EXHIBIT 99.1
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
October 12, 2000, by and among Interworld Corporation, a Delaware
corporation, with headquarters located at 000 Xxxxxx Xxxxxx, 0xx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000 (the "Company") and Jackpot
Enterprises Inc., a Nevada corporation, with headquarters located at
000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Investor").
WHEREAS:
A. The Company and Investor are executing and delivering
this Agreement in reliance upon Section 4(2) under the Securities
Act of 1933, as amended (the "1933 Act");
B. The Company has authorized a new series of preferred
stock, designated as Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), having the rights, preferences and
privileges set forth in the Certificate of Designations, Rights and
Preferences attached hereto as Exhibit A (the "Certificate of
Designation");
C. The Preferred Shares (as defined below) are convertible
into shares of common stock, $.01 par value per share, of the
Company (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in the Certificate of
Designation;
D. The Company has authorized the issuance to Investor of
that number of warrants, in the form attached hereto as Exhibit B,
to purchase shares of Common Stock to equal 19.9% of the outstanding
shares of Common Stock less the amount of shares issuable upon the
Series A Preferred Stock (the "Warrants").
E. Investor desires to purchase and the Company desires to
issue and sell, upon the terms and conditions set forth in this
Agreement, (i) an aggregate of 3,200,000 shares of Series A
Preferred Stock (together with any shares of Series A Preferred
Stock issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof,
the "Preferred Shares"), and (ii) the Warrants, for an aggregate
purchase price of $20,000,000; and
F. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement, in the form attached hereto as
Exhibit C (the "Registration Rights Agreement"), pursuant to which
the Company has agreed to provide certain registration rights under
the 1933 Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and Investor hereby agree as
follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
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a. Purchase of Preferred Shares and Warrants.
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On the date of each of the First Closing and the Second Closing
(each as defined below), the Company shall issue and sell to
Investor and Investor agrees to purchase from the Company the
Preferred Shares and Warrants contemplated herein.
b. Form of Payment. On date of each of the
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First Closing and the Second Closing (each as defined below), (i)
Investor shall pay the portion of the Purchase Price equal to the
aggregate face amount of the Preferred Shares and Warrants to be
issued and sold to it at each of the First Closing and the Second
Closing (each as defined below) (the "Purchase Price") by wire
transfer of immediately available funds to the Company, in
accordance with the Company's written wiring instructions, against
delivery of duly executed certificates representing the number of
Preferred Shares and Warrants which Investor is purchasing and (ii)
the Company shall deliver such certificates duly executed on behalf
of the Company, to Investor, against delivery of such Purchase
Price.
c. First and Second Closings.
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(i) The purchase and sale of the
2,384,000 Preferred Shares, with an aggregate face amount of
$14,900,000, and a proportionate number of the Warrants shall
be at 12:00 noon Eastern Standard Time on the fifteenth day
following the mailing by the Company of the requisite notice to
Nasdaq National Market ("Nasdaq") regarding the issuance of the
Preferred Shares and the Warrants or, if such day is not a
business day, the next succeeding business day (the "First
Closing") at the offices of Xxxxxxxxx Traurig, LLP 000 Xxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other location as
may be agreed to by the parties.
(ii) The purchase and sale of the
remaining 816,000 Preferred Shares, with an aggregate face
amount of $5,100,000, and a proportionate number of the
Warrants shall be at 12:00 noon Eastern Standard Time on a date
no later than five days following the date on which the
requisite waiting period under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976 and the rules and regulations
promulgated thereunder (the "HSR Act") for the purchase of such
Preferred Shares and Warrants has expired or been terminated
(the "Second Closing") at the offices of Xxxxxxxxx Traurig, LLP
000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other
location as may be agreed to by the parties.
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
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Investor represents and warrants to the Company that:
a. Investment Purpose. As of the date hereof,
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Investor is purchasing the Preferred Shares, the shares of Common
Stock issuable upon conversion of or otherwise pursuant to the
Preferred Shares (including, without limitation, such additional
shares of Common Stock as are issuable as a result of the events
described in Articles V, VI.D(b) or VI.E of the Certificate of
Designation and Section 2(c) of the Registration Rights Agreement
(such shares of Common Stock being collectively referred to herein
as the "Conversion Shares")), the Warrants and the shares of Common
Stock issuable upon exercise or otherwise pursuant to the Warrants
(the "Warrant Shares" and, collectively with the Preferred Shares,
the Conversion Shares and the Warrants, the "Securities") for its
own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or
exempted from registration under the 1933 Act.
b. Accredited Investor Status. Investor is an
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"accredited investor" as that term is defined in Rule 501(a) of
Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act
(an "Accredited Investor").
c. Reliance on Exemptions. Investor
understands
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that the Securities are being offered and sold to it in reliance upon
specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and Investor's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of Investor set forth herein in order to determine
the availability of such exemptions and the eligibility of Investor to
acquire the Securities.
d. Information. Investor and its advisors, if any,
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have been furnished with all materials relating to the business,
finances and operations of the Company and materials relating to the offer
and sale of the Securities which have been requested by Investor or its
advisors. Investor and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigation conducted by Investor or any
of its advisors or representatives shall modify, amend or affect Investor's
right to rely on the Company's representations and warranties
contained in Section 3 below. Investor understands that its investment in the
Securities involves a significant degree of risk.
e. Governmental Review. Other than compliance with
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the applicable requirements of the HSR Act, Investor understands
that no other United States federal or state agency or any other government
or governmental agency has passed upon or made any recommendation or
endorsement of the Securities.
f. Transfer or Re-sale. Investor understands that
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(i) except as provided in the Registration Rights Agreement, the
sale or re-sale of the Securities has not been and is not being registered
under the 1933 Act or any applicable state securities laws, and the
Securities may not be transferred unless (a) the Securities are sold pursuant
to an effective registration statement under the 1933 Act, (b) Investor
shall have delivered to the Company an opinion of counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration, (c) the Securities are sold or transferred to an
"affiliate" (as defined in Rule 144 promulgated under the 1933 Act
(or a successor rule) ("Rule 144")) of Investor who agrees to sell or
otherwise transfer the Securities only in accordance with this Section 2(f)
and who is an Accredited Investor or (d) the Securities are sold pursuant to
Rule 144; (ii) any sale of such Securities made in reliance on Rule 144
may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any re-sale of such Securities under
circumstances in which the seller (or the person through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in
the 0000 Xxx) may require compliance with some other exemption under the
1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder (in each
case, other than pursuant to the Registration Rights Agreement).
Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection
with a bona fide margin account or other lending arrangement.
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g. Legends. Investor understands that the Preferred
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Shares and Warrants and, until such time as the Conversion Shares
and Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, the Conversion
Shares and Warrant Shares may bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against
transfer of the certificates for such Securities):
"The securities represented by this certificate
have not been registered under the Securities Act
The securities may not be sold, transferred or
assigned in the absence of an effective
registration statement for the securities under said
Act, or an opinion of counsel, in form, substance and
scope customary for opinions of counsel in comparable
transactions, that registration is not required under
said Act or unless sold pursuant to Rule 144 under said
Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any
Security upon which it is stamped, if, unless otherwise required by
applicable state securities laws, (a) such Security is registered
for sale under an effective registration statement filed under the 1933
Actor otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be
immediately sold, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale
or transfer of such Security may be made without registration under the
1933 Act and such sale or transfer is effected, or (c) such holder
provides the Company with reasonable assurances that such Security can be
sold pursuant to Rule 144. Investor agrees to sell all Securities,
including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable prospectus delivery requirements,
if any.
h. Authorization; Enforcement. This Agreement and
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the Registration Rights Agreement have been duly and validly
authorized. This Agreement has been duly executed and delivered on behalf of
Investor, and this Agreement constitutes, and upon execution and delivery
by Investor of the Registration Rights Agreement, such agreement will
constitute, valid and binding agreements of Investor enforceable in
accordance with their terms.
i. Organization, Good Standing and Qualification.
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Investor is a corporation duly organized, validly existing and in
goodstanding under the laws of the State of Nevada. Investor has all
requisite power and authority to own and operate its properties and
assets and to carry on its business as now conducted and as
presently proposed to be conducted. Investor is duly qualified and
authorized to transact business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of its activities and of its
properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so would not
have Material Adverse Effect (as defined below).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to Investor that, except as disclosed
in the SEC Documents (as defined below):
a. Organization and Qualification. The Company
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and each of its subsidiaries (as defined below), if any, is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated, with full power and
authority (corporate and other) to own, lease, mortgage, pledge or
otherwise encumber, use and operate its properties and to carry on
its business as and where now owned, leased, used, operated and
conducted. Schedule 3(a) sets forth a list of all of the Subsidiaries of the
Company and the jurisdiction in which each is incorporated. The Company and
each of its Subsidiaries is duly qualified as a foreign corporation to do
business and is in goodstanding in every jurisdiction in which its
ownership or use of property or the nature of the business conducted
by it makes such qualification necessary except where the failure to be
so qualified or in good standing would not have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on (i)
the Securities, (ii) the business, operations, assets, financial
conditioners prospects of the Company and its Subsidiaries, if any, taken as a
whole, or (iii) the transactions contemplated hereby or by the agreements
or instruments to be entered into in connection herewith. "Subsidiaries"
means any corporation or other organization, whether incorporated or
unincorporated, that is actively engaged in business and represents
more than 2% of the Company's revenues in which the Company beneficially
owns a majority of the voting securities.
b. Authorization; Enforcement. (i) The Company
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as all requisite corporate power and authority to file and perform
its obligations under the Certificate of Designation and to enter into
and perform this Agreement, the Registration Rights Agreement and the
warrants and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement, the
Registration Rights Agreement and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Preferred Shares
and the Warrants and the issuance and reservation for issuance of the
Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of or otherwise pursuant to the Preferred Shares and the
Warrants) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or its stockholders is required, (iii) this Agreement has
been duly executed and delivered by the Company, and (iv) this Agreement
constitutes and, upon execution and delivery by the Company of the
Registration Rights Agreement and the Warrants and upon execution
and filing of the Certificate of Designation, each of such agreements
and instruments will constitute, a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its
terms.
c. Capitalization. As of the date hereof, the
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authorized capital stock of the Company consists of (i)
100,000,000sharesof Common Stock, of which 29,335,993 shares are
issued and outstanding, 6,708,187 shares are reserved for issuance
pursuant to the Company's stock option plans, 968,850 shares are
reserved for issuance pursuant to the Company's employee stock purchase plan,
150,158 shares are reserved for issuance pursuant to securities
(other than the Preferred Shares) exercisable for, or convertible into or
exchangeable for shares of Common Stock and20,000,000, shares are
reserved for issuance upon conversion of the preferred Shares and
exercise of the Warrants (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h)below); and (ii) 15,000,000 shares
of preferred stock, of which no shares are issued and outstanding. All
of such outstanding shares of capital stock are, or upon issuance will
be, duly authorized, validly issued, fully paid and nonassessable. No
shares of capital stock of the Company are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens
or encumbrances imposed through the actions or failure to act of the
Company. Except as disclosed in Schedule 3(c), as of the effective
date of this Agreement, (i) there are no outstanding options, warrants,
scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of
any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any
of its Subsidiaries is or may become bound to issue additional shares
of capital stock of the Company or any of its Subsidiaries, (ii) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of its or
their securities under the 1933 Act (except the Registration Rights
Agreement) and (iii)there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the
issuance of the Preferred Shares, the Conversion Shares, the
Warrants or the Warrant Shares. The Company has furnished to Investor true and
correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof ("Certificate of Incorporation"), the Company's
By-laws, as in effect on the date hereof(the "By-laws"), and the terms of
all securities convertible into or exercisable for Common Stock of the
Company and the material rights of the holders thereof in respect
thereto. The Company shall provide Investor with a written update
of this representation signed by the Company's Chief Executive or Chief
Financial Officer on behalf of the Company as of each of the First
Closing and the Second Closing.
d. Issuance of Shares. The Preferred Shares
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and the Warrants are duly authorized and, upon issuance in
accordance with the terms of this Agreement, will be validly issued, fully paid
and non-assessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof. The
Conversion Shares and the Warrant Shares are duly authorized and reserved for
issuance and, upon conversion of the preferred Shares and exercise
of the Warrants in accordance with the terms thereof, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances and will not be subject to preemptive rights or other
similar rights of stockholders of the Company and will not impose
personal liability upon the holder thereof.
e. Acknowledgment of Dilution. The Company
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understands and acknowledges the potentially dilutive effect to the
Common Stock upon the issuance of the Conversion Shares upon
conversion of or otherwise pursuant to the Preferred Shares and upon issuance
of the Warrant Shares upon exercise of or otherwise pursuant to the
Warrants. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of or otherwise pursuant to the Preferred
Shares and Warrant Shares upon exercise of or otherwise pursuant to the
Warrants in accordance with this Agreement, the Certificate of Designation
and the Warrants is absolute, subject only to the terms and conditions set
forth in this Agreement, the Warrant and the Certificate of Designation,
regardless of the dilutive effect that such issuance may have on the
ownership interests of other stockholders of the Company.
f. Series of Preferred Stock. The terms,
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designations, powers, preferences and relative, participating and
optional or special rights, and the qualifications, limitations and
restrictions of each series of preferred stock of the Company (other
than the Preferred Shares) are as stated in the Company's Certificate of
Incorporation, filed on or prior to the date hereof, and the Bylaws.
The terms, designations, powers, preferences and relative, participating
and optional or special rights, and the qualifications, limitations and
restrictions of the preferred Shares are as stated in the
Certificate of Designation.
g. No Conflicts; Governmental Consents.
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Subject to compliance with the applicable requirements of the HSR
Act and any applicable notice or shareholder approval under the rules and
regulations of the National Association of Securities Dealers, the
execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Warrants by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the filing of the Certificate of
Designation and the issuance and reservation for essences
applicable, of the Preferred Shares, Conversion Shares, Warrants and Warrant
Shares) will not (i) conflict with or result in a violation of any provision
of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become
a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and regulations of any self-regulatory organizations
to which the Company or its securities are subject) applicable to the
Company or any of its subsidiaries or by which any property or asset
of the Company or any of its Subsidiaries is bound or affected (except
for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Neither the Company nor
any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which
with notice or lapse of time or both could put the Company or any of its
Subsidiaries in default) under, and neither the Company nor any of
its Subsidiaries has taken any action or failed to take any action that
would give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the
Company or any of its subsidiaries is a party or by which any
property or assets of the Company or any of its Subsidiaries is bound or
affected, except for possible defaults as would not, individually or in the
aggregate, have Material Adverse Effect. The businesses of the
Company and its subsidiaries, if any, are not being conducted, and shall not
be conducted so long as Investor owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity. Except
as specifically contemplated by this Agreement and as required under
the 1933 Act and any applicable state securities laws, the Company is
not required to obtain any consent, approval, qualification,
authorization or order of, or registration, designation, declaration or make any
filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in
order for it to execute, deliver or perform any of its obligations under
this Agreement, the Registration Rights Agreement or the Warrants in
accordance with the terms hereof or thereof or to issue and sell the
Preferred Shares and the Warrants in accordance with the terms
hereof and to issue the Conversion Shares upon conversion of or otherwise
pursuant to the Preferred Shares and the Warrant Shares upon exercise of or
otherwise pursuant to the Warrants. Except as described in the
first sentence of this subsection (g) or as set forth in Schedule 3(g),
all consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence
have been obtained or effected on or prior to the date hereof. The
Company is not in violation of the listing requirements of the Nasdaq and does
not reasonably anticipate that the Common Stock will be delisted by the
Nasdaq in the foreseeablefuture. The Company and its Subsidiaries
are unaware of any facts or circumstances which might give rise to any
of the foregoing.
h. SEC Documents; Financial Statements. Since
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September 1, 1999, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits
to such documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents"). The Company has made
available to Investor's true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of their
respective dates, the SEC DOCUMENTS complied in all material
respects with the requirements of the 1934 Act and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC Documents, and
none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading, except to the extent such documents may have
been amended by a subsequent SEC Document. None of the statements made
in any such SEC Documents is, or has been, required to be amended or
updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior to the date hereof). As of
their respective dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles, consistently applied, during the periods
involved (except (i)as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated
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). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i)liabilities incurred in the ordinary course
of business subsequent to December 31, 1999 and (ii) obligations under
contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in
the aggregate, are not material to the financial condition or operating
results of the Company.
i. Absence of Certain Changes. Since December
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31, 1999 and except as set forth in the SEC Documents filed after
such date or as set forth on Schedule 3(i), there has not been:
(i) any material adverse change in the
assets, liabilities, financial condition or operating results of
the Company except changes in the ordinary course of business, that
have not been and are not expected to be, individually or in the
aggregate, materially adverse;
(ii) any damage, destruction or loss, whether
or not covered by insurance, materially and adversely affecting the
business, properties, or financial condition of the Company (as such
business is presently conducted and as it is proposed to be
conducted);
(iii) any waiver or compromise by the Company
of a valuable right or of a material debt owed to it;
(iv) any satisfaction or discharge of any
lien, claim, or encumbrance or payment of any obligation by the Company,
except in the ordinary course of business and that is not material
to the business, properties, or financial condition of the Company (as such
business is presently conducted and as it is proposed to be
conducted);
(v) any material change to a material contract
or arrangement by which the Company or any of its assets is bound or
subject;
(vi) any material change in any compensation
arrangement or agreement with any employee, officer, director or
holder of Common Shares, other than pursuant to the Employment Agreements;
(vii) any sale, assignment or transfer of any
material patents, trademarks, copyrights, trade secrets or other
intangible assets;
(viii) any resignation or termination of
employment of any officer or key employee of the Company; and the
Company does not know of any impending resignation or termination of
employment of any such officer or key employee;
(ix) receipt of notice that there has
been a loss of, or material order cancellation by, any major customer of
the Company;
(x) any mortgage, pledge, transfer of a
security interest in, or lien, created by the Company, with respect
to any of its material properties or assets, except liens for taxes not
yet due or payable;
(xi) any material loans or guarantees
made by the Company to or for the benefit of its employees, holders of
Common Shares, officers, or directors, or any members of their immediate
families, other than travel advances and other advances made in the
ordinary course of its business;
(xii) any declaration, setting aside, or
payment of any dividend or other distribution of the Company's
assets in respect of any of the Company's Preferred Stock or Common Stock, or
any direct or indirect redemption, purchase, or other acquisition of any
of such Preferred Stock or Common Stock by the Company;
(xiii) to the best of the Company's
knowledge, any other event or condition of any character that is reasonably
likely to materially and adversely affect the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted), excluding events
or conditions having general effect on businesses in the general
economy or the Internet industry; or
(xiv) any arrangement or commitment by the
Company to do any of the things described in this Section 3(i).
j. Absence of Litigation. There is no action, suit,
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claim, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened against or affecting the Company or any of its
Subsidiaries, or their officers or directors in their capacity as such, that
could have a Material Adverse Effect. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
k. Intellectual Property. To the best of the
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Company's knowledge, the Company or its subsidiaries owns or
possesses sufficient legal rights to all patents, patent applications,
trademarks, service marks, trade names, copyrights, trade secrets, inventions
and technology (whether or not patentable), confidential and proprietary
information, domain names, licenses, know-how, concepts, computer
programs, software, databases and other collections and compilations
of data, other technical data, proprietary rights, proprietary
processes, and other information and/or intellectual property necessary for
their businesses as now conducted and as proposed to be conducted (each
such item "Company Intellectual Property") without any conflict with or
infringement of the rights of others, and has the right to bring
actions for the infringement, dilution, misappropriation or other violation
of such Company Intellectual Property, except to the extent that any
such conflict or infringement, or the absence of any such right, would
not individually or in the aggregate, have a Material Adverse Effect.
Schedule 3(k) contains a complete list of patents, patent
applications, trademarks, service marks, trade names, copyrights and domain
names used or held for use by the Company and its Subsidiaries throughout the
world and pending applications therefor and registrations, renewals,
extensions and the like thereof, specifying as to each such item, as
applicable: (i) the owner of the item, (ii) the jurisdictions in which the item
is issued or registered or in which any application for issuance or
registration has been filed, (iii) the respective issuance, registration, or
application number of the item and (iv) the date of application and
issuance or registration of the item. Except for agreements with
their own employees or consultants regarding confidentiality and
proprietary information, and with the exception of standard end-user license
agreements, there are no outstanding options, licenses or agreements
of any kind relating to the Company Intellectual Property, nor is the
Company or any of its Subsidiaries bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
patent applications, trademarks, service marks, trade names, copyrights,
trade secrets, inventions and technology (whether or not patentable),
confidential and proprietary information, domain names, licenses,
know-how, concepts, computer programs, software, databases and other
collections and compilations of data, other technical data,
proprietary rights, proprietary processes and other information and/or
intellectual property of any other person or entity. Schedule 3(k) hereto
contains a complete and accurate list of all software owned by the Company
and/or any of its Subsidiaries as of the date hereof or at any time within
the 36-month period prior to the date hereof (the "Owned Software").
The Company and/or the applicable Subsidiaries own(s) exclusively all
right, title and interest in and to the Owned Software and any and all
enhancements, modifications, and other additions and/or improvements
of or to the Owned Software, free and clear of all liens, including
claims or rights of any joint owners or employees, agents, consultants or
other persons involved in the development, creation, marketing,
maintenance or enhancement of such computer software. All software used by the
Company and/or any of its Subsidiaries is either Owned Software or licensed
software and is not otherwise owned by any other person (except the
ownership by the named licensors of the licensed software). Neither
the Company nor any of its Subsidiaries has received any communications
alleging infringement, dilution, misappropriation, breach or other
violation of, nor does the Company or any of its Subsidiaries have
reason to believe that the Company or any of its Subsidiaries has
infringed, diluted, misappropriated, breached or otherwise violated or, by
conducting their businesses as proposed, would infringe, dilute,
misappropriate, breach or otherwise violate, any of the patents,
patent applications, trademarks, service marks, trade names, copyrights,
trade secrets, inventions and technology (whether or not patentable),
confidential and proprietary information, domain names, licenses,
know-how, concepts, computer programs, software, databases and other
collections and compilations of data, technical data, proprietary
rights, proprietary processes and other information and/or intellectual
property ("Intellectual Property") of any other person or entity; neither the
Company nor any of its Subsidiaries is aware, based on reasonable
investigation, of any reasonable basis therefor or threat thereof.
To the extent that any works of authorship, materials, products,
technology or software have been developed or created independently or jointly
by any person other than the Company or any of its Subsidiaries for
which the Company or any of its Subsidiaries has, directly or indirectly,
paid, the Company or the applicable subsidiary has a written agreement
with such person with respect thereto, and the Company or the applicable
subsidiary thereby has obtained ownership of, and is the exclusive
owner of, all Intellectual Property therein or thereto by operation of law
or by valid assignment. In each case in which either the Company or
any of its Subsidiaries has acquired any Intellectual Property from any
person, the Company or the applicable subsidiary has obtained a valid and
enforceable assignment sufficient to irrevocably transfer all rights
in such Intellectual Property (including the right to seek past and
future damages with respect thereto) to the Company or the applicable
subsidiary and, to the maximum extent provided for by, and in accordance with,
any applicable laws and regulations, the Company has recorded each such
assignment with the relevant governmental authorities, including the
U.S. Patent and Trademark Office, the U.S. Copyright Office or their
respective equivalents in any relevant foreign jurisdiction.
Neither the Company nor any of its Subsidiaries is aware that any of its
respective employees, agents, consultants or contractors is obligated under any
contract (including licenses, covenants or commitments of any
nature) or other agreement, or subject to any judgment, decree or order of any
court or administrative agency, that would interfere with the use of such
person's or entity's best efforts to promote the interests of the
Company and its Subsidiaries, or that would conflict with the Company's or
any of its Subsidiaries' business as proposed to be conducted. Neither the
Company nor any of its Subsidiaries is aware of any current or past
infringement, dilution, misappropriation, breach or other violation
by a third party of any of the Company Intellectual Property. Neither
the Company nor any of its Subsidiaries has a plan to utilize, and does
not believe it is or will be necessary to utilize, any inventions of any
of its employees (or people it currently intends to hire) made prior to
their employment or engagement by the Company or any of its
Subsidiaries. Except as set forth in Schedule 3(k), the source code for the
Owned Software has not been disclosed to any third party and none of the
source code for the Owned Software has been placed in escrow or is
otherwise not in the full and exclusive control of the Company and/or the
applicable Subsidiaries of the Company. No Intellectual Property owned or used
by the Company or any of its Subsidiaries is subject to any outstanding
decree, order, judgment, settlement agreement or stipulation that
restricts in any manner the use, transfer or licensing thereof by
the Company or any of its Subsidiaries. All of the patents, trademark
and service xxxx registrations, copyright registrations and domain name
registrations indicated in Schedule 3(k) are valid and in full
force, are held of record in the name of the Company or the applicable
subsidiary free and clear of all liens, encumbrances and other claims, are not
the subject of any cancellation or reexamination proceeding or any other
proceeding challenging their extent or validity, and all necessary
registration, maintenance and renewal fees in connection with such
patents and registrations have been paid and all necessary documents
and certificates in connection with such patents and registrations have
been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the case may be,
for the purposes of maintaining such patents and registrations. The
Company and/or the applicable subsidiary is the applicant of record in all
patent applications, and applications for trademark, service xxxx, and
copyright registration indicated in Schedule 3(k), and no
opposition, extension of time to oppose, interference, final rejection, or
final refusal to register has been received in connection with any such
application. The Company and each of its Subsidiaries has taken all
reasonable steps that are required to protect the Company's rights
in material trade secrets, know-how or other confidential or
proprietary information (including, without limitation, source code) of the
Company and any of its Subsidiaries or provided by any other person to the
Company or any applicable Subsidiary.
l. No Materially Adverse Contracts, Etc.
_____________________________________
(i) Except for agreements explicitly
contemplated by this Agreement or purchase, sale or license
agreements entered into in the ordinary course of business, there are no
agreements, understandings, instruments, contracts or proposed transactions to
which the Company or any of its subsidiaries is a party or by which it is
bound that involve (i) obligations (contingent or otherwise) of or
payments to the Company or any of its subsidiaries in excess of $250,000,
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company or any of its subsidiaries,
(iii) the grant of rights to manufacture, produce, assemble,
license, market or sell its products or services to any other person or
affect the Company's or any of its subsidiaries' exclusive right to develop,
manufacture, assemble, distribute, market or sell its products or
services, or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
(ii) Neither the Company nor any of its Subsidiaries
has incurred any indebtedness for money borrowed or incurred any other
liabilities in excess of $250,000 or sold, exchanged or otherwise
disposed of any of its assets or rights, other than the nonexclusive
license of software to end-users in the ordinary course of business.
(iii) For the purposes of Section 3(l)(i) and (ii)
above, the indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving the same
person shall be aggregated for the purpose of meeting the individual
minimum dollar amounts within such subsections.
(iv) All the material contracts, agreements and
instruments to which the Company or any of its subsidiaries is a party
are listed on Schedule 3(l) and such contracts, agreements and
instruments are valid, binding and in full force and effect in all
material respects, and are enforceable by the Company or any of its
subsidiaries in accordance with their respective terms, subject to laws
of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies. Neither the Company nor any of its
subsidiaries is in default under any material contract and, to the
knowledge of the Company, no other party to any such contract is in
default.
m. Tax Status. Except as set forth on Schedule
___________
3(m), the Company and each of its Subsidiaries has made or filed all
federal, state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to have been filed to which it
is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has paid
all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith, and
has set aside on its books provisions reasonably adequate for the payment
of all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and
the officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign,
federal, state or local tax. Except as set forth on Schedule 3(m), none
of the Company's tax returns is presently being audited by any taxing
authority.
n. Certain Transactions. Except as set forth on
_____________________
Schedule 3(n) and except for arm's length transactions in the ordinary
course of business upon terms no less favorable than the Company or any
of its Subsidiaries could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3(c), none of the officers
or directors of the Company is presently a party to any transaction with
the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director,
trustee or partner.
o. Disclosure. To the best knowledge of the
___________
Company, all information taken together relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement, the
schedules hereto and provided to Investors pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and the Company has
not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under
which they were made, not misleading. To the best knowledge of the
Company, no event or circumstance has occurred or exists with respect to
the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which has not
been publicly announced or disclosed but, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company
(assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement
filed by the Company under the 1933 Act).
p. Acknowledgment Regarding Investor's Purchase of
_______________________________________________
Securities. The Company acknowledges and agrees that Investor is acting
__________
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that Investor is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and that any
statement made by Investor or any of its respective representatives or
agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely
incidental to Investor's purchase of the Securities and has not been
publicly relied upon by the Company, its officers or its directors in any
way.
q. No Integrated Offering. Except for securities
_______________________
offered or sold pursuant to a Registration Statement on Form S-8 and a
Registration Statement filed on February 7, 2000 that was subsequently
withdrawn, neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any offers
or sales of any security or solicited any offers to buy any security
under circumstances that would require registration under the 1933 Act of
the issuance of the Securities to Investor. The issuance of the
Securities to Investor will not be integrated with any other issuance of
the Company's securities (past, current or future) for purposes of any
stockholder approval provisions applicable to the Company or its
securities.
r. No Brokers. Except as set forth in Schedule
___________
3(r), the Company has taken no action which would give rise to any claim
by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated
hereby. Copies of any such agreements or arrangements set forth on
Schedule 3(r) shall be provided to Investor.
s. Permits; Compliance. The Company and each of its
____________________
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate
its properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits"), and there is no action pending or,
to the knowledge of the Company, threatened regarding suspension or
cancellation of any of the Company Permits, except to the extent that any
such suspension or cancellation, or the absence of any Company Permits,
would not individually or in the aggregate have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is in conflict
with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in
the aggregate, would not reasonably be expected to have a Material
Adverse Effect. Since June 30, 1998, neither the Company nor any of its
Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
t. Environmental Matters.
______________________
(i) Except as set forth in Schedule 3(t),
there are, to the Company's knowledge, with respect to the Company or any
of its Subsidiaries or any predecessor of the Company, no past or present
material violations of Environmental Laws (as defined below), releases of
any Hazardous Materials (as defined below) into the environment or
actions, activities, circumstances, conditions, events, incidents, or
contractual obligations which may give rise to any material common law
environmental liability or any material liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of
its Subsidiaries has received any notice with respect to any of the
foregoing, nor is any action pending or, to the Company's knowledge,
threatened in connection with any of the foregoing. The term
"Environmental Laws" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or
wastes (collectively, "Hazardous Materials") into the environment, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice
letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
(ii) Other than those that are or were stored,
used or disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently owned, or
to the best of the Company's knowledge leased or used, by the Company or
any of its Subsidiaries, and no Hazardous Materials were released on or
about any real property previously owned, or to the Company's knowledge
leased or used, by the Company or any of its Subsidiaries during the
period the property was owned, leased or used by the Company or any of
its Subsidiaries, except in the normal course of the Company's or any of
its Subsidiaries' business.
(iii) Except as set forth in Schedule 3(t),
there are no underground storage tanks on or under any real property
owned, or to the Company's knowledge leased or used, by the Company or
any of its Subsidiaries that are not in compliance with applicable law.
u. Title to Property. The Company and its
__________________
Subsidiaries have good and marketable title in all personal property
owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(u) or such as would
not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as
would not have a Material Adverse Effect.
v. Insurance. The Company and each of its
__________
Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged.
Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
w. Internal Accounting Controls. The Company and
_____________________________
each of its Subsidiaries maintain a system of internal accounting
controls sufficient, in the judgment of the Company's board of directors,
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles
and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
x. Foreign Corrupt Practices. Neither the Company,
__________________________
nor, to the best knowledge of the Company, any of its Subsidiaries, nor
any director, officer, agent, employee or other person acting on behalf
of the Company or any Subsidiary has, in the course of his actions for,
or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977 as amended; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
y. Solvency. The Company (both before and after
_________
giving effect to the transactions contemplated by this Agreement) is
solvent (i.e., its assets have a fair market value in excess of the
amount required to pay its probable liabilities on its existing debts as
they become absolute and matured) and currently the Company has no
information that would lead it to reasonably conclude that the Company
would not have the ability to, nor does it intend to take any action that
would impair its ability to, pay its debts from time to time incurred in
connection therewith as such debts mature.
z. No Investment Company. The Company is not, and
______________________
upon the issuance and sale of the Securities as contemplated by this
Agreement and the Certificate of Designation will not be an "investment
company" required to be registered under the Investment Company Act of
1940 (an "Investment Company"). The Company is not controlled by an
Investment Company.
aa. Form S-3 Eligibility. The Company is currently
_____________________
eligible to register the resale of its Common Stock on a registration
statement on Form S-3 under the 0000 Xxx. There exist no facts or
circumstances that would prohibit or delay the preparation and filing of
a registration statement on Form S-3 with respect to the Registrable
Securities (as defined in the Registration Right Agreement) within the
time periods referred to therein.
bb. Employees. Neither the Company nor any of its
__________
subsidiaries is bound by or subject to (and none of their assets or
properties are bound by or subject to) any written or oral, express or
implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the knowledge of the Company, has sought
to represent any of the employees, representatives or agents of the
Company or any of its subsidiaries. There is no strike, labor dispute or
union organization activity pending or threatened between the Company and
its employees. Neither the Company nor any of its subsidiaries is a
party to or bound by any labor agreement or collective bargaining
agreement respecting its employees. The Company and its subsidiaries
have complied in all material respects with all applicable federal and
state equal opportunity and other laws related to employment. No
employee of the Company or any of its subsidiaries is currently in
violation of any judgment, decree, order or agreement known to the
Company relating to the relationship of any such employee with the
Company or any of its subsidiaries, or any other party, due to either
(i) the nature of the business of the Company or any of its subsidiaries
as conducted presently or proposed to be conducted or (ii) the use by the
employee of his or her best efforts with respect to the conduct of such
business. Neither the Company nor any of its subsidiaries is a party to
or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation agreement. Subject
to general principles related to wrongful termination of employees and
the terms of the employment contracts set forth in Schedule 3(bb), the
employment of each officer and employee of the Company or any of its
subsidiaries is terminable at the will of the Company or any of its
subsidiaries, with or without cause.
cc. Employee Compensation Plans. Neither the
____________________________
Company nor any of its subsidiaries is a party to or bound by any
currently effective employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or
other employee compensation agreement.
dd. Significant Customers and Suppliers. To the
____________________________________
knowledge of the Company, no major customer or supplier has materially
reduced or threatened to terminate or materially reduce its purchases
from or provision of products or services to the Company or any of its
subsidiaries.
4. COVENANTS.
__________
a. Best Efforts. The parties shall use their best
_____________
efforts to satisfy timely each of the conditions described in Section 6
and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company, if requested
______________________
by Investor, agrees to file a Form D with respect to the Securities as
required under Regulation D and to provide a copy thereof to Investor
promptly after such filing. The Company shall, on or before the First
Closing, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to Investor at the First
Closing and the Second Closing pursuant to this Agreement under
applicable securities or "blue sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to Investor on or prior to
the First Closing.
c. Reporting Status; Eligibility to Use Form S-3.
______________________________________________
The Company's Common Stock is registered under Section 12(g) of the 1934
Act. So long as any Investor beneficially owns the Series A Preferred
Stock, the Company shall timely file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934
Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination. The Company currently meets, and will take all
necessary action to continue to meet, the "registrant eligibility"
requirements set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the
________________
proceeds from the sale of the Preferred Shares in the manner set forth in
Schedule 4(d) attached hereto and made a part hereof and, except as set
forth in Schedule 4(d), shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection with its
currently existing direct or indirect Subsidiaries).
e. Additional Equity Capital. Subject to the
__________________________
exceptions described below, for a six-month period commencing from the
date hereof, the Company will not enter into definitive agreements with
any party to obtain equity or equity-equivalent financing (including debt
financing with an equity component) before April 12, 2001 ("Future
Offerings") unless it shall have first delivered to Investor, at least
ten (10) business days prior to entering into definitive agreements for
such Future Offering with any other Person (as defined in Article IV.B of
the Certificate of Designation), written notice describing the proposed
Future Offering, including the terms and conditions thereof and proposed
definitive documentation to be entered into in connection therewith, and
providing Investor's an option during the ten (10) day period following
delivery of such notice to purchase the securities being offered in the
Future Offering on the same terms as contemplated by such Future Offering
(the limitations referred to in this sentence and the preceding sentence
are collectively referred to as the "Capital Raising Limitations").
In the event the terms and conditions of a proposed Future Offering are
amended in any material respect after delivery of the notice to Investor
concerning the proposed Future Offering, the Company shall deliver a new
notice to Investor's describing the amended terms and conditions of the
proposed Future Offering and Investor's thereafter shall have an option
during the ten (10) day period following delivery of such new notice to
purchase the securities being offered on the same terms as contemplated
by such proposed Future Offering, as amended. The foregoing sentence
shall apply to successive amendments to the terms and conditions of any
proposed Future Offering. The Capital Raising Limitations shall not
apply to any transaction involving (i) issuances of securities in a firm
commitment underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 1933 Act), (ii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or in connection with
the disposition or acquisition of a business, product or license by the
Company or (iii) a private placement, the proceeds of which would be
used to redeem the Series A Preferred Stock. The Capital Raising
Limitations also shall not apply to the issuance of securities upon
exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or to the grant
of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plans
approved by the stockholders of the Company.
f. Expenses. The Company shall reimburse Investor
_________
for all reasonable out-of-pocket expenses incurred by it in connection
with the negotiation, preparation, execution, delivery and performance of
this Agreement and the other agreements to be executed in connection
herewith, including, without limitation, legal and due diligence costs;
provided that the fees and expenses of counsel to Investor shall not
exceed $100,000 without the consent of the Company.
g. Financial Information. So long as the Investor
______________________
owns any shares of Series A Preferred Stock, the Company agrees to send
the following reports to Investor until Investor transfers, assigns, or
sells all of the Securities: (i) within ten business days after the
filing with the SEC, a copy of its Annual Report on Form 10-K, its
Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii)
within one business day after release, copies of all press releases
issued by the Company or any of its Subsidiaries; (iii) contemporaneously
with the making available or giving to the stockholders of the Company,
copies of any notices or other information the Company makes available or
gives to such stockholders; and (iv) any other financial information as
may be reasonably requested by Investor subject to appropriate confidentiality
protections.
h. Reservation of Shares. As long as the Series A
______________________
Preferred Stock is outstanding the following shall apply: the Company
shall at all times have authorized, and reserved for the purpose of
issuance, a sufficient number of shares of Common Stock to provide for
the full conversion of the outstanding Preferred Shares (based on the
Conversion Price (as defined in the Certificate of Designation) in effect
from time to time) and the issuance of the Conversion Shares in
connection therewith and as otherwise required by the Certificate of
Designation and the full exercise of the Warrants and the issuance of the
Warrant Shares (based on the exercise price of the Warrants in effect
from time to time). The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of or otherwise
pursuant to the Preferred Shares and the exercise of or otherwise
pursuant to the Warrants without the consent of Investor's. Subject to
the proviso contained in the first sentence of this Section 4(h), the
Company shall use its best efforts at all times to maintain the number of
shares of Common Stock so reserved for issuance at no less than the
number that is then actually issuable upon full conversion of the
Preferred Shares (based on the Conversion Price (as defined in the
Certificate of Designation) in effect from time to time) and full
exercise of the Warrants (based on the exercise price of the Warrants in
effect from time). Subject to the proviso contained in the first
sentence of this Section 4(h), if at any time the number of shares of
Common Stock authorized and reserved for issuance is below the number of
Conversion Shares issued and issuable upon conversion of or otherwise
pursuant to the Preferred Shares (based on the Conversion Price (as
defined in the Certificate of Designation) in effect from time to time)
and Warrant Shares issued and issuable upon exercise of or otherwise
pursuant to Warrants (based on the exercise price of the Warrants in
effect from time to time), the Company will promptly take all corporate
action necessary to authorize and reserve a sufficient number of shares,
including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company's obligations under
this Section 4(h), in the case of an insufficient number of authorized
shares, and using its best efforts to obtain stockholder approval of an
increase in such authorized number of shares.
i. Registration of Shares. Within 45 days of the
_______________________
First Closing the Company will file a Registration Statement on Form S-3
(the "Registration Statement") covering a sufficient number of shares of
Common Stock to register all shares issuable in connection with this
Agreement. As set forth in the Registration Rights Agreement, if such
Registration Statement is not declared effective before the later of (x)
135 days from the First Closing and (y) 90 days of the filing date, or if
there are any prolonged suspensions in such effectiveness, the Company
will pay Investor 1.5% of the purchase price of the Preferred Shares for
each 30 day period thereafter (prorated for partial periods) until such
Registration Statement is declared effective.
j. Listing. The Company shall undertake to ensure
________
that the Conversion Shares and the Warrant Shares shall have been
authorized for quotation on Nasdaq and trading in the Common Stock on
Nasdaq shall not have been suspended for any prolonged period of time by
the SEC or Nasdaq. The Company shall maintain the listing and trading of
its Common Stock on Nasdaq, the Nasdaq SmallCap Market ("Nasdaq SmallCap"),
the New York Stock Exchange ("NYSE"), or the American Stock
Exchange ("AMEX") and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges,
as applicable. The Company shall promptly provide to Investor's copies
of any notices it receives from Nasdaq and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges
and quotation systems.
k. Corporate Existence. So long as Investor
____________________
beneficially owns any Preferred Shares, the Company shall maintain its
corporate existence and shall not merge, consolidate or sell all or
substantially all of the Company's assets, except in the event of a
merger or consolidation or sale of all or substantially all of the
Company's assets, where either (i) the consideration to the Investor is
all in cash or (ii)(A) the surviving or successor entity (and, if an
entity different from the surviving or successor entity, the entity whose
securities into which the Preferred Shares shall become convertible
pursuant to Article VI.C(b) of the Certificate of Designation) in such
transaction assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (B)
the entity whose securities into which the Preferred Shares shall become
convertible pursuant to Article VI.C(b) of the Certificate of Designation
is a publicly traded corporation whose Common Stock is listed for trading
on Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
l. No Integration. The Company shall not make any
_______________
offers or sales of any security (other than the Securities) under
circumstances that would require registration of the Securities being
offered or sold hereunder under the 1933 Act or cause the offering of
Securities to be integrated with any other offering of securities by the
Company for the purpose of any stockholder approval provision applicable
to the Company or its securities.
m. Board Representation. So long as the Investor
_____________________
owns any Series A Preferred Stock, the Investor shall have the right to
propose nomination for two persons to the Board of Directors of the
Company and the Company shall use all reasonable efforts to have such
nominees elected; provided that such persons shall be reasonably
acceptable to the Board of Directors of the Company. If, however, the
Second Closing shall not have occurred, one of such two Investor
designees shall promptly resign from the Board of Directors of the
Company.
n. Standstill. For the period of six months from
___________
the date hereof, without the prior consent of the Board of Directors of
the Company (excluding any member appointed by the holders of the Series
A Preferred Stock), the Investor shall not, alone or through or with any
other person or entity, in any manner: (i) acquire any additional direct
or indirect interest in any securities of the Company; (ii) solicit,
make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are used in the proxy rules of
the U.S. Securities Exchange Act of 1934, as amended (the "Exchange
Act")) from the Company's stockholders, become a "participant" in any
"election contest" (as such terms are defined or used in Rule 14A-11
under the Exchange Act) with respect to the Company's Board of Directors,
solicit or execute any written consent in lieu of a meeting of holders of
voting securities except to support the nominees for directors of the
Company's Board of Directors or call or seek to have called any meeting
of the Company's stockholders of the other party or seek to advise or
influence in any manner whatever any person or entity with respect to the
Company; (iii) make any short sales, enter into any hedging, derivative
or similar transactions regarding the Company's securities; or (iv)
publicly announce an intention to do any of the actions restricted or
prohibited under clauses (i) through (iii) of this Section 4(n).
o. HSR Approval. As promptly as practicable after
_____________
the execution of this Agreement, each party shall, in cooperation with
the other, file or cause to be filed any reports, notifications or other
information that may be required to comply with the applicable
requirements of the HSR Act, shall in connection with any such filings,
if applicable, request early termination of the relevant waiting period
and shall furnish or cause to be furnished to the other all such
information in its possession as may be reasonably necessary for the
completion of the reports, notifications or submissions to be filed by
the other.
p. Supplemental Schedules. With respect to facts
_______________________
and circumstances that arise after the date of this Agreement, the
Company shall supplement the schedules to this Agreement to the extent
that such facts and circumstances would have been required to be set
forth on such schedules had they existed on the date of this Agreement,
and such supplements shall be deemed to be part of the schedules for all
purposes hereunder; provided that the Company may not supplement the
schedules to reflect facts and circumstances of which it was aware as of
the date of this Agreement. Notwithstanding the foregoing sentence, the
Company shall be under no obligation to supplement the schedules after
the Second Closing.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
____________________________
irrevocable instructions to its transfer agent to issue certificates,
registered in the name of Investor or its nominee, for the Conversion
Shares and the Warrant Shares in such amounts as specified from time to
time by Investor to the Company upon conversion of the Preferred Shares
or exercise of the Warrants in accordance with the terms thereof (the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act or the date
on which the Conversion Shares and the Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of
securities as of a particular date that can then be immediately sold, all
such certificates shall bear the restrictive legend specified in Section
2(g) of this Agreement. The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this
Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Conversion Shares and the Warrant Shares,
prior to registration of the Conversion Shares and the Warrant Shares
under the 1933 Act or the date on which the Conversion Shares and the
Warrant Shares may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be
immediately sold), will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section
shall affect in any way Investor's obligations and agreement set forth in
Section 2(g) hereof to comply with all applicable prospectus delivery
requirements, if any, upon re-sale of the Securities. If Investor
provides the Company with (i) an opinion of counsel, in form, substance
and scope customary for opinions in comparable transactions, to the
effect that a public sale or transfer of such Securities may be made
without registration under the 1933 Act and such sale or transfer is
effected or (ii) Investor provides reasonable assurances that the
Securities can be sold pursuant to Rule 144, the Company shall permit the
transfer, and, in the case of the Conversion Shares and the Warrant
Shares, promptly instruct its transfer agent to issue one or more
certificates, free from any restrictive legend, in such name and in such
denominations as specified by Investor.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
_______________________________________________
obligation of the Company hereunder to issue and sell the Preferred
Shares and Warrants to Investor at each of the First Closing and the
Second Closing is subject to the satisfaction, at or before each of the
First Closing and the Second Closing, of each of the following conditions
thereto, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole
discretion:
a. Investor shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. Investor shall have delivered the applicable
Purchase Price in accordance with Section 1 above.
c. The Certificate of Designation shall have been
accepted for filing with the Secretary of State of the State of Delaware.
d. The representations and warranties of Investor
shall be true and correct in all material respects as of the date when
made and as of each of the First Closing and Second Closing as though
made at that time (except for representations and warranties that speak
as of a specific date, which representations and warranties shall be true
and correct as of such date), and the applicable Investor shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by Investor at or prior to each of
the First Closing and Second Closing.
e. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
f. With respect to the Second Closing, the waiting
period under the HSR Act shall have expired or early termination
shall have been granted.
7. CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE. The
________________________________________________
obligation of Investor's hereunder to purchase the Preferred Shares and
the Warrants at each of the First Closing and Second Closing is subject
to the satisfaction, at or before each of the First Closing and Second
Closing, of each of the following conditions, provided that these
conditions are for Investor's sole benefit and may be waived by Investor
at any time in its sole discretion:
a. The Company shall have executed the Warrant and
the Registration Rights Agreement and delivered the same to
Investor.
b. The Company shall have delivered to Investor duly
executed certificates (in such denominations as Investor shall request)
representing the Preferred Shares and duly executed Warrants purchased at
each of the First Closing and Second Closing in accordance with Section
1(b) above.
c. The Certificate of Designation shall have been
accepted for filing with the Secretary of State of the State of Delaware,
and a copy thereof certified by such Secretary of State shall have been
delivered to Investor.
d. The Irrevocable Transfer Agent Instructions, in
form and substance satisfactory to the Investor, shall have been
delivered to and acknowledged in writing by the Company's Transfer
Agent.
e. The representations and warranties of the Company
shall be true and correct in all material respects as of the date when
made and as of each of the First Closing and Second Closing as though
made at such time (except for representations and warranties that speak
as of a specific date, which representations and warranties shall be true
and correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to each of the
First Closing and Second Closing. Investor shall have received a
certificate or certificates, executed by the chief executive officer or
chief financial officer of the Company, dated as of each of the First
Closing and Second Closing, to the foregoing effect and as to such other
matters as may be reasonably requested by Investor including, but not
limited to certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to
the transactions contemplated hereby.
f. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory organization
having authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this Agreement.
g. Investor shall have received an opinion of the
Company's counsel, dated as of each of the First Closing and Second
Closing, in form, scope and substance reasonably satisfactory to
Investor.
h. Investor shall have received an officer's
certificate described in Section 3(c) above, dated as of each of the
First Closing and Second Closing.
i. With respect to the Second Closing, the waiting
period under the HSR Act shall have expired or early termination shall
have been granted.
8. GOVERNING LAW; MISCELLANEOUS.
_____________________________
a. Governing Law. This Agreement shall be governed
______________
by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in the State of New
York (without regard to principles of conflict of laws). Both parties
irrevocably consent to the jurisdiction of the United States federal
courts and the state courts located in New York with respect to any suit
or proceeding based on or arising under this Agreement, the agreements
entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of
such suit or proceeding may be determined in such courts. Both parties
irrevocably waive the defense of an inconvenient forum to the maintenance
of such suit or proceeding. Both parties further agree that service of
process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve
process in any other manner permitted by law. Both parties agree that a
final non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
b. Counterparts; Signatures by Facsimile. This
_____________________________________
Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the
other party. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for
________
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
_____________
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This
Agreement,
_____________________________
the schedules and exhibits hereto and the instruments referenced herein
contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor Investor makes any
representation, warranty, covenant or undertaking with respect to such
matters. This Agreement supercedes Article 8 of the Confidentiality
Agreement dated October 6, 2000 between the Company and the Investor. No
provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be
________
given under the terms of this Agreement shall be sent by certified or
registered mail (return receipt requested) or delivered personally or by
courier (including a recognized overnight delivery service) or by
facsimile and shall be effective five days after being placed in the
mail, if mailed by regular United States mail, or upon receipt, if
delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
Interworld Corporation
000 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Chairman of the Board
Facsimile: (000) 000-0000
With copy to:
Xxxxxxxxx & Xxxxxxx
1330 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
If to Investor: To the address set forth immediately below
Investor's name on the signature pages hereto.
Jackpot Enterprises Inc.
c/o J Net Venture Partners LLC
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxx
Facsimile: (000) 000-0000
With copy to:
Xxxxxxxxx Traurig, LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Annex, Esq.
Facsimile: (000) 000-0000
Each party shall provide notice to the other party of any
change in address.
g. Successors and Assigns. This Agreement shall be
_______________________
binding upon and inure to the benefit of the parties and their successors
and assigns. Neither the Company nor any Investor shall assign this
Agreement or any rights or obligations hereunder without the prior
written consent of the other. Notwithstanding the foregoing, subject to
Section 2(f), any Investor may assign its rights hereunder to (i) any of
its "affiliates," as that term is defined under the 1934 Act and (ii)
after the Maximum Share Amount (as defined in the Certificate of
Designation) has been issued, any person that purchases Securities in a
private transaction from Investor, without the consent of the
Company.
h. Third Party Beneficiaries. This Agreement is
__________________________
intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may
any provision hereof be enforced by, any other person.
i. Survival; Indemnification. The representations
__________________________
and warranties of the Company and the agreements and covenants set forth
in Sections 3, 4, 5 and 8 shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf
of Investor. The Company agrees to indemnify and hold harmless Investors
and all their officers, directors, employees and agents for loss or
damage arising as a result of or related to any breach or alleged breach
by the Company of any of its representations, warranties and covenants
set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement,
including advancement of expenses as they are incurred.
j. Publicity. The Company and Investor shall have
__________
the right to review a reasonable period of time before issuance of any
press releases, filings with the SEC, the NASD or any stock exchange or
interdealer quotation system, or any other public statements with respect
to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of Investor, to
make any press release or public filings with respect to such
transactions as is required by applicable law and regulations (although
Investor shall be consulted by the Company in connection with any such
press release prior to its release and shall be provided with a copy
thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and
___________________
perform, or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions
contemplated hereby.
l. No Strict Construction. The language used in
_______________________
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be
applied against any party.
m. Remedies. The Company acknowledges that a breach
_________
by it of its obligations hereunder will cause irreparable harm to
Investor by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Agreement will
be inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Agreement, that Investor shall
be entitled, in addition to all other available remedies in law or in
equity, to an injunction or injunctions to prevent or cure any breaches
of the provisions of this Agreement and to enforce specifically the terms
and provisions of this Agreement, without the necessity of showing
economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Investor and the Company
have caused this Agreement to be duly executed as of the date first above
written.
INTERWORLD CORPORATION
By: /s/ Xxxxxx X. Xxxxx
_____________________________________
Xxxxxx X. Xxxxx
Chief Executive Officer and President
JACKPOT ENTERPRISES, INC
By: /s/ Xxxx X. Xxxxx
_____________________________________
Xxxx X. Xxxxx
President
