SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement, dated as of April 19, 2000
(this "AGREEMENT"), by and between Precept Business Services, Inc., a Texas
corporation, with principal executive offices located at 0000 Xxxxxxx Xxxxxxx
Xxxxxxx, Xxxxx 000, Xxxxxx, XX 00000 (the "COMPANY"), and The Shaar Fund Ltd.
("BUYER").
Whereas, Buyer desires to purchase from the Company, and the
Company desires to issue and sell to Buyer, upon the terms and subject to the
conditions of this Agreement, (i) 200,000 shares of the Company's Series A 8%
Convertible Preferred Stock, par value $1.00 per share (collectively, the
"PREFERRED SHARES"), and (ii) Common Stock Purchase Warrants in the form
attached hereto as Exhibit A to purchase 125,000 shares of Common Stock (as
defined below) (collectively, the "Warrants");
Whereas, upon the terms and subject to the designations,
preferences and rights set forth in the Company's Certificate of Designation of
Series A 8% Convertible Preferred Stock in the form attached hereto as Exhibit B
(the "CERTIFICATE OF DESIGNATION"), the Preferred Shares are convertible into
shares of the Company's class A common stock, par value $.01 per share (the
"COMMON STOCK"); and
Whereas, the Warrants, upon the terms and subject to the
conditions specified in the Warrants, will be exercisable for a period of three
years;
Now, Therefore, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
A. TRANSACTION. Buyer hereby agrees to purchase from the
Company, and the Company has offered and hereby agrees to issue and sell to
Buyer in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
the Preferred Shares and the Warrants.
B. PURCHASE PRICE; FORM OF PAYMENT. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$2,000,000 (the "PURCHASE PRICE"). Simultaneously with the execution of this
Agreement, Buyer shall pay the Purchase Price by wire transfer of immediately
available funds to the escrow agent (the "ESCROW AGENT") identified in those
certain Escrow Instructions of even date herewith, a copy of which is attached
hereto as Exhibit C (the "ESCROW INSTRUCTIONS"). Simultaneously with the
execution of this Agreement, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company
otherwise has been notified, I/N/O Buyer's nominee) evidencing the Preferred
Shares and the Warrants which Buyer is purchasing, to the
Escrow Agent or its designated depository. By executing and delivering this
Agreement, Buyer and the Company each hereby agree to observe the terms and
conditions of the Escrow Instructions, all of which are incorporated herein by
reference as if fully set forth herein.
C. METHOD OF PAYMENT. Payment into escrow of the Purchase
Price shall be made as set forth in the Escrow Instructions.
II. BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to and covenants and agrees with
the Company as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the
Common Stock issuable upon exercise of the Warrants (the "WARRANT SHARES"), the
Common Stock, if any, issuable in payment of dividends on the Preferred Shares
(the "DIVIDEND SHARES"), and the Common Stock issuable upon conversion or
redemption of the Preferred Shares (the "CONVERSION SHARES" and, collectively
with the Preferred Shares, the Warrants, the Warrant Shares and the Dividend
Shares, the "SECURITIES") for its own account, for investment purposes only and
not with a view towards or in connection with the public sale or distribution
thereof in violation of the Securities Act.
B. Buyer is (i) an "ACCREDITED INVESTOR" within the meaning of
Rule 501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered and
sold by the Company in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that the Company is relying upon the accuracy of, and Buyer's
compliance with, Buyer's representations, warranties and covenants set forth in
this Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Securities;
D. Buyer understands that the Securities have not been
approved or disapproved by the Securities and Exchange Commission (the
"COMMISSION") or any state securities commission.
E. This Agreement has been duly and validly authorized,
executed and delivered by Buyer and is a valid and binding agreement of Buyer
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and except as
rights to indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws.
F. Neither Buyer nor its affiliates nor any person acting on
its or their behalf shall
enter into, prior to the Closing or at any other time while any of the Preferred
Shares remain outstanding, any put option, short position or other similar
instrument or position with respect to the Common Stock and neither Buyer nor
any of its affiliates nor any person acting on its or their behalf will use at
any time shares of Common Stock acquired pursuant to this Agreement to settle
any put option, short position or other similar instrument or position that may
have been entered into prior to the execution of this Agreement; PROVIDED,
HOWEVER, that nothing in this Section II.F. shall operate to forbid Buyer or any
of its affiliates or any person acting on its or their behalf from selling, or
entering into any other transaction with respect to, the Common Stock
contemporaneously with or following such date and time as the person or persons
in whose name or names the Common Stock delivered at conversion of Preferred
Shares, as provided in the Certificate of Designation, shall be issuable shall
be deemed to have become the holder or holders of record of the Common Shares
represented thereby and all voting and other rights associated with the
beneficial ownership of such Common Shares shall have vested with such person or
persons.
III. THE COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
A. CAPITALIZATION.
1. The authorized capital stock of the Company
consists solely of: (x) 100,000,000 shares of class A common stock, of
which 9,599,780 shares are issued and outstanding on the date hereof;
(y) 10,500,000 shares of class B common stock, of which 592,142 shares
are issued and outstanding on the date hereof; and (z) 3,000,000 shares
of preferred stock, of which 3,224 shares are issued and outstanding on
the date hereof. As of the date hereof, the Company has outstanding
stock options to purchase 1,378,500 shares of Common Stock and has no
warrants to purchase shares of Common Stock outstanding. The exercise
price for each of such outstanding options and warrants is accurately
set forth on Schedule III.A.1. hereto.
2. The Conversion Shares, the Dividend Shares and the
Warrant Shares have been duly and validly authorized and reserved for
issuance by the Company, and when issued by the Company upon conversion
of, or in lieu of cash dividends on, the Preferred Shares and on
exercise of the Warrants will be duly and validly issued, fully paid
and nonassessable and will not subject the holder thereof to personal
liability by reason of being such holder.
3. Except as disclosed on Schedule III.A.3. hereto,
there are no preemptive, subscription, "call," right of first refusal
or other similar rights to acquire any capital stock of the Company or
any of its Subsidiaries or other voting securities of the Company that
have been issued or granted by the Company to any person and no other
obligations of the Company or any of its Subsidiaries to issue, grant,
extend or enter into any security, option, warrant, "call," right,
commitment, agreement, arrangement or undertaking with respect to any
of their respective capital stock.
4. Schedule III.A.4. hereto lists all the
subsidiaries of the Company (the "SUBSIDIARIES"). Except as disclosed
on Schedule III.A.4. hereto, the Company does not own or control,
directly or indirectly, any interest in any other corporation,
partnership, limited liability company, unincorporated business
organization, association, trust or other business entity.
5. The Company has delivered to Buyer complete and
correct copies of the Articles of Incorporation and the By-Laws of each
of the Company and the Subsidiaries, in each case as amended to the
date of this Agreement. Except as set forth on Schedule III.A.5., the
Company has delivered to Buyer true and complete copies of all minutes
of the Board of Directors of the Company (the "BOARD OF DIRECTORS")
since April, 1997.
B. ORGANIZATION; REPORTING COMPANY STATUS.
1. Each of the Company and the Subsidiaries is a
corporation duly organized, validly existing and in good standing under
the laws of the state or jurisdiction in which it is incorporated and
is duly qualified as a foreign corporation in all jurisdictions in
which the failure so to qualify would reasonably be expected to have a
material adverse effect on the business, properties, condition
(financial or otherwise) or results of operations of the Company and
the Subsidiaries taken as a whole or on the consummation of any of the
transactions contemplated by this Agreement (a "MATERIAL ADVERSE
EFFECT").
2. The Company has registered the Common Stock
pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"). The Common Stock is listed and traded on
the Nasdaq SmallCap Market ("NASDAQ") and the Company has not received
any notice regarding, and to its knowledge there is no threat of, the
termination or discontinuance of the eligibility of the Common Stock
for such listing.
C. AUTHORIZATION. The Company (i) has duly and validly
authorized and reserved for issuance 2,000,000 shares of Common Stock, which is
a number sufficient for the conversion of and the payment of dividends (in lieu
of cash payments) on the 200,000 Preferred Shares and the exercise of the
Warrants in full, and (ii) at all times from and after the date hereof shall
have a sufficient number of shares of Common Stock duly and validly authorized
and reserved for issuance to satisfy the conversion of Preferred Shares, the
payment of dividends (in lieu of cash payments) on the Preferred Shares and the
exercise of the Warrants in full. The Company understands and acknowledges the
potentially dilutive effect on the Common Stock of the issuance of the Preferred
Shares and of the Conversion Shares, the Dividend Shares and the Warrant Shares
upon the conversion of, and payment of dividends on, the Preferred Shares and
the exercise of the Warrants, respectively. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares and Warrant Shares upon exercise of the Warrants in accordance with this
Agreement, the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and
notwithstanding the commencement of any case under 11 U.S.C. Section 101 ET SEQ.
(the "BANKRUPTCY CODE"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. Section 362 in respect of the
conversion of the Preferred Shares and the exercise of the Warrants. The Company
agrees, without cost or expense to Buyer, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. Section 362. Schedule
III.C. hereto sets forth (i) all issuances and sales by the Company since June
30, 1999 of its capital stock, and other securities convertible into or
exercisable or exchangeable for capital stock of the Company, (ii) the amount of
such securities sold, including the amount of any underlying shares of capital
stock, (iii) the purchaser thereof, (iv) the amount paid therefor, and (v) the
material terms of all outstanding capital stock of the Company (other than the
Common Stock).
D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the
requisite corporate power and authority to file, and perform its obligations
under, the Certificate of Designation and to enter into the Documents (as
hereinafter defined) and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Texas Secretary of State's office, the issuance of the
Preferred Shares and the Warrants and the issuance and reservation for issuance
of the Conversion Shares, the Dividend Shares and the Warrant Shares) have been
duly and validly authorized by all necessary corporate action on the part of the
Company. Each of the Documents has been duly and validly executed and delivered
by the Company and the Certificate of Designation has been duly filed with the
Texas Secretary of State's office by the Company, and each Document constitutes
a valid and binding obligation of the Company enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and except as rights to indemnity and
contribution may be limited by federal or state securities laws or the public
policy underlying such laws. The Securities have been duly and validly
authorized for issuance by the Company and, when executed and delivered by the
Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally. For purposes of this
Agreement, the term "DOCUMENTS" means (i) this Agreement; (ii) the Registration
Rights Agreement of even date herewith between the Company and Buyer, a copy of
which is annexed hereto as Exhibit D (the "REGISTRATION RIGHTS AGREEMENT");
(iii) the Certificate of Designation; (iv) the Warrants; and (v) the Escrow
Instructions.
E. VALIDITY OF ISSUANCE OF THE SECURITIES. The Preferred
Shares and the Warrants as of the Closing Date, and the Conversion Shares, the
Dividend Shares and the Warrant Shares upon their issuance in accordance with
the Certificate of Designation and the Warrants, respectively, will be validly
issued and outstanding, fully paid and nonassessable, and not subject to any
preemptive rights, rights of first refusal, tag-along rights, drag-along rights
or other similar rights.
F. NON-CONTRAVENTION. Except as set forth on Schedule III.F.,
the execution and delivery by the Company of the Documents, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated hereby and thereby, including, without limitation, the filing of
the Certificate of Designation with the Texas Secretary of State's office, do
not, and compliance with the provisions of this Agreement and other Documents
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien (as defined in
Section III.V.) upon any of the properties or assets of the Company or any of
its Subsidiaries under, or result in the termination of, or require that any
consent be obtained or any notice be given with respect to, (i) the Articles of
Incorporation or By-Laws of the Company or the comparable charter or
organizational documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or permit applicable to the Company or any of its Subsidiaries or
their respective properties or assets, or (iii) any Law (as defined in Section
III.N.) applicable to, or any judgment, decree or order of any court or
government body having jurisdiction over, the Company or any of its Subsidiaries
or any of their respective properties or assets.
G. APPROVALS. No authorization, approval or consent of any
court or public or governmental authority is required to be obtained by the
Company for the issuance and sale of the Preferred Shares or the Warrants (or
the Conversion Shares, the Dividend Shares or Warrant Shares) to Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents as have been obtained by the Company prior to the date hereof.
H. COMMISSION FILINGS. The Company has properly and timely
filed with the Commission all reports, proxy statements, forms and other
documents required to be filed with the Commission under the Securities Act and
the Exchange Act since March, 1998 (the "COMMISSION FILINGS"). As of their
respective dates, (i) the Commission Filings complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the Commission promulgated thereunder
applicable to such Commission Filings, and (ii) none of the Commission Filings
contained at the time of its filing any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Commission Filings, as of the dates of such documents, were true and
complete in all material respects and complied with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, were prepared in accordance with generally accepted accounting
principles in the United States ("GAAP") (except in the case of unaudited
statements permitted by Form 10-Q under the Exchange Act) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented the consolidated financial position of the
Company and its Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments that
in the aggregate are not material and to any other adjustment described
therein).
I. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date
(as defined in Section III.M.), there has not occurred any change, event or
development in the business, financial condition, prospects or results of
operations of the Company and the Subsidiaries, there has not existed any
condition having or reasonably likely to have a Material Adverse Effect, and the
Company and the Subsidiaries have conducted their respective businesses only in
the ordinary course.
J. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic or industry conditions known to the public
generally) that has not been fully disclosed in writing to Buyer that (i)
reasonably could be expected to have a Material Adverse Effect or (ii)
reasonably could be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to the Documents.
K. ABSENCE OF LITIGATION. Except as set forth on Schedule
III.K., there are (i) no material suits, actions or proceedings pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries, (ii) no material complaints, lawsuits, charges or other
proceedings pending or, to the knowledge of the Company, threatened in any forum
by or on behalf of any present or former employee of the Company or any of its
Subsidiaries, any applicant for employment or classes of the foregoing alleging
breach of any express or implied contract of employment, any applicable law
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment relationship, and
(iii) no material judgments, decrees, injunctions or orders of any court or
other governmental entity or arbitrator outstanding against the Company or any
Subsidiary.
L. ABSENCE OF EVENTS OF DEFAULT.
1. No event of default under the Revolving Line of
Credit Agreement between the Company and Bank One, Texas, N.A. ("CREDIT
AGREEMENT EVENT OF DEFAULT") and no event which, with notice, lapse of
time or both, would constitute a Credit Agreement Event of Default, has
occurred and is continuing.
2. Except as set forth in Schedule III.L.2., no
"EVENT OF DEFAULT" (as defined in any agreement or instrument to which
the Company is a party) and no event which, with notice, lapse of time
or both, would constitute an Event of Default (as so defined), has
occurred and is continuing, except for those, individually or in the
aggregate, which are not reasonably likely to result in a Material
Adverse Effect.
M. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The
Company has delivered to Buyer true and complete copies of the (i) audited
balance sheet of the Company and the Subsidiaries as at June 30, 1999, 1998 and
1997, respectively, and the related audited statements of income, changes in
stockholders' equity and cash flows for the three fiscal years ended June 30,
1999, 1998 and 1997 including the related notes and schedules thereto and (ii)
unaudited balance sheets of the Company and the Subsidiaries and the statements
of income, changes in stockholders' equity and cash flows as at the end of and
for each fiscal quarter ended since June 30, 1999 including the related notes
and schedules thereto, all certified by the chief financial
officer of the Company (collectively, the "FINANCIAL STATEMENTS"), and all
management letters, if any, from the Company's independent auditors relating to
the dates and periods covered by the Financial Statements. Each of the Financial
Statements is complete and correct in all material respects, has been prepared
in accordance with GAAP (subject, in the case of the interim Financial
Statements, to normal year end adjustments and the absence of footnotes), and
fairly presents the financial position, results of operations and cash flows of
the Company as at the dates and for the periods indicated. For purposes hereof,
the audited balance sheet of the Company as at June 30, 1999 is hereinafter
referred to as the "BALANCE SHEET" and June 30, 1999 is hereinafter referred to
as the "BALANCE SHEET DATE". The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due), which is not fully reflected in, reserved against
or otherwise described in the Balance Sheet or the notes thereto or incurred in
the ordinary course of business consistent with the Company's past practices
since the Balance Sheet Date.
N. COMPLIANCE WITH LAWS; PERMITS. Each of the Company and its
Subsidiaries is in compliance with all material laws, rules, regulations, codes,
ordinances and statutes (collectively, "LAWS") applicable to IT or to the
conduct of its business. The Company possesses all material permits, approvals,
authorizations, licenses, certificates and consents from all public and
governmental authorities which are necessary to conduct its business.
O. RELATED PARTY TRANSACTIONS. Except as set forth on Schedule
III.O. hereto, neither the Company nor any of its officers, directors or
"AFFILIATES" (as such term is defined in Rule 12b-2 under the Exchange Act) nor
any family member of any officer, director or Affiliate of the Company has
borrowed any moneys from or has outstanding any indebtedness or other similar
obligations to the Company or any of the Subsidiaries. Except as set forth on
Schedule III.O. hereto, neither the Company nor any of its officers, directors
or Affiliates nor any family member of any officer, director or Affiliate of the
Company (i) owns any direct or indirect interest constituting more than a 1%
equity (or similar profit participation) interest in, or controls or is a
director, officer, partner, member or employee of, or consultant or lender to or
borrower from, or has the right to participate in the profits of, any person or
entity which is (x) a competitor, supplier, customer, landlord, tenant, creditor
or debtor of the Company or any Subsidiary, (y) engaged in a business related to
the business of the Company or any Subsidiary, or (z) a participant in any
transaction to which the Company or any Subsidiary is a party or (ii) is a party
to any contract, agreement, commitment or other arrangement with the Company or
any Subsidiary.
P. INSURANCE. Each of the Company and the Subsidiaries
maintains property and casualty, general liability, workers' compensation,
environmental hazard, personal injury and other similar types of insurance with
financially sound and reputable insurers that is consistent with industry
standards and the Company's historical claims experience. None of the Company or
the Subsidiaries has received notice from, and none of them has knowledge of any
threat by, any insurer (that has issued any insurance policy to the Company or
any Subsidiary) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Q. SECURITIES LAW MATTERS. Assuming the accuracy of the
representations and warranties of Buyer set forth in Article II hereof, the
offer and sale by the Company of the Securities is exempt from (i) the
registration and prospectus delivery requirements of the Securities Act and the
rules and regulations of the Commission thereunder and (ii) the registration
and/or qualification provisions of all applicable state securities and "blue
sky" laws. Other than pursuant to an effective registration statement under the
Securities Act, the Company has not issued, offered or sold the Preferred Shares
or any shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Preferred Shares or Common Stock, or any
securities convertible into or exchangeable or exercisable for the Preferred
Shares or Common Stock or any such other securities) within the one-year period
next preceding the date hereof, except as disclosed on Schedule III.Q. hereto,
and the Company shall not directly or indirectly take, and shall not permit any
of its directors, officers or Affiliates directly or indirectly to take, any
action (including, without limitation, any offering or sale to any person or
entity of the Preferred Shares or shares of Common Stock) which will make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Buyer of the Preferred Shares and the
Warrants (and the Conversion Shares, the Dividend Shares and the Warrant Shares)
as contemplated by this Agreement. No form of general solicitation or
advertising has been used or authorized by the Company or any of its officers,
directors or Affiliates in connection with the offer or sale of the Preferred
Shares and the Warrants (and the Conversion Shares, the Dividend Shares and the
Warrant Shares) as contemplated by this Agreement or any other agreement to
which the Company is a party.
R. ENVIRONMENTAL MATTERS.
Except as set forth on Schedule III.R. hereto:
1. The Company, the Subsidiaries and their respective
operations are in compliance with all applicable Environmental Laws and
all permits (including terms, conditions, and limitations therein)
issued pursuant to Environmental Laws or otherwise;
2. Each of the Company and the Subsidiaries has all
permits, licenses, waivers, exceptions, and exemptions required under
all applicable Environmental Laws necessary to operate its business;
3. None of the Company or the Subsidiaries is the
subject of any outstanding written order of or agreement with any
governmental authority or person respecting (i) Environmental Laws or
permits, (ii) Remedial Action or (iii) any Release or threatened
Release of Hazardous Materials;
4. None of the Company or the Subsidiaries has
received any written communication alleging that it may be in violation
of any Environmental Law or any permit issued pursuant to any
Environmental Law, or may have any liability under any Environmental
Law;
5. None of the Company or the Subsidiaries has any
liability, contingent or
otherwise, in connection with any presence, treatment, storage,
disposal or Release of any Hazardous Materials whether on property
owned or operated by the Company or any Subsidiary or property of third
parties, and none of the Company or the Subsidiaries has transported,
or arranged for transportation of, any Hazardous Materials for
treatment or disposal on any property;
6. There are no investigations of the business,
operations, or currently or previously owned, operated or leased
property of the Company or any Subsidiary pending or threatened which
could lead to the imposition of any case or liability pursuant to any
Environmental Law;
7. There is not located at any of the properties
owned or operated by the Company or any Subsidiary any (A) underground
storage tanks, (B) asbestos-containing material or (C) equipment
containing polychlorinated biphenyls;
8. Each of the Company and the Subsidiaries has
provided to Buyer all environmentally related assessments, audits,
studies, reports, analyses, and results of investigations that have
been performed with respect to the currently or previously owned,
leased or operated properties or activities of the Company and such
Subsidiaries;
9. There are no liens arising under or pursuant to
any Environmental Law on any real property owned, operated, or leased
by the Company or any Subsidiary, and no action of any governmental
authority has been taken or, to the knowledge of the Company, is in
process of being taken which could subject any of such properties to
such liens, and none of the Company or the Subsidiaries has been or is
expected to be required to place any notice or restriction relating to
the presence of Hazardous Material at any real property owned,
operated, or leased by it in any deed to such property;
10. Neither the Company nor any of the Subsidiaries
owns, operates, or leases any hazardous waste generation, treatment,
storage, or disposal facility, as such terms are used pursuant to the
RCRA and related or analogous state, local, or foreign law. None of the
properties owned, operated, or leased by the Company, any of the
Subsidiaries or any predecessor thereof are now, or were in the past,
used in any part as a dump, landfill, or disposal site, and neither the
Company, any of the Subsidiaries nor any predecessor of any of them has
filled any wetlands;
11. The purchase that is the subject of this
Agreement will not require any governmental approvals under
Environmental Laws, including those that are triggered by sales or
transfers of businesses or real property, including, as examples and
without limitation, the New Jersey Industrial Site Recovery Act, N.J.
Stat. 13:1K-7 ET SEQ., and the Connecticut Transfer of Establishments
Act, Conn. Gen. Stat. Section 22a-134 ET SEQ.;
12. There is no currently existing requirement or
requirement to be imposed in the future by any Environmental Law or
Environmental Permit which could result in the incurrence of a cost
that could be reasonably expected to have a Material Adverse Effect;
and
13. Each of the Company and each of the Subsidiaries
has disclosed to Buyer all other acts or conditions that could result
in any costs or liabilities under Environmental Laws.
For purposes of this Section III.R.:
"ENVIRONMENTAL LAW" means any foreign, federal, state or local
statute, regulation, ordinance, or common law as now or hereafter in effect in
any way relating to the protection of human health, safety or welfare or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act ("RCRA"), the Clean Water Act,
the Clean Air Act, the Toxic Substances Control Act, the Federal Insecticide,
Fungicide, and Rodenticide Act and the Occupational Safety and Health Act, and
the regulations promulgated pursuant to any of them;
"HAZARDOUS MATERIAL" means any substance that is listed,
classified or regulated pursuant to any Environmental Law, including petroleum,
gasoline, and any other petroleum product, by-product, fraction or derivative,
asbestos or asbestos-containing material, lead-containing paint, water, or
plumbing, polychlorinated biphenyls, radioactive materials and radon;
"RELEASE" means any placement, release, spill, filtration,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
migration, or leaching to, through, or under the indoor or outdoor environment,
or into, through, under, or out of any property; and
"REMEDIAL ACTION" means any action to (x) clean up, remove,
remediate, treat or in any other way address any Hazardous Material; (y) prevent
or contain the Release of any Hazardous Material; or (z) perform studies and
investigations or post-remedial monitoring and care in relation to (x) or (y)
above.
S. LABOR MATTERS. Except as set forth in Schedule III.S.,
neither the Company nor any of the Subsidiaries is party to any labor or
collective bargaining agreement, and there are no labor or collective bargaining
agreements which pertain to any employees of the Company or any Subsidiary. No
employees of the Company or any of the Subsidiaries are represented by any labor
organization and none of such employees has made a pending demand for
recognition, and there are no representation proceedings or petitions seeking a
representation proceeding presently pending or, to the Company's knowledge,
threatened to be brought or filed, with the National Labor Relations Board or
other labor relations tribunal. There is no organizing activity involving the
Company or any Subsidiary pending or to the Company's knowledge, threatened by
any labor organization or group of employees of the Company or any of the
Subsidiaries. There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (ii) material grievances or other labor disputes pending or, to
the knowledge of the Company, threatened against or involving the Company or any
of the Subsidiaries. There are no unfair labor practice charges, grievances or
complaints pending or, to the knowledge of the Company, threatened by or on
behalf of any employee or group of employees of the Company or any of the
Subsidiaries.
T. ERISA MATTERS. All Plans maintained by the Company or any
of its Subsidiaries and ERISA Affiliates are listed in Schedule III.T. and
copies of all documentation relating to such Plans (including, but not limited
to, copies of written Plans, written descriptions of oral Plans, summary plan
descriptions, trust agreements, the three most recent annual returns, employee
communications and IRS determination letters) have been delivered to or made
available for review by the Buyer. Each Plan has at all times been maintained
and administered in all material respects in accordance with its terms and the
requirements of applicable law, including ERISA and the Code, and each Plan
intended to qualify under section 401(a) of the Code has at all times since its
adoption been so qualified, and each trust which forms a part of any such plan
has at all times since its adoption been tax-exempt under section 501(a) of the
Code. The Company and each of its Subsidiaries and ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. No Reportable Event has occurred, been waived or exists as to which the
Company or any of its Subsidiaries and ERISA Affiliates was required to file a
report with the PBGC, and the present value of all liabilities under each
Pension Plan (based on those assumptions used to fund such Plans) listed in
Schedule III.T. did not, as of the most recent annual valuation date applicable
thereto, exceed the value of the assets of such Pension Plan. None of the
Company, its Subsidiaries and ERISA Affiliates has incurred, or reasonably
expects to incur, any Withdrawal Liability with respect to any Multi-employer
Plan that could result in a Material Adverse Effect. None of the Company, its
Subsidiaries and ERISA Affiliates has received any notification that any
Multi-employer Plan is in reorganization or has been terminated within the
meaning of Title IV of ERISA, and no Multi-employer Plan is reasonably expected
to be in reorganization or termination where such reorganization or termination
has resulted or could reasonably be expected to result in increases to the
contributions required to be made to such Plan or otherwise. No direct,
contingent or secondary liability has been incurred or is expected to be
incurred by the Company or any of its Subsidiaries under Title IV of ERISA to
any party with respect to any Plan, or with respect to any other Plan presently
or heretofore maintained or contributed to by any ERISA Affiliate. Neither the
Company nor any of its Subsidiaries and ERISA Affiliates has incurred any
liability for any tax imposed under sections 4971 through 4980B of the Code or
civil liability under section 502(i) or (l) of ERISA. No suit, action or other
litigation or any other claim which could reasonably be expected to result in a
material liability or expense to the Company or any of its Subsidiaries or ERISA
Affiliates (excluding claims for benefits incurred in the ordinary course of
plan activities) has been brought or, to the knowledge of the Company,
threatened against or with respect to any Plan and there are no facts or
circumstances known to the Company or any of its Subsidiaries or ERISA
Affiliates that could reasonably be expected to give rise to any such suit,
action or other litigation. All contributions to Plans that were required to be
made under such Plans have been made, and all benefits accrued under any
unfunded Plan have been paid, accrued or otherwise adequately reserved in
accordance with GAAP, all of which accruals under unfunded Plans are as
disclosed in Schedule III.T., and the Company, its Subsidiaries and ERISA
Affiliates have each performed all material obligations required to be performed
under all Plans. The execution, delivery and performance of this Agreement and
the other Documents and the consummation of the transactions contemplated hereby
and thereby (including, without limitation, the offer, issue and sale by the
Company, and the purchase by the Buyer, of the Preferred Shares, the Conversion
Shares, the Warrants, the Warrant Shares and Dividend Shares)
will not involve any "prohibited transaction" within the meaning of ERISA or the
Code with respect to any Plan.
As used in this Agreement:
"CODE" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of
1974, or any successor statute, together with the regulations thereunder, as the
same may be amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under section
414 of the Code.
"MULTI-EMPLOYER PLAN" means a multi-employer plan as defined
in section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate
(other than one considered an ERISA Affiliate only pursuant to subsection (m) or
(o) of section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding six plan years made or accrued
an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"PENSION PLAN" means any pension plan (other than a
Multi-employer Plan) subject to the provision of Title IV of ERISA or section
412 of the Code that is maintained for employees of the Company or any of its
Subsidiaries, or any ERISA Affiliate.
"PLAN" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, or whether for the benefit of
a single individual or more than one individual including, but not limited to,
any "employee benefit plan" within the meaning of section 3(3) of ERISA,
including any Pension Plan.
"REPORTABLE EVENT" means any reportable event as defined in
section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan.
"WITHDRAWAL LIABILITY" means liability to a Multi-employer
Plan as a result of a complete or partial withdrawal from such Multi-employer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. TAX MATTERS.
1. Except as set forth in Schedule III.U., the
Company has filed all material
Tax Returns which it is required to file under applicable Laws; all
such Tax Returns are true and accurate in all material respects and
have been prepared in compliance with all applicable Laws; the Company
has paid all Taxes due and owing by it (whether or not such Taxes are
required to be shown on a Tax Return) and has withheld and paid over to
the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder,
creditor or other third parties; and since the Balance Sheet Date, the
charges, accruals and reserves for Taxes with respect to the Company
(including any provisions for deferred income taxes) reflected on the
books of the Company are adequate to cover any Tax liabilities of the
Company if its current tax year were treated as ending on the date
hereof.
2. No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that the
Company is or may be subject to taxation by such jurisdiction. There
are no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the
Company; no information related to Tax matters has been requested by
any foreign, federal, state or local taxing authority; and, except as
disclosed above, no written notice indicating an intent to open an
audit or other review has been received by the Company from any
foreign, federal, state or local taxing authority. There are no
material unresolved questions or claims concerning the Company's Tax
liability. The Company (A) has not executed or entered into a closing
agreement pursuant to section 7121 of the Code or any predecessor
provision thereof or any similar provision of state, local or foreign
law; or (B) has not agreed to or is required to make any adjustments
pursuant to section 481(a) of the Code or any similar provision of
state, local or foreign law by reason of a change in accounting method
initiated by the Company or any of its subsidiaries or has any
knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods
that relate to the business or operations of the Company. The Company
has not been a United States real property holding corporation within
the meaning of section 897(c)(2) of the Code during the applicable
period specified in section 897(c)(1)(A)(ii) of the Code.
3. The Company has not made an election under section
341(f) of the Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg.
Section 1.1502-6 (or comparable provisions of state, local or foreign
law), (B) as a transferee or successor, (C) by contract or indemnity or
(D) otherwise. The Company is not a party to any tax sharing agreement.
The Company has not made any payments, is not obligated to make
payments and is not a party to an agreement that could obligate it to
make any payments that would not be deductible under section 280G of
the Code.
As used in this Agreement:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
V. PROPERTY. Except as set forth on Schedule III.V., each of
the Company and the Subsidiaries has good and valid title to all of its assets
and properties material to the conduct of its business, free and clear of any
liens, pledges, security interests, claims, encumbrances or other restrictions
of any kind (collectively, "LIENS"). With respect to any assets or properties it
leases, each of the Company and its Subsidiaries holds a valid and subsisting
leasehold interest therein, free and clear of any Liens, is in compliance, in
all material respects, with the terms of the applicable lease, and enjoys
peaceful and undisturbed possession under such lease. All of the assets and
properties of the Company and its Subsidiaries that are material to the conduct
of business as presently conducted or as proposed to be conducted by it are in
good operating condition and repair, ordinary wear and tear excepted. The
inventory of each of the Company and its Subsidiaries is in good and marketable
condition, does not include any material quantity of items which are obsolete,
damaged or slow moving, and is salable (or may be leased) in the normal course
of business as currently conducted by it.
W. INTELLECTUAL PROPERTY. The Company owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"INTANGIBLES") reasonably required for the conduct of its business as now being
conducted including, but not limited to, those described on Schedule III.W.
hereto. Except as set forth on Schedule III.W, the Company has all right, title
and interest in all of the Intangibles, free and clear of any and all Liens. To
its knowledge, the Company is not infringing upon or in conflict with any right
of any other person with respect to any Intangibles. Except as disclosed on
Schedule III.W. hereto, (i) no claims have been asserted by any individual,
partnership, corporation, unincorporated organization or association, limited
liability company, trust or other entity (collectively, a "PERSON") contesting
the validity, enforceability, use or ownership of any Intangibles, and the
Company has no knowledge of any basis for such claim, and (ii) neither the
Company nor the Subsidiaries has any knowledge of infringement or
misappropriation of the Intangibles by any third party.
X. CONTRACTS. All contracts, agreements, notes, instruments,
franchises, leases, licenses, commitments, arrangements or understandings,
written or oral (collectively,
"CONTRACTS") which are material to the business and operations of the Company
and the Subsidiaries are in full force and effect and constitute legal, valid
and binding obligations of the Company and the Subsidiaries and, to the best
knowledge of the Company, the other parties thereto; the Company and the
Subsidiaries and, to the best knowledge of the Company, each other party
thereto, have performed in all material respects all obligations required to be
performed by them under the Contracts, and no material violation or default
exists in respect thereof, nor any event that with notice or lapse of time, or
both, would constitute a default thereof, on the part of the Company and the
Subsidiaries or, to the best knowledge of the Company, any other party thereto;
none of the Contracts is currently being renegotiated; and the validity,
effectiveness and continuation of all Contracts will not be materially adversely
affected by the transactions contemplated by this Agreement.
Y. REGISTRATION RIGHTS. Except as set forth on Schedule
III.Y., no Person has, and as of the Closing (as defined in Article VII), no
Person shall have, any demand, "piggy-back" or other rights to cause the Company
to file any registration statement under the Securities Act, relating to any of
its securities or to participate in any such registration statement.
Z. DIVIDENDS. Except as set forth on Schedule III.Z., the
timely payment of dividends on the Preferred Shares as specified in the
Certificate of Designation is not prohibited by the Articles of Incorporation or
By-Laws of the Company or any agreement, Contract, document or other undertaking
to which the Company or any of the Subsidiaries is a party.
AA. INVESTMENT COMPANY ACT. Neither the Company nor any of the
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"), nor is the
Company nor any of the Subsidiaries directly or indirectly controlled by or
acting on behalf of any Person which is an "investment company" within the
meaning of the Investment Company Act.
AB. BUSINESS PLAN. Any business information of the Company
previously submitted to Buyer in any form, including the projections contained
therein, was prepared by the senior management of the Company in good faith and
is based on assumptions that the Company believed to be reasonable when
prepared. The Company is not aware of any fact or condition that could
reasonably be expected to result in the Company not achieving the results
described in such business plan.
AC. YEAR 2000 COMPLIANCE. The Company has reviewed its
products, business and operations that could be adversely affected by the risk
that computer applications used by the Company and the Subsidiaries may be
unable to recognize, and properly perform date-sensitive functions involving,
dates prior to and after December 31, 1999 (the "YEAR 2000 PROBLEM"). The
Company believes its internal information and business systems will be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000. In addition, the Company has surveyed those vendors, suppliers and
other third parties (collectively, the "OUTSIDE PARTIES") with which the Company
or any of the Subsidiaries do business and whose failure to adequately address
the Year 2000 Problem could reasonably be expected to adversely affect the
business and operations of the Company or any of the Subsidiaries. Based upon
the
aforementioned internal review and surveys of the Outside Parties as of the date
of this Agreement, the Year 2000 Problem has not resulted in, and is not
reasonably expected to have, a Material Adverse Effect.
AD. INTERNAL CONTROLS AND PROCEDURES. The Company maintains
accurate books and records and internal accounting controls that provide
reasonable assurance that (i) all transactions to which the Company or each of
the Subsidiaries is a party or by which its properties are bound are executed
with management's authorization; (ii) the reported accountability of the
Company's and the Subsidiaries' assets is compared with existing assets at
regular intervals; (iii) access to the Company's and the Subsidiaries' assets is
permitted only in accordance with management's authorization; and (iv) all
transactions to which any of the Company and the Subsidiaries is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with GAAP.
AE. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any of
its Subsidiaries nor any of their respective directors, officers or, to their
respective knowledge, other employees has (i) used any company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or indirect
unlawful payment of company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with
respect to Company matters.
AF. NO MISREPRESENTATION. No representation or warranty of the
Company contained in this Agreement or any of the other Documents, any schedule,
annex or exhibit hereto or thereto or any agreement, instrument or certificate
furnished by the Company to Buyer pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
AG. FINDER'S FEE. There is no finder's fee, brokerage
commission or like payment in connection with the transactions contemplated by
this Agreement for which Buyer is liable or responsible.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
A. RESTRICTIVE LEGEND. Buyer acknowledges and agrees that,
upon issuance pursuant to this Agreement, the Securities (including any
Dividends Shares, Conversion Shares or the Warrant Shares) shall have endorsed
thereon a legend in substantially the following form (and a stop-transfer order
may be placed against transfer of the Preferred Shares, the Warrant Shares and
the Conversion Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
SUCH OTHER LAWS."
B. FILINGS. The Company shall make all necessary Commission
Filings and "blue sky" filings required to be made by the Company in connection
with the sale of the Securities to Buyer as required by all applicable Laws, and
shall provide a copy thereof to Buyer promptly after such filing.
C. REPORTING STATUS. So long as Buyer beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Securities (net of amounts paid by the Company for Buyer's
out-of-pocket costs and expenses, whether or not accounted for or incurred in
connection with the transactions contemplated by this Agreement (including the
fees and disbursements of Buyer's legal counsel), and finder's fees in
connection with such sale) solely for general corporate and working capital
purposes.
E. LISTING. Except to the extent the Company lists its Common
Stock on The New York Stock Exchange or The Nasdaq National Market, the Company
shall use its best efforts to maintain its listing of the Common Stock on
Nasdaq. If the Common Stock is delisted from Nasdaq, the Company will use its
best efforts to list the Common Stock on the most liquid national securities
exchange or quotation system that the Common Stock is qualified to be listed on.
F. RESERVED CONVERSION SHARES. The Company at all times from
and after the date hereof shall have such number of shares of Common Stock duly
and validly authorized and reserved for issuance as shall be sufficient for the
conversion in full of, and the payment of dividends on, the Preferred Shares and
the exercise in full of the Warrants.
G. RIGHT OF FIRST REFUSAL. If, during the period commencing on
the date hereof and ending three years after the Closing Date (the "RIGHT OF
FIRST REFUSAL PERIOD"), the Company should propose (the "PROPOSAL") to issue
Common Stock or securities convertible into Common Stock at a price less than
the Current Market Price (as defined in the Certificate of Designation), or debt
at less than par value or having an effective annual interest rate in excess of
9.9% (each a "RIGHT OF FIRST REFUSAL SECURITY" and collectively, the "RIGHT OF
FIRST REFUSAL SECURITIES"), in each case on the date of issuance the Company
shall be obligated to offer such Right of First Refusal Securities to Buyer on
the terms set forth in the Proposal (the "OFFER") and Buyer shall have the
right, but not the obligation, to accept such Offer on such terms. The Company
shall provide written notice to Buyer of any Proposal, setting forth in full the
terms and conditions thereof, and Buyer shall then have 10 business days to
accept or reject the Offer in writing. If the Company issues any Right of First
Refusal Securities during the Right of First Refusal Period
but fails to: (i) notify Buyer of the Proposal, (ii) offer Buyer the opportunity
to complete the transaction as set forth in the Proposal, or (iii) enter into
and consummate an agreement to issue such Right of First Refusal Securities to
Buyer on the terms and conditions set forth in the Proposal, after Buyer has
accepted the Offer, then the Company shall pay to Buyer, as liquidated damages,
an amount equal to 10% of the amount paid to the Company for the Right of First
Refusal Securities. The foregoing Right of First Refusal is and shall be senior
in right to any other right of first refusal issued by the Company to any other
Person.
H. INFORMATION. Each of the parties hereto acknowledges and
agrees that, after the date hereof, Buyer shall not be provided with, nor be
given access to, any material non-public information relating to the Company or
any of the Subsidiaries.
I. EXEMPTION FROM INVESTMENT COMPANY ACT. The Company shall
conduct its business, and shall cause the Subsidiaries to conduct their
businesses, in such a manner that neither the Company nor any Subsidiary shall
become an "investment company" within the meaning of the Investment Company Act.
J. ACCOUNTING AND RESERVES. The Company shall maintain a
standard and uniform system of accounting and shall keep proper books and
records and accounts in which full, true and correct entries shall be made of
its transactions, all in accordance with GAAP applied on a consistent basis
through all periods, and shall set aside on such books for each fiscal year all
such reserves for depreciation, obsolescence, amortization, bad debts and other
purposes in connection with its operations as are required by such principles so
applied.
K. TRANSACTIONS WITH AFFILIATES. Neither the Company nor any
of its Subsidiaries shall, directly or indirectly, enter into any transaction or
agreement with any stockholder, officer, director or Affiliate of the Company or
family member of any officer, director or Affiliate of the Company, unless the
transaction or agreement is (i) annually reviewed by a majority of Disinterested
Directors (as defined below) and (ii) is reasonably believed by the Company to
be on terms no less favorable to the Company or the applicable Subsidiary than
those obtainable from a non-affiliated person. A "DISINTERESTED DIRECTOR" shall
mean a director of the Company who is not and has not been an officer or
employee of the Company and who is not a member of the family of, controlled by
or under common control with, any such officer or employee.
L. ISSUANCES OF ADDITIONAL CONVERTIBLE PREFERRED SHARES OR
CONVERTIBLE DEBENTURES. So long as Buyer beneficially owns any of the Preferred
Shares, the Company shall not issue any additional convertible preferred stock
or convertible debt securities, in each case, convertible into Common Stock at a
floating conversion price, without the prior written consent of Buyer.
M. CERTAIN RESTRICTIONS. So long as any Preferred Shares are
outstanding, no dividends shall be declared or paid or set apart for payment nor
shall any other distribution be declared or made upon Junior Securities (as
defined in the Certificate of Designation), nor shall any Junior Securities be
redeemed, purchased or otherwise acquired (other than a redemption, purchase or
other acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan (including a stock option plan) of the Company or any
Subsidiary, for
any consideration by the Company, directly or indirectly, nor shall any moneys
be paid to or made available for a sinking fund for the redemption of any shares
of any such stock.
N. TRANSFER AGENT. If reasonably requested by Buyer, the
Company shall replace the then Transfer Agent for the Common Stock with a
Transfer Agent designated by Buyer.
V. TRANSFER AGENT INSTRUCTIONS
A. The Company undertakes and agrees that no instruction other
than the instructions referred to in this Article V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement shall be given to its
transfer agent for the Common Stock and that the Conversion Shares, the Dividend
Shares and the Warrant Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing
contained in this Section V.A. shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of such
Common Stock. If, at any time, Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of the resale
by Buyer of such Common Stock is not required under the Securities Act and that
the removal of restrictive legends is permitted under applicable law, the
Company shall permit the transfer of such Common Stock and promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without any restrictive legends endorsed thereon.
B. Buyer shall have the right to convert the Preferred Shares
by telecopying an executed and completed Notice of Conversion (as defined in the
Certificate of Designation) to the Company. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date (as defined in the
Certificate of Designation). The Company shall transmit the certificates
evidencing the shares of Common Stock issuable upon conversion of any Preferred
Shares (together with certificates evidencing any Preferred Shares not being so
converted) to Buyer via express courier, by electronic transfer or otherwise,
within five business days after receipt by the Company of the Notice of
Conversion (the "DELIVERY DATE"). Within 30 days after Buyer delivers the Notice
of Conversion to the Company, Buyer shall deliver to the Company a certificate
or certificates evidencing the Preferred Shares being converted.
C. Buyer shall have the right to purchase shares of Common
Stock pursuant to exercise of the Warrants in accordance with its applicable
terms of the Warrants. The last date that the Company may deliver shares of
Common Stock issuable upon any exercise of Warrants is referred to herein as the
"WARRANT DELIVERY DATE."
D. The Company understands that a delay in the issuance of the
shares of Common Stock issuable in lieu of cash dividends on the Preferred
Shares or upon the conversion of the Preferred Shares or exercise of the
Warrants beyond the applicable Dividend Payment Due Date (as defined in the
Certificate of Designation), Delivery Date or Warrant Delivery Date could result
in economic loss to Buyer. As compensation to Buyer for such loss (and not as a
penalty),
the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares or upon conversion of the
Preferred Shares or exercise of the Warrants in accordance with the following
schedule (where "NO. BUSINESS DAYS" is defined as the number of business days
beyond five days from the Dividend Payment Due Date, the Delivery Date or the
Warrant Delivery Date, as applicable):
COMPENSATION FOR EACH 10 SHARES
OF PREFERRED SHARES NOT CONVERTED
TIMELY OR 500 SHARES OF COMMON
STOCK ISSUABLE IN PAYMENT OF
DIVIDENDS OR UPON EXERCISE OF
NO. BUSINESS DAYS WARRANTS NOT ISSUED TIMELY
1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each Business Day
Late beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer. In addition to any other remedies which may be
available to Buyer, in the event the Company fails for any reason to deliver
such shares of Common Stock within five business days after the relevant
Dividend Payment Due Date, Delivery Date or Warrant Delivery Date, as
applicable, Buyer shall be entitled to rescind the relevant Notice of Conversion
or exercise of Warrants by delivering a notice to such effect to the Company
whereupon the Company and Buyer shall each be restored to their respective
original positions immediately prior to delivery of such Notice of Conversion on
delivery.
VI. DELIVERY INSTRUCTIONS
The Securities shall be delivered by the Company to the Escrow
Agent pursuant to Section I.B. hereof on a "delivery-against-payment basis" at
the Closing.
VII. CLOSING DATE
The date and time (the "CLOSING DATE") of the issuance and
sale of the Preferred Shares and the Warrants (the "CLOSING") shall be the date
hereof or such other date as shall be mutually agreed upon in writing. The
issuance and sale of the Securities shall occur on the Closing Date at the
offices of the Escrow Agent. Notwithstanding anything to the contrary
contained herein, the Escrow Agent shall not be authorized to release to the
Company the Purchase Price or to Buyer the certificate(s) (I/N/O Buyer or I/N/O
Buyer's nominee) evidencing the Securities being purchased by Buyer unless the
conditions set forth in Sections VIII.C. and IX.H. hereof have been satisfied.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS
Buyer understands that the Company's obligation to sell the
Securities on the Closing Date to Buyer pursuant to this Agreement is
conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Purchase
Price;
B. The accuracy on the Closing Date of the representations and
warranties of Buyer contained in this Agreement as if made on the Closing Date
(except for representations and warranties which, by their express terms, speak
as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by Buyer in all material
respects on or before the Closing Date of all covenants and agreements of Buyer
required to be performed by it pursuant to this Agreement on or before the
Closing Date; and
C. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement.
IX. CONDITIONS TO BUYER'S OBLIGATIONS
The Company understands that Buyer's obligation to purchase
the Securities on the Closing Date pursuant to this Agreement is conditioned
upon:
A. Delivery by the Company to Buyer of evidence that the
Certificate of Designation has been filed and is effective;
B. Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;
C. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date (except for representations and warranties which, by their express terms,
speak as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by the Company in all
respects on or before the Closing Date of all covenants and agreements of the
Company required to be performed by it pursuant to this Agreement on or before
the Closing Date, all of which shall be confirmed to Buyer by delivery of the
certificate of the chief executive officer of the Company to that effect;
D. Buyer having received an opinion of counsel for the
Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to Buyer as to the matters set forth in
Annex A;
E. There not having occurred (i) any general suspension of
trading in, or limitation on prices listed for, the Common Stock on Nasdaq, (ii)
the declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or any of its territories, protectorates or
possessions, or (iv) in the case of the foregoing existing at the date of this
Agreement, a material acceleration or worsening thereof;
F. There not having occurred any event or development, and
there being in existence no condition, having or which reasonably and
foreseeably could have a Material Adverse Effect;
G. The Company shall have delivered to Buyer (as provided in
the Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and
expenses, whether or not accounted for or incurred in connection with the
transactions contemplated by this Agreement (including the fees and
disbursements of Buyer's legal counsel), of $50,000;
H. There shall not be in effect any Law, order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement;
I. Delivery by the Company of irrevocable instructions to the
Company's transfer agent to reserve 2,000,000 shares of Common Stock for
issuance of the Conversion Shares and the Warrant Shares;
J. The Company shall have obtained all consents, approvals or
waivers from governmental authorities and third persons necessary for the
execution, delivery and performance of the Documents and the transactions
contemplated thereby, all without material cost to the Company; and
K. Buyer shall have received such additional documents,
certificates, payment, assignments, transfers and other delivers, as it or its
legal counsel may reasonably request and as are customary to effect a closing of
the matters herein contemplated.
L. Buyer shall have received a binding written commitment from
Xx. Xxxx Xxxxxx, in form, scope and substance satisfactory to Buyer, to
guarantee up to an additional $1,000,000 of obligations of the Company.
X. TERMINATION
A. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement may
be terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
B. TERMINATION BY THE COMPANY OR BUYER. This Agreement may be
terminated
and the transactions contemplated hereby may be abandoned by action of the
Company or Buyer if (i) the Closing shall not have occurred at or prior to 5:00
p.m., New York City time, on April 24, 2000 (the "LATEST CLOSING DATE");
PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this
Section X.B. shall not be available to any party whose failure to fulfill any of
its obligations under this Agreement has been the cause of or has resulted in
the failure of the Closing to occur at or before such time and date; PROVIDED,
FURTHER, HOWEVER, that if the Closing shall not have occurred on or prior to the
Latest Closing Date, the Closing may only occur after the Latest Closing Date
with the written consent of Buyer.
C. TERMINATION BY BUYER. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by Buyer at any time prior
to the Closing Date, if (i) the Company shall have failed to comply with any of
its covenants or agreements contained in this Agreement, (ii) there shall have
been a breach by the Company of any representation or warranty made by it in
this Agreement, (iii) there shall have occurred any event or development, or
there shall be in existence any condition, having or reasonably likely to have a
Material Adverse Effect or (iv) the Company shall have failed to satisfy the
conditions provided in Article IX hereof.
D. TERMINATION BY THE COMPANY. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by the
Company at any time prior to the Closing Date, if (i) Buyer shall have failed to
comply with any of its covenants or agreements contained in this Agreement or
(ii) there shall have been a breach by Buyer of any representation or warranty
made by it in this Agreement.
E. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to this Article X, this Agreement shall thereafter
become void and have no effect, and no party hereto shall have any liability or
obligation to any other party hereto in respect of this Agreement, except that
the provisions of Article XI, this Section X.E and Section X.F shall survive any
such termination; PROVIDED, HOWEVER, that no party shall be released from any
liability hereunder if this Agreement is terminated and the transactions
contemplated hereby abandoned by reason of (i) willful failure of such party to
perform its obligations hereunder or (ii) any intentional, material
misrepresentation made by such party of any matter set forth herein.
F. FEES AND EXPENSES OF TERMINATION. If this Agreement is
terminated for any reason other than pursuant to Section X.D., the Company shall
promptly reimburse Buyer for all of Buyer's out-of-pocket costs and expenses
incurred in connection with the transactions contemplated by this Agreement and
the other Documents (including, without limitation, the fees and disbursements
of Buyer's legal counsel).
XI. SURVIVAL; INDEMNIFICATION
A. The representations, warranties and covenants made by each
of the Company and Buyer in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement shall survive the Closing and the
consummation of the transactions contemplated hereby. In the event of a breach
or violation of any of such representations, warranties or covenants, the party
to
whom such representations, warranties or covenants have been made shall have all
rights and remedies for such breach or violation available to it under the
provisions of this Agreement or otherwise, whether at law or in equity,
irrespective of any investigation made by or on behalf of such party on or prior
to the Closing Date.
B. The Company hereby agrees to indemnify and hold harmless
Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "BUYER INDEMNITEES") from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "LOSSES") and agrees to reimburse Buyer Indemnitees for all out
of-pocket expenses (including the fees and expenses of legal counsel), in each
case promptly as incurred by Buyer Indemnitees and to the extent arising out of
or in connection with:
1. any misrepresentation, omission of fact or breach
of any of the Company's representations or warranties contained in this
Agreement or the other Documents, or the annexes, schedules or exhibits
hereto or thereto or any instrument, agreement or certificate entered
into or delivered by the Company pursuant to this Agreement or the
other Documents;
2. any failure by the Company to perform in any
material respect any of its covenants, agreements, undertakings or
obligations set forth in this Agreement or the other Documents or any
instrument, certificate or agreement entered into or delivered by the
Company pursuant to this Agreement or the other Documents;
3. the purchase of the Preferred Shares and the
Warrants, the conversion of the Preferred Shares and the exercise of
the Warrants and the consummation of the transactions contemplated by
this Agreement and the other Documents, the use of any of the proceeds
of the Purchase Price by the Company, the purchase or ownership of any
or all of the Securities, the performance by the parties hereto of
their respective obligations hereunder and under the Documents or any
claim, litigation, investigation, proceedings or governmental action
relating to any of the foregoing, whether or not Buyer is a party
thereto; or
4. resales of the Common Shares by Buyer in the
manner and as contemplated by this Agreement and the Registration
Rights Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the
Company, its Affiliates and their respective officers, directors, partners and
members (collectively, the "COMPANY INDEMNITEES") from and against any and all
Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket
expenses (including the fees and expenses of legal counsel) in each case
promptly as incurred by the Company Indemnitees and to the extent arising out of
or in connection with:
1. any misrepresentation, omission of fact or breach
of any of Buyer's representations or warranties contained in this
Agreement or the other Documents, or the annexes, schedules or exhibits
hereto or thereto or any instrument, agreement or certificate entered
into or delivered by Buyer pursuant to this Agreement or the other
Documents; or
2. any failure by Buyer to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement or the other Documents or any instrument,
certificate or agreement entered into or delivered by Buyer pursuant to
this Agreement or the other Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Article XI (an "INDEMNIFIED PARTY") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "CLAIM"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Article XI is being sought (the "INDEMNIFYING PARTY") of the commencement
thereof; but the omission so to notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights or defenses by reason of such failure. In connection with any
Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
F. Notwithstanding any provisions of this Agreement to the
contrary, the representations and warranties made in or pursuant to this
Agreement by the Company will survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby for a
period of eighteen (18) months after the Closing Date and the right to
indemnification with respect thereto shall expire on such date (unless there is
a claim pending on such date, in which case the indemnification obligations
hereunder shall continue until final resolution of such claim). The Company
shall have no indemnification obligations hereunder with respect to breaches of
representations, warranties, or covenants unless and until the Losses incurred
by the Buyer Indemnitees exceeds $50,000; provided that Buyer Indemnitees shall
then be entitled to indemnification only to the extent the Losses exceed
$50,000. The maximum amount of Losses for which Buyer Indemnitees shall be
entitled to indemnification hereunder shall be an amount equal to $5,000,000.
XII. GOVERNING LAW
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to the
conflicts of law principles of such state.
XIII. SUBMISSION TO JURISDICTION
Each of the parties hereto consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
the other Documents. Each party hereto hereby irrevocably and unconditionally
waives, to the fullest extent it may effectively do so, any defense of an
inconvenient forum or improper venue to the maintenance of such action or
proceeding in any such court and any right of jurisdiction on account of its
place of residence or domicile. Each party hereto irrevocably and
unconditionally consents to the service of any and all process in any such
action or proceeding in such courts by the mailing of copies of such process by
certified or registered airmail at its address specified in Article XIX. Each
party hereto agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.
XIV. WAIVER OF JURY TRIAL
TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES
HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN
THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH
PARTY HERETO (i) CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES,
AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND
(ii) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
XV. COUNTERPARTS; EXECUTION
This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which when
so executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument. A facsimile transmission of
this signed Agreement shall be legal and binding on all parties hereto.
XVI. HEADINGS
The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
XVII. SEVERABILITY
In the event any one or more of the provisions contained in
this Agreement or in the other Documents should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
XVIII. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS
This Agreement and the Documents constitute the entire
agreement among the parties pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by all parties. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
XIX. NOTICES
Except as may be otherwise provided herein, any notice or
other communication
or delivery required or permitted hereunder shall be in writing and shall be
delivered personally or sent by certified mail, postage prepaid, or by a
nationally recognized overnight courier service, and shall be deemed given when
so delivered personally or by overnight courier service, or, if mailed, three
(3) days after the date of deposit in the United States mails, as follows:
A. if to the Company, to:
Precept Business Services, Inc.
0000 Xxxxxxx Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attention: President
(000) 000-0000
(000) 000-0000 (Fax)
with a copy to:
Precept Business Services, Inc.
0000 Xxxxxxx Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attention: General Counsel
(000) 000-0000
(000) 000-0000 (Fax)
B. if to Buyer, to:
The Shaar Fund Ltd.
c/x Xxxxxxxx Capital Management
0 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxxxx
(000) 000-0000
(000) 000-0000 (Fax)
with a copy to:
Cadwalader, Xxxxxxxxxx & Xxxx
000 Xxxxxx Xxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Block, Esq.
(000) 000-0000
(000) 000-0000 (Fax)
C. if to the Escrow Agent, to:
Cadwalader, Xxxxxxxxxx & Xxxx
000 Xxxxxx Xxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Block, Esq.
(000) 000-0000
(000) 000-0000 (Fax)
The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Article XIX.
XX. CONFIDENTIALITY
Each of the Company and Buyer agrees to keep confidential and
not to disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; PROVIDED, HOWEVER, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
XXI. ASSIGNMENT
This Agreement shall not be assignable by either of the
parties hereto prior to the Closing without the prior written consent of the
other party, and any attempted assignment contrary to the provisions hereby
shall be null and void; PROVIDED, HOWEVER, that Buyer may assign its rights and
obligations hereunder, in whole or in part, to any Affiliate of Buyer.
[SIGNATURE PAGE FOLLOWS.]
In Witness Whereof, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
Precept Business Services, Inc.
By:
Name:
Title:
The Shaar Fund Ltd.
By: Intercaribbean Services
By:
Name:
Title:
EXHIBIT A
COMMON STOCK PURCHASE WARRANTS
EXHIBIT B
CERTIFICATE OF DESIGNATION
EXHIBIT C
ESCROW INSTRUCTIONS
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
SCHEDULE III.A.1.
EXERCISE PRICES OF OPTIONS AND WARRANTS
SCHEDULE III.A.3.
PREEMPTIVE, SUBSCRIPTION, "CALL," RIGHT OF FIRST REFUSAL OR SIMILAR RIGHTS
SCHEDULE III.A.4.
SUBSIDIARIES
SCHEDULE III.A.5.
MINUTES
SCHEDULE III.C.
ISSUANCES AND SALES OF SECURITIES
SCHEDULE III.F.
CONTRAVENTION
SCHEDULE III.K.
LITIGATION
SCHEDULE III.L.2.
EVENTS OF DEFAULT
SCHEDULE III.O.
RELATED PARTY TRANSACTIONS
SCHEDULE III.Q.
SECURITIES LAW MATTERS
SCHEDULE III.R.
ENVIRONMENTAL MATTERS
SCHEDULE III.S.
LABOR MATTERS
SCHEDULE III.T.
ERISA MATTERS
SCHEDULE III.U.
TAX MATTERS
SCHEDULE III.V.
PROPERTY
SCHEDULE III.W.
INTELLECTUAL PROPERTY
SCHEDULE III.Y.
REGISTRATION RIGHTS
SCHEDULE III.Z.
DIVIDENDS
ANNEX A
FORM OF OPINION (OUTSIDE COUNSEL)
1. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of Texas
and has all requisite corporate power and authority to own its properties and
conduct its business as described in the Commission Filings.
2. The authorized capital stock of the Company consists of (i)
100,000,000 shares of Class A Common Stock, par value $0.01 per share (the
"CLASS A COMMON STOCK"), (ii) 10,500,000 shares of Class B Common Stock, par
value $0.01 per share (the "CLASS B COMMON STOCK") and (iii) 3,000,000 shares of
Preferred Stock, par value $1.00 per share.
3. When delivered to you or upon your order against payment of
the agreed consideration therefor in accordance with the provisions of the
Documents, the Securities will be duly authorized and validly issued, fully paid
and nonassessable.
4. The Company has the requisite corporate power and authority
to enter into the Documents and to sell and deliver the Securities as described
in the Documents; each of the Documents has been duly and validly authorized by
all necessary corporate action by the Company; each of the Documents has been
duly and validly executed and delivered by and on behalf of the Company, and is
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other laws affecting creditors rights generally.
5. Except as set forth on the Schedules to the Securities
Purchase Agreement, the execution and delivery by the Company of the Documents,
the issuance of the Securities, and the consummation by the Company of the other
transactions contemplated thereby, including, without limitation, the filing of
the Certificate of Designation with the Texas Secretary of State's office, do
not, and compliance with the provisions of the Documents will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of the Company or
any of its Subsidiaries under, or result in the termination of, or require that
any consent be obtained or any notice be given with respect to, (i) the Articles
of Incorporation or By-Laws of the Company, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease, contract or other agreement, instrument
or permit known to us and applicable to the Company or its properties or assets,
or (iii) any Law applicable to, or, to the best of our knowledge, any judgment,
decree or order of any court or government body having jurisdiction over, the
Company or any of its Subsidiaries or any of their respective properties or
assets. Except as set forth in the Securities Purchase Agreement, to our
knowledge, no consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its properties or assets is required for the execution, delivery and
performance by the Company of the Documents or the consummation by the Company
of the transactions contemplated thereby.
6. When issued, the Preferred Shares and the Warrants shall be
free and clear of all encumbrances and restrictions, except for restrictions on
transfer imposed by applicable securities laws or those created by, through, or
under Buyer. The Conversion Shares and Warrant Shares issuable upon conversion
or exercise, respectively, of the Preferred Shares and the Warrants,
respectively, will be free and clear of all encumbrances and restrictions,
except for restrictions on transfer imposed by applicable securities laws or
those created by, through, or under Buyer.
7. Based on Buyer's representations contained in this
Agreement, the offer and sale of the Preferred Shares and the Warrants are
exempt from the registration requirements of the Securities Act.
8. To our knowledge, there is no action, suit, claim, inquiry
or investigation pending or threatened by or before any court or public or
governmental authority which, if determined adversely to the Company, would have
a Material Adverse Effect.
9. The Company is not, and, after the consummation of the
transactions contemplated by this Agreement and the other Documents and the use
of the proceeds from the sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended.
FORM OF OPINION (INSIDE COUNSEL)
1. The Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where the Company owns
or leases properties or conducts business, except for jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect.
2. Except as set forth on the Schedules to the Securities
Purchase Agreement, the execution and delivery by the Company of the Documents,
the issuance of the Securities, and the consummation by the Company of the other
transactions contemplated thereby, including, without limitation, the filing of
the Certificate of Designation with the Texas Secretary of State's office, do
not, and compliance with the provisions of the Documents will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of the Company or
any of its Subsidiaries under, or result in the termination of, or require that
any consent be obtained or any notice be given with respect to, (i) the Articles
of Incorporation or By-Laws or the comparable charter or organizational
documents of any Subsidiary of the Company or (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease, contract or other agreement, instrument
or permit known to us and applicable to any Subsidiary of the Company or its
properties or assets.
3. To the best of our knowledge, other than as described in
the Commission Filings, there are no outstanding options, warrants or other
securities exercisable or convertible into Common Stock of the Company.
4. Each Subsidiary of the Company is not and, after the
consummation of the transactions contemplated by this Agreement and the other
Documents and the use of the proceeds from the sale of the Securities, will not
be an "investment company" or an entity "controlled" by an "investment company,"
as such terms are defined in the Investment Company Act of 1940, as amended.
