no adverse findings, as
determined by such Investor in its sole and absolute discretion.
5.14 DELIVERY OF FINANCIAL STATEMENTS. The Company shall have
delivered the Financial Statements to such Investor.
5.15 RESOLUTION OF LITIGATION. The Company shall have resolved
its litigation with Xxxxxxxxx'x, Inc. on terms acceptable to such Investor, in
such Investor's sole and absolute discretion.
19
5.16 CAPITALIZATION AUDIT. The Company shall have performed a
full and complete accounting of all capital stock, stock options, terms of
outstanding stock options and other rights and warrants to acquire capital stock
of the Company and each of its subsidiaries and shall have provided a detailed
capitalization table itemization all such items to the satisfaction of such
Investor, in such Investor's sole and absolute discretion.
5.17 PROVISION OF INFORMATION. The Company shall have
furnished to such Investor all information requested by such Investor.
5.18 DIRECTORS AND OFFICERS' INSURANCE. The Company shall have
obtained directors and officers' liability insurance with coverage amounts and
on terms acceptable to such Investor, in its sole and absolute discretion.
5.19 INDEMNIFICATION AGREEMENTS. The Company shall have
entered into an indemnification agreement with Xxxx X. Xxxxxxxx on terms
acceptable to him, in his sole and absolute discretion.
5.20 AEIS AGREEMENT. The Company shall have entered into a
long-term exclusive agreement with American Express Incentive Services, LLP on
terms acceptable to such Investor, in its sole and absolute discretion, which
terms shall include the issuance of stock and/ or warrants of the Company as
consideration.
5.21 STOCK OPTION GRANT. The Company shall have granted to
Xxxx X. Xxxxxxxx an option to purchase shares of the Company's Common Stock on
terms agreeable to the Company and Xxxx X. Xxxxxxxx.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligations of the Company to each Investor under this Agreement at the Closing
are subject to the fulfillment or waiver on or before the Closing of each of the
following conditions by such Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of such Investor contained in Section 4 shall be true and complete on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 PAYMENT OF PURCHASE PRICE. Each Investor shall have
delivered to the Company the purchase price specified for such Investor on
Exhibit A for the Purchased Shares to be purchased at the Closing in accordance
with the provisions of Section 2.
6.3 CERTIFICATE OF DESIGNATION EFFECTIVE. The Certificate of
Designation shall have been duly adopted by the Company by all necessary
corporate action of its Board of Directors and stockholders, and shall have been
duly filed with and accepted by the Secretary of State of the State of Delaware.
6.4 SECURITIES EXEMPTIONS. The offer and sale of the Purchased
Shares and Warrants to the Investors pursuant to this Agreement shall be exempt
20
from the registration requirements of the Securities Act, and the registration
and/or qualification requirements of all applicable state securities laws.
6.5 INVESTORS' RIGHTS AGREEMENT. The parties specified in
Section 5.10, other than the Company, shall each have executed and delivered the
Investors' Rights Agreement.
7. COVENANTS OF THE COMPANY.
7.1 ADDITIONAL INDEPENDENT DIRECTOR. Within one hundred eighty
(180) days following the Closing, the Company will take such actions as are
necessary to increase the authorized number of directors to six (6) and to elect
or appoint an independent director to occupy such fifth seat, with such
independent director to be mutually agreeable to (i) a majority of the then
current directors and (ii) the holders of a majority of the Company's then
outstanding Series B Preferred Stock. Any subsequent director occupying such
directorship shall be an independent director mutually agreeable to the parties
set forth in such clauses (i) and (ii).
7.2 USE OF PROCEEDS. The Company shall use the proceeds from
the transactions contemplated hereby and/or received by the Company on exercise
of the Warrants for general corporate purposes; provided, however, that the
Company shall not use any such proceeds to satisfy any obligations or
liabilities (contingent or otherwise) that are not either (a) reflected on the
Financial Statements, (b) itemized on the Schedule of Exceptions, (c) incurred
subsequent to the date of the Financial Statements in the ordinary course of
business consistent with past practices or (d) for the acquisition of assets or
an equity interest in a business being acquired provided that such transaction
has been approved by the Board. The Company shall not declare or pay any
dividends (other than dividends payable solely in shares of its own Common
Stock) on or declare or make any other distribution, purchase, redemption or
acquisition, directly or indirectly, on account of any of its securities now or
hereafter outstanding unless approved by the Board. The Company shall not enter
into an acquisition by the Company that would result in a capital expenditure in
excess of $50,000 for any single expenditure or other material expenditures in
excess of $50,000, in each case, unless approved by the Board. Unless approved
by the Board, the Company shall not lend money or credit or make advances to any
person or entity, or purchase or acquire any stock, obligations or securities
of, or any other interest in, or make any capital contribution to, any other
person or entity, except that the following shall be permitted: (a) the Company
may acquire and hold receivables owing to it, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (b) the Company may acquire and hold cash equivalents;
and (c) the Company may make travel advances to employees in the ordinary course
of its business to the extent permitted by SOX.
7.3 NO MARKET MANIPULATION. The Company will abide by the
provisions of SEC Regulation M.
7.4 STOP ORDERS. The Company will advise the Investors,
promptly after it receives notice of issuance by 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
21
the suspension of the qualification of the Common Stock of the Company, the
Purchased Shares or the Warrants for offering or sale in any jurisdiction, or
the initiation of any proceeding for any such purpose. The Company will advise
the Investors, promptly after it receives notice of any proposed delisting or
other similar action with respect to the shares of the Company's capital stock.
7.5 LISTING. Once the Company's Common Stock is listed on a
national securities exchange or the Nasdaq Stock Market (("Nasdaq"), the Company
shall promptly secure the listing of the Conversion Shares and Warrant Shares
upon each national securities exchange or Nasdaq upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain such listing so long as any Purchased Shares, Conversion Shares,
Warrants or Warrant Shares are outstanding. Once so listed, the Company will
maintain the listing of its Common Stock on such national securities exchange or
Nasdaq (whichever of the foregoing is at the time the principal trading exchange
or market for the Common Stock (the "PRINCIPAL MARKET"), and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market, as applicable. The Company will provide
the Investors copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal Market.
7.6 MARKET REGULATIONS. The Company shall notify the SEC, the
Principal Market 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
Purchased Shares, Conversion Shares, Warrants and Warrant Shares to the
Investors and promptly provide copies thereof to the Investors.
8. GENERAL PROVISIONS.
8.1 SURVIVAL OF WARRANTIES. The representations, warranties
and covenants of the Company and the Investors contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of any of the Investors, their counsel or
the Company, as the case may be.
8.2 SUCCESSORS AND ASSIGNS. Except as may otherwise be
provided herein, this Agreement, and the rights and obligations of the parties
hereunder, will be binding upon and inure to the benefit of their respective
successors, assigns, heirs, executors, administrators and legal representatives.
8.3 GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to that body of laws pertaining to conflict of laws.
8.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which when so executed and delivered will be deemed
an original, and all of which together shall constitute one and the same
instrument.
8.5 TITLES AND HEADINGS. The titles, captions and headings
used in this Agreement are included for ease of reference only and will be
disregarded in interpreting or construing this Agreement. Unless otherwise
22
specifically stated, all references herein to "sections" and "exhibits" shall,
unless otherwise provided, mean sections of this Agreement and exhibits hereto.
8.6 NOTICES. Any and all notices required or permitted to be
given to a party pursuant to the provisions of this Agreement will be in writing
and will be effective and deemed to provide such party sufficient notice under
this Agreement on the earliest of the following: (a) at the time of personal
delivery, if delivery is in person; (b) one (1) business day after deposit with
an express overnight courier for United States deliveries, or three (3) business
days after such deposit for deliveries outside of the United States, with proof
of delivery from the courier requested; or (c) three (3) business days after
deposit in the United States mail by certified mail (return receipt requested)
for United States deliveries.
All notices for delivery outside the United States
will be sent by express courier. All notices not delivered personally will be
sent with postage and/or other charges prepaid and properly addressed to the
party to be notified at the address as follows, or at such other address as such
other party may designate by one of the indicated means of notice herein to the
other parties hereto as follows:
(a) if to an Investor, at such Investor's respective
address as set forth on Exhibit A hereto.
(b) if to the Company, marked "Attention: Chief
Executive Officer", at 0000 Xxxxxxxxx Xxxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxx 00000.
8.7 NO FINDER'S FEES. Each party represents that it neither is
nor will be obligated for any finder's or broker's fee or commission in
connection with this transaction. Each Investor agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' or broker's fee (and any asserted liability) for which
the Investor or any of its officers, partners, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a finder
or broker's fee (and any asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
8.8 COSTS, EXPENSES. The Company shall pay in connection with
the preparation, execution and delivery of this Agreement and the issuance of
the Purchased Shares and Warrants, the fees and out-of-pocket expenses of
Fenwick & West LLP, special counsel to the Investors, with respect thereto, such
fees and expenses not to exceed $30,000 in the aggregate, except that such
amount shall be increase for any fees and expenses incurred in connection with
any matters relating to the rules, regulations, procedures or policies of the
Securities and Exchange Commission.
8.9 AMENDMENTS AND WAIVERS. Except as otherwise set forth
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and the holders of Purchased Shares and/or Conversion Shares
23
representing at least a majority of the aggregate number of shares of Common
Stock into which the Purchased Shares then are convertible and/or have been
converted (excluding any of such shares that have been sold to the public or
pursuant to SEC Rule 144) (the "MAJORITY INVESTORS"). Any amendment or waiver
effected in accordance with this Section shall be binding upon each holder of
any Purchased Shares and/or Conversion Shares at the time outstanding, each
future holder of such securities, and the Company; provided, however, that no
condition set forth in Section 5 may be waived with respect to any Investor who
does not consent thereto.
8.10 SEVERABILITY. If any provision of this Agreement is
determined by any court or arbitrator of competent jurisdiction to be invalid,
illegal or unenforceable in any respect, such provision will be enforced to the
maximum extent possible given the intent of the parties hereto. If such clause
or provision cannot be so enforced, such provision shall be stricken from this
Agreement and the remainder of this Agreement shall be enforced as if such
invalid, illegal or unenforceable clause or provision had (to the extent not
enforceable) never been contained in this Agreement. Notwithstanding the
forgoing, if the value of this Agreement based upon the substantial benefit of
the bargain for any party is materially impaired, which determination as made by
the presiding court or arbitrator of competent jurisdiction shall be binding,
then the parties agree to substitute such provision(s) through good faith
negotiations.
8.11 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement and understanding of the
parties with respect to the subject matter of this Agreement, and supersede any
and all prior understandings and agreements, whether oral or written, between or
among the parties hereto with respect to the specific subject matter hereof.
8.12 FURTHER ASSURANCES. The parties agree to execute such
further documents and instruments and to take such further actions as may be
reasonably necessary to carry out the purposes and intent of this Agreement.
8.13 THIRD PARTIES. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.
8.14 COSTS AND ATTORNEYS' FEES. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction contemplated hereunder, the prevailing party shall
recover all of such party's costs and attorneys' fees incurred in each such
action, suit or other proceeding, including any and all appeals or petitions
therefrom.
8.15 WAIVER OF JURY TRIAL. Each party hereto hereby waives its
rights to a jury trial of any claim or cause of action based upon or arising out
of this Agreement or the subject matter hereof. The scope of this waiver is
intended to be all-compassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including,
without limitation, contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. This Section 8.15 has been fully
discussed by each of the parties hereto and these provisions shall not be
subject to any exceptions. Each party hereto hereby further represents and
warrants that such party has reviewed this waiver with its legal counsel, and
24
that such party knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. This waiver is irrevocable, meaning that it may
not be modified either orally or in writing, and this waiver shall apply to any
subsequent amendments, supplements or modifications to (or assignments of) this
Agreement. In the event of litigation, this Agreement may be filed as a written
consent to a trial (without a jury) by the court.
8.16 INVESTOR NAME AND LOGO. The Company shall not use, in
whole or in part, in any manner whatsoever, or issue, publish or disseminate or
caused to be issued, published or disseminated any press release or public
communication relating to this Agreement or the Investors' Rights Agreement or
the Warrants or any of the transactions contemplated hereby or thereby using the
name or any trademark, logo, trade name or other intellectual property or
otherwise referring to any Investor or its affiliates, without the prior written
consent of such Investor or such affiliates, as applicable; provided, however,
that the foregoing shall not prohibit the disclosure of information if required
by law or process of law provided that the Company has given reasonable advance
notice of the disclosure to the affected Investor or affiliate, as applicable,
and has received approval for such disclosure from such party (such approval not
to be unreasonably withheld).
[Signature Pages Follow]
25
IN WITNESS WHEREOF, the parties hereto have executed this Series B
Preferred Stock and Common Stock Warrants Purchase Agreement as of the date
first written above.
THE COMPANY:
Name:
-----------------------------------------------
By:
-------------------------------------------------
Title:
----------------------------------------------
INVESTORS:
[Additional Signature Pages Attached]
SERIES B PREFERRED STOCK AND COMMON STOCK WARRANTS
PURCHASE AGREEMENT
LIST OF EXHIBITS
Exhibit A - Schedule of Investors
Exhibit B - Certificate of Designation of Incorporation
Exhibit C - Form of Warrant
Exhibit D - Schedule of Exceptions
Exhibit E - Invention Assignment and Confidentiality Agreement
Exhibits F-1 - Opinion of Xxxxx Xxxxxx & Associates, P.A.
Exhibit F-2 - Opinion of Xxxxxxx Xxxxxx, P.A.,
Exhibit G - Investors' Rights Agreement
EXHIBIT A
SCHEDULE OF INVESTORS
Number of Number of Number of
Shares of Shares of Shares of
Common Stock Common Stock Common Stock
Subject to Subject to Subject to
Warrant (with Warrant (with Warrant (with
Series B Shares exercise price exercise price exercise price
Investor Name and Address To be Acquired Purchase Price of $0.40 per of $0.75 per of $1.00 per
share) share) share)
ACCEL VII L.P. 20,273,077 $ 2,635,500.01 1,129,500 1,129,500 1,129,500
C/O ACCEL PARTNERS
000 XXXXXXXXXX XXXXXX
XXXX XXXX, XX 00000
ATTN: XXX XXXXXXXX &
XXXX XXXXXXXX
ACCEL INTERNET FUND III L.P. 4,226,923 $ 549,499.99 235,500 235,500 235,500
C/O ACCEL PARTNERS
000 XXXXXXXXXX XXXXXX
XXXX XXXX, XX 00000
ATTN: XXX XXXXXXXX &
XXXX XXXXXXXX
ACCEL INVESTORS '99 L.P. 2,423,077 $ 315,000.01 135,000 135,000 135,000
C/O ACCEL PARTNERS
000 XXXXXXXXXX XXXXXX
XXXX XXXX, XX 00000
ATTN: XXX XXXXXXXX &
XXXX XXXXXXXX
XXXX X. XXXXXXXX 1,923,077 250,000 107,143 107,143 107,143
C/O ACCEL PARTNERS
000 XXXXXXXXXX XXXXXX
XXXX XXXX, XX 00000
XXXXXX X. XXXXXX XXX 1,923,077 250,000 107,143 107,143 107,143
C/X XXXXXX CAPITAL PARTNERS
000 XXXX XXXXXXXXX XXXXXX
XXXXXXXXX, XX 00000
---------- ------------- ---------- ---------- ----------
Totals: 30,769,231 $4,000,000.00 1,714,286 1,714,286 1,714,286
EXHIBIT B
CERTIFICATE OF DESIGNATION OF INCORPORATION
EXHIBIT C
FORM OF WARRANT
EXHIBIT D
SCHEDULE OF EXCEPTIONS
EXHIBIT E
INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT
EXHIBIT F-1
OPINION OF XXXXX XXXXXX & ASSOCIATES, P.A.
EXHIBIT F-2
OPINION OF XXXXXXX XXXXXX, P.A.
EXHIBIT G
INVESTORS' RIGHTS AGREEMENT
