Exhibit 1
COMMON STOCK AND WARRANT PURCHASE
AGREEMENT
DATED AS OF MAY 4, 2005
BY AND AMONG
PRESCIENT APPLIED INTELLIGENCE, INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE I Purchase and Sale of Common Stock and Warrants................. 1
Section 1.1 Purchase and Sale of Common Stock and Warrants......... 1
Section 1.2 Purchase Price and Closing............................. 2
Section 1.3 Exchange of Series F Preferred Stock................... 2
Section 1.4 Exchange of Promissory Notes .......................... 2
ARTICLE II Representations and Warranties................................ 3
Section 2.1 Representations and Warranties of the Company.......... 3
Section 2.2 Representations and Warranties of the Purchasers....... 12
ARTICLE III Covenants.................................................... 20
Section 3.1 Securities Compliance.................................. 20
Section 3.2 Registration and Listing............................... 20
Section 3.3 Required Registration.................................. 20
Section 3.4 Inspection Rights...................................... 20
Section 3.5 Compliance with Laws................................... 20
Section 3.6 Keeping of Records and Books of Account................ 21
Section 3.7 Reporting Requirements................................. 21
Section 3.8 Other Agreements....................................... 21
Section 3.9 Use of Proceeds........................................ 21
Section 3.10 Reporting Status....................................... 21
Section 3.11 Disclosure of Transaction.............................. 21
Section 3.12 Disclosure of Material Information..................... 21
Section 3.13 Form D................................................. 21
Section 3.14 No Integrated Offerings................................ 22
Section 3.15 Pledge of Securities................................... 22
Section 3.16 Subsequent Financings; Right of First Refusal; Other
Restrictive Covenants.................................. 22
Section 3.17 Board Membership; Board Observer Rights................ 24
Section 3.18 Reverse Stock Split.................................... 24
Section 3.19 Lock-Up Agreement...................................... 24
Section 3.20 Confidentiality........................................ 24
Section 3.21 Subsequent Common Stock Financing...................... 25
Section 3.22 Best Efforts........................................... 25
ARTICLE IV Conditions.................................................... 26
Section 4.1 Conditions Precedent to the Obligation of the Company
to Close and to Sell the Securities.................... 26
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Close and to Purchase the Securities..... 26
ARTICLE V Certificate Legend............................................. 29
Section 5.1 Legend................................................. 20
ARTICLE VI Indemnification............................................... 30
Section 6.1 General Indemnity...................................... 30
TABLE OF CONTENTS
(continued)
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Section 6.2 Indemnification Procedure.............................. 30
ARTICLE VII Termination.................................................. 31
Section 7.1 Termination ........................................... 31
Section 7.2 Survival .............................................. 31
ARTICLE VIII Miscellaneous............................................... 32
Section 8.1 Fees and Expenses...................................... 32
Section 8.2 Specific Performance; Consent to Jurisdiction; Venue... 32
Section 8.3 Entire Agreement; Amendment............................ 33
Section 8.4 Notices................................................ 33
Section 8.5 Waivers................................................ 34
Section 8.6 Headings............................................... 34
Section 8.7 Successors and Assigns................................. 34
Section 8.8 No Third Party Beneficiaries........................... 34
Section 8.9 Governing Law.......................................... 34
Section 8.10 Survival............................................... 35
Section 8.11 Counterparts........................................... 35
Section 8.12 Publicity.............................................. 35
Section 8.13 Severability........................................... 35
Section 8.14 Further Assurances..................................... 35
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
This COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement"), dated
as of May 4, 2005 by and among Prescient Applied Intelligence, Inc., a Delaware
corporation (the "Company"), and the purchasers listed on Exhibit A hereto (each
a "Purchaser" and collectively, the "Purchasers"), for the purchase and sale of
shares of the Company's common stock, par value $.001 per share (the "Common
Stock") by the Purchasers.
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS
Section 1.1 Purchase and Sale of Common Stock and Warrants.
(a) Upon the following terms and conditions, the Company shall issue
and sell to the Purchasers, and the Purchasers shall purchase from the Company,
an aggregate of 13,924,606 shares of Common Stock (the "Shares") at a price per
share of $.44 (the "Per Share Purchase Price") for a cash purchase price of
$2,250,000 and $3,524,388 stated value of shares of Series F Convertible
Preferred Stock of the Company (the "Series F Preferred Stock"), which Series F
Preferred Stock shall be exchanged for a number of Shares equal to 110% of the
stated value per share of Series F Preferred Stock, for an aggregate purchase
price of $5,774,388 (the "Purchase Price"). Each Purchaser shall pay the portion
of the Purchase Price set forth opposite its name on Exhibit A hereto. The
Company acknowledges that a portion of the Purchase Price shall be paid by
certain Purchasers surrendering to the Company for cancellation shares of Series
F Preferred Stock. The Company further acknowledges that $500,000 of the cash
portion of the Purchase Price has been advanced to the Company by certain
Purchasers in the form of promissory notes previously issued by the Company and
will be exchanged for Shares pursuant to this Agreement. The Company and the
Purchasers are executing and delivering this Agreement in accordance with and in
reliance upon the exemption from securities registration afforded by Section
4(2) of the U.S. Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act"), including Regulation
D ("Regulation D"), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments to be made hereunder.
(b) Upon the following terms and conditions and for no additional
consideration, each of the Purchasers shall be issued Warrants, in substantially
the form attached hereto as Exhibit B (the "Warrants"), to purchase the number
of shares of Common Stock equal to thirty percent (30%) of the number of Shares
purchased by each Purchaser pursuant to the terms of this Agreement, as set
forth opposite such Purchaser's name on Exhibit A hereto. The Warrants shall
expire three (3) years from the Closing Date and shall have an exercise price
per share equal to $1.00. Any shares of Common Stock issuable upon exercise of
the Warrants (and such shares when issued) are herein referred to as the
"Warrant Shares." The Shares, the Warrants and the Warrant Shares are sometimes
collectively referred to herein as the "Securities."
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(c) In the event that a Purchaser would own in excess of 9.99% of the
Common Stock outstanding on the Closing Date (as defined below), such Purchaser
may purchase shares of the Company's Series G Convertible Preferred Stock (the
"Series G Preferred Stock") set forth opposite its name on Exhibit A hereto.
This Agreement, including, without limitation, the representations and
warranties contained herein, shall apply to the purchase of the Series G
Preferred Stock and, accordingly, any reference in this Agreement to "Shares"
shall also be deemed to include shares of the Series G Preferred Stock and any
shares of Common Stock issuable upon conversion of the Series G Preferred Stock.
The Series G Preferred Stock pays no dividends and shall convert into Common
Stock when such Purchaser's beneficial ownership percentage falls below 9.99%.
The designation, rights, preferences and other terms and provisions of the
Series G Preferred Stock are set forth in the Certificate of Designation of the
Relative Rights and Preferences of the Series G Convertible Preferred Stock
attached hereto as Exhibit C (the "Certificate of Designation").
Section 1.2 Purchase Price and Closing. In consideration of and in
express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Company agrees to issue and sell to the
Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
unless this Agreement has been terminated pursuant to Article VII hereof, the
Purchasers, severally but not jointly, agree to purchase the number of Shares
and Warrants, set forth opposite their respective names on Exhibit A. The
closing of the purchase and sale of the Shares and Warrants to be acquired by
the Purchasers from the Company under this Agreement shall take place at the
offices of Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx
Xxxx, Xxx Xxxx 00000 (the "Closing") on May 2, 2005 (the "Closing Date"),
provided, that all of the conditions set forth in Article IV hereof and
applicable to the Closing shall have been fulfilled or waived in accordance
herewith. At the Closing, the Company shall deliver or cause to be delivered to
each Purchaser (i) a certificate registered in the name of the Purchaser
representing the number of Shares as is set forth opposite the name of such
Purchaser on Exhibit A, (ii) a Warrant to purchase such number of shares of
Common Stock as is set forth opposite the name of such Purchaser on Exhibit A
and (iii) any other deliveries as required by Article IV. At the Closing, each
Purchaser shall deliver its portion of the Purchase Price by wire transfer to an
account designated by the Company.
Section 1.3 Exchange of Series F Preferred Stock. Prior to or at the
Closing, each Purchaser exchanging shares of Series F Preferred Stock for Shares
such Purchaser shall surrender to the Company its certificates representing its
shares of Series F Preferred Stock and upon the Closing, such Purchaser shall
receive in exchange for the surrender of its shares of Series F Preferred Stock
a number of Shares and Warrants as set forth on Exhibit A attached hereto. Upon
the issuance of the Shares to each Purchaser in exchange for such Purchaser's
shares of Series F Preferred Stock, the shares of Series F Preferred Stock shall
automatically be deemed cancelled irrespective of whether the original
certificates representing the shares of Series F Preferred Stock are delivered
to the Company.
Section 1.4 Exchange of Promissory Notes. Prior to or at the Closing,
each Purchaser who holds promissory notes of the Company (each, a "Note"),
copies of which are attached hereto as Schedule 1.4, shall surrender to the
Company its Note for cancellation and
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upon the Closing, such Purchaser shall receive in exchange for the surrender of
its Note, a number of Shares as set forth on Exhibit A attached hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchasers as follows, as of the date
hereof and the Closing Date, except as set forth on the Schedule of Exceptions
attached hereto with each numbered Schedule corresponding to the section number
herein:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any Subsidiaries (as defined in
Section 2.1(g)) or own securities of any kind in any other entity except as set
forth on Schedule 2.1(g) hereto. The Company and each such Subsidiary (as
defined in Section 2.1(g)) is duly qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified will not have a Material Adverse Effect. For the
purposes of this Agreement, "Material Adverse Effect" means any effect on the
business, results of operations, prospects, assets or condition (financial or
otherwise) of the Company that is material and adverse to the Company and its
subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company from
entering into and performing any of its obligations under the Transaction
Documents (as defined below) in any material respect.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Warrants, the Lock-Up Agreement (as defined in Section 3.19 hereof) a form of
which is attached hereto as Exhibit D, and that certain Registration Rights
Agreement by and among the Company and the Purchasers, dated as of the date
hereof, substantially in the form of Exhibit E attached hereto (the
"Registration Rights Agreement" and, together with this Agreement, the
Certificate of Designation and the Warrants, the "Transaction Documents") and to
issue and sell the Securities in accordance with the terms hereof and to
complete the transactions contemplated by the Transaction Documents. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have been
duly and validly authorized by all necessary corporate action, and, except as
set forth on Schedule 2.1(b), no further consent or authorization of the
Company, its Board of Directors or stockholders is required. When executed and
delivered by the Company, each of the Transaction Documents shall constitute a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, moratorium, liquidation,
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conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company as of
May 4, 2005 is set forth on Schedule 2.1(c) hereto. All of the outstanding
shares of the Common Stock and any other outstanding security of the Company
have been duly and validly authorized and validly issued, fully paid and
nonassessable and were issued in accordance with the registration or
qualification provisions of the Securities Act, or pursuant to valid exemptions
therefrom. Except as set forth in this Agreement and as set forth on Schedule
2.1(c) hereto, no shares of Common Stock or any other security of the Company
are entitled to preemptive rights, registration rights, rights of first refusal
or similar rights and there are no outstanding options, warrants, scrip, rights
to subscribe to, call or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and as set forth on
Schedule 2.1(c) hereto, there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as provided on Schedule 2.1(c) hereto,
the Company is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities. Except as set forth on Schedule 2.1(c), the
Company is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of the Company. Except as disclosed on Schedule 2.1(c), (i) there are no
outstanding debt securities, or other form of material debt of the Company or
any of its Subsidiaries, (ii) there are no contracts, commitments,
understandings, agreements or arrangements under which the Company or any of its
Subsidiaries is required to register the sale of any of their securities under
the Securities Act, (iii) there are no outstanding securities of the Company or
any of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings, agreements or arrangements
by which the Company or any of its Subsidiaries is or may become bound to redeem
a security of the Company or any of its Subsidiaries, (iv) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities, (v) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements, or
any similar plan or agreement and (vi) as of the date of this Agreement, except
as set forth in filings made with the Commission, to the Company's and each of
its Subsidiaries' knowledge, no Person (as defined below) or group of related
Persons beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act) or has the right to acquire by agreement with or by
obligation binding upon the Company, beneficial ownership of in excess of 5% of
the Common Stock. Any Person with any right to purchase securities of the
Company that would be triggered as a result of the transactions contemplated
hereby or by any of the other Transaction Documents has waived such rights or
the time for the exercise of such rights has passed, except where failure of the
Company to receive such waiver would not have a Material Adverse Effect. Except
as set forth on Schedule 2.1(c), there are no options, warrants or other
outstanding securities of the Company (including, without limitation, any equity
securities issued pursuant to any Company Plan) the vesting of which will be
accelerated by the transactions contemplated hereby or by any of the other
Transaction Documents. Except as set forth in Schedule 2.1(c),
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none of the transactions contemplated by this Agreement or by any of the other
Transaction Documents shall cause, directly or indirectly, the acceleration of
vesting of any options issued pursuant the Company's stock option plans.
(d) Issuance of Securities. The Shares and the Warrants to be issued
at the Closing have been duly authorized by all necessary corporate action and,
when paid for and issued in accordance with the terms hereof and the Warrants,
respectively, the Shares and the Warrant Shares will be validly issued, fully
paid and nonassessable and free and clear of all liens, encumbrances and rights
of refusal of any kind and the holders shall be entitled to all rights accorded
to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Certificate of Incorporation (the "Certificate") or
Bylaws (the "Bylaws"), each as amended to date, or any Subsidiary's comparable
charter documents, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) 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, in all cases, other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration, 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 required
under federal, state, foreign or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or issue and sell the
Securities in accordance with the terms hereof (other than any filings, consents
and approvals which may be required to be made by the Company under applicable
state and federal securities laws, rules or as may be required for the Company
to carry out its obligations under the Registration Rights Agreement).
(f) Commission Documents, Financial Statements. The Common Stock of
the Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed
on Schedule 2.1(f) hereto, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission (the "Commission") pursuant to the reporting
requirements of the Exchange Act, including pursuant to Sections 13, 14 or 15(d)
thereof (all of the foregoing and all exhibits included therein and financial
statement and schedules thereto, including filings incorporated by reference
therein being referred to herein as the "Commission Documents"). At the times of
their respective filings, the Form 10-QSB for the fiscal quarters ended
September 30, 2004, June 30, 2004 and March 31, 2004 (collectively, the "Form
10-QSB") and the Form 10-KSB for the fiscal year ended December
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31, 2004 (the "Form 10-KSB") complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and the Form 10-QSB and Form 10-KSB at the time of their
respective filings did not contain any untrue statement of a material fact or
omit 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. As of their respective dates, the financial
statements of the Company included in the Commission Documents are complete and
correct in all material respects and comply with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States ("GAAP") applied on a consistent basis 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 financial position
of the Company and its Subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. The Commission Documents or Schedule 2.1(g) hereto
sets forth each Subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person's
ownership of the outstanding stock or other interests of such Subsidiary. For
the purposes of this Agreement, "Subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interest having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
Subsidiaries. All of the outstanding shares of capital stock of each Subsidiary
have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence except as set forth
on Schedule 2.1(g) hereto. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.
(h) No Material Adverse Change. Since September 30, 2004, the Company
has not experienced or suffered any Material Adverse Effect, except as disclosed
in the Commission Documents or on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed in the Commission
Documents or on Schedule 2.1(i) hereto, since September 30, 2004, neither the
Company nor any of its Subsidiaries has incurred any liabilities, obligations,
claims or losses (whether liquidated or unliquidated, secured or unsecured,
absolute, accrued, contingent or otherwise) other than those incurred in the
ordinary course of the Company's or its Subsidiaries respective
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businesses or which, individually or in the aggregate, are not reasonably likely
to have a Material Adverse Effect. Since September 30, 2004, except as disclosed
in Commission Documents, none of the Company or any of its Subsidiaries has
participated in any transaction material to the condition of the Company which
is outside of the ordinary course of its business.
(j) No Undisclosed Events or Circumstances. Since September 30, 2004,
except as disclosed in the Commission Documents or on Schedule 2.1(j) hereto, no
event or circumstance has occurred or exists with respect to the Company or its
Subsidiaries or their respective businesses, properties, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.
(k) Indebtedness. The Commission Documents or Schedule 2.1(k) hereto
sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$300,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of liabilities for borrowed money of others in excess of $100,000,
whether or not the same are or should be reflected in the Company's balance
sheet (or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business; and (c) the present value of any lease payments in excess of
$25,000 due under leases required to be capitalized in accordance with GAAP.
Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has good
and valid title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the
Commission Documents or on Schedule 2.1(l) hereto or such that, individually or
in the aggregate, do not cause a Material Adverse Effect. All such leases of the
Company and each of its Subsidiaries are valid and subsisting and in full force
and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Documents or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or other proceeding pending or, to the knowledge of the Company,
threatened against or involving the Company, any Subsidiary or any of their
respective properties or assets, which individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
Subsidiary or any officers or directors of the Company or any Subsidiary in
their capacities as such, which individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
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(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or on Schedule
2.1(n) hereto or such that, individually or in the aggregate, the noncompliance
therewith could not reasonably be expected to have a Material Adverse Effect.
The Company and each of its Subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as set forth in the Commission Documents or on
Schedule 2.1(o) hereto, the Company and each of the Subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid all taxes shown to be due and all additional
assessments, and adequate provisions have been and are reflected in the
financial statements of the Company and the Subsidiaries for all current taxes
and other charges to which the Company or any Subsidiary is subject and which
are not currently due and payable. Except as disclosed on Schedule 2.1(o)
hereto, none of the federal income tax returns of the Company or any Subsidiary
has been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) of any nature whatsoever, whether pending or threatened
against the Company or any Subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' structuring fees,
financial advisory fees or other similar fees in connection with the Transaction
Documents.
(q) Disclosure. Neither this Agreement or the Schedules hereto nor any
other documents, certificates or instruments furnished to the Purchasers by or
on behalf of the Company or any Subsidiary in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.
(r) Intellectual Property. Except as set forth in Schedule 2.1(r), the
Company and each of its Subsidiaries is the owner of all, or has a license under
all of, the material Copyrights, Patents, Trade Secrets, Trademarks, Internet
Assets, Software and other proprietary rights (collectively, "Intellectual
Property") that are used in connection with its business as presently conducted,
free and clear of all liens or other encumbrances.
(i) None of the Intellectual Property owned by the Company or any
of its Subsidiaries is subject to any outstanding Order, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand is
pending or, to the knowledge of the Company, threatened, which challenges the
validity, enforceability, use or ownership of the item.
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(ii) The Company and each of its Subsidiaries has substantially
performed all material obligations imposed upon it under any material license,
material sublicenses, material distribution agreement or other material
agreement relating to any Intellectual Property not owned by the Company or any
of its Subsidiaries, and is not, nor to the knowledge of the Company, is any
other party thereto, in material breach of any material terms or default of any
material terms thereunder in any respect, nor is there any event which with
notice or lapse of time or both would constitute a default thereunder. All such
Intellectual Property licenses are valid, enforceable and in full force and
effect, and will continue to be so on identical terms immediately following the
Closing except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(iii) Except as set forth in Schedule 2.1(r)(iii) and except as
disclosed in the Commission Documents, to the knowledge of the Company, none of
the Intellectual Property currently sold or licensed by the Company or any of
its Subsidiaries to any Person, or, to the knowledge of the Company, used by or
licensed to the Company or any of its Subsidiaries by any Person, infringes in
any material respect upon or otherwise violates in any material respect any
Intellectual Property rights of others, and the Company has no reason to believe
otherwise.
(iv) Except as disclosed in the Commission Documents, no
litigation is pending and, to the knowledge of the Company, no claim has been
made against the Company or any of its Subsidiaries or, to the knowledge of the
Company, is threatened, contesting the right of the Company or any of its
Subsidiaries to sell or license to any Person or use the Intellectual Property
presently sold or licensed to such Person or used by the Company or any of its
Subsidiaries.
(v) Except as disclosed in the Commission Documents, to the
knowledge of the Company, no Person is infringing upon or otherwise violating
the Intellectual Property rights of the Company or any of its Subsidiaries.
(vi) No former employer of any employee of the Company or any of
its Subsidiaries, and no consultant of the Company or any of its Subsidiaries,
has made a claim against the Company or any of its Subsidiaries or, to the
knowledge of the Company, against any other Person, that such employee or such
consultant is utilizing Intellectual Property of such former employer or
consultant.
(vii) To the knowledge of the Company, no employee of the Company
or any of its Subsidiaries is in violation of any employment agreement,
confidentiality agreement, patent assignment or invention disclosure agreement
or other contract or agreement setting forth the terms of employment of such
employee with the Company or any of its Subsidiaries or any prior employer.
(viii) To the knowledge of the Company, none of the material
Trade Secrets of the Company, wherever located, the value of which is contingent
upon maintenance of
9
confidentiality thereof, has been disclosed to any Person other than employees,
representatives and agents of the Company or any of its Subsidiaries or to other
Persons who have executed appropriate nondisclosure agreements, except as
required pursuant to the filing of a patent application by the Company or any of
its Subsidiaries.
(ix) All present key employees of the Company and each of its
Subsidiaries have executed and delivered invention agreements with the Company
and each of its Subsidiaries, and are obligated under the terms thereof to
assign all inventions made by them during the course of employment to the
Company and each of its Subsidiaries. No such employee or present consultant of
the Company or any of its Subsidiaries has excluded works or inventions used by
the Company but made prior to his employment with, or work for, the Company or
any of its Subsidiaries from his assignment of inventions pursuant to such
proprietary invention agreements.
(x) As used in this Section 2.1(r), the following terms have the
meanings indicated.
(xi) "Copyrights" means any foreign or United States copyright
registrations and applications for registration thereof, and any non-registered
copyrights. "Software" means any computer software programs, source code, object
code, data and documentation, including, without limitation, any computer
software programs that incorporate and run the Company's pricing models,
formulae and algorithms.
(xii) "Internet Assets" means any Internet domain names, Internet
and world wide web URLs or addresses, and other computer user identifiers and
any rights in and to sites on the worldwide web, including rights in and to any
text, graphics, audio and video files and html or other code incorporated in
such sites.
(xiii) "Patents" means any foreign or United States patents and
patent applications, including any divisions, continuations,
continuations-in-part, substitutions or reissues thereof, whether or not patents
are issued on such applications and whether or not such applications are
modified, withdrawn or resubmitted.
(xiv) "Trade Secrets" means any confidential and proprietary
information including, but not limited to, research records, processes,
procedures, manufacturing formulae, technical know-how, technology, blue prints,
designs, plans, inventions (whether patentable and whether reduced to practice),
invention disclosures and improvements thereto not generally known in the
industry.
(xv) "Trademarks" means any foreign or United States trademarks,
service marks, trade dress, trade names, brand names, designs and logos,
corporate names, product or service identifiers, whether registered or
unregistered, and all registrations and applications for registration thereof.
(s) Environmental Compliance. Except as disclosed in the Commission
Documents or on Schedule 2.1(s) hereto, the Company and each of its Subsidiaries
have
10
obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any Environmental
Laws. "Environmental Laws" shall mean all applicable laws relating to the
protection of the environment including, without limitation, all requirements
pertaining to reporting, licensing, permitting, controlling, investigating or
remediating emissions, discharges, releases or threatened releases of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, into the air,
surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature.
Except as set forth on Schedule 2.1(s) hereto, the Company has all necessary
governmental approvals required under all Environmental Laws and used in its
business or in the business of any of its Subsidiaries, except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect. The Company and each of its Subsidiaries are also in compliance with all
other limitations, restrictions, conditions, standards, requirements, schedules
and timetables required or imposed under all Environmental Laws. Except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting the Company
or its Subsidiaries that violate or would be reasonably likely to violate any
Environmental Law after the Closing or that would be reasonably likely to give
rise to any environmental liability, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including, without limitation,
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
(t) Books and Records; Internal Accounting Controls. The records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and its
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient 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 GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences and (v) accounts, notes and other receivables and inventory are
recorded accurately, and proper and adequate procedures are implemented to
effect the collection thereof on a current and timely basis. Except as set forth
on Schedule 2.1(t) hereto, there are no significant deficiencies or material
weaknesses in the design or operation of internal controls over financial
reporting that would reasonably be expected to adversely affect the Company's
ability to record, process, summarize and report financial information, and
there is no fraud, whether or not material, that involves management or, to the
knowledge of the Company, other employees who have a significant role in the
11
Company's internal controls and the Company has provided to the Purchaser copies
of any written materials relating to the foregoing.
(u) Material Agreements. Except for the Transaction Documents (with
respect to clause (i) of this Section 2.1(u) only) or as set forth in the
Commission Documents or on Schedule 2.1(u) hereto, or as would not be reasonably
likely to have a Material Adverse Effect, (i) the Company and each of its
Subsidiaries have performed all obligations required to be performed by them to
date under any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, filed or required to be filed with the
Commission (the "Material Agreements"), (ii) neither the Company nor any of its
Subsidiaries has received any notice of default under any Material Agreement
and, (iii) to the best of the Company's knowledge, neither the Company nor any
of its Subsidiaries is in default under any Material Agreement.
(v) Transactions with Affiliates. Except as set forth in the
Commission Documents or on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Company, any Subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its Subsidiaries, or any person owning any capital stock of the Company or any
Subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder which, in each case, is required to be disclosed in the
Commission Documents or in the Company's most recently filed definitive proxy
statement on Schedule 14A, that is not so disclosed in the Commission Documents
or in such proxy statement.
(w) Securities Act of 1933. Subject to the accuracy and completeness
of the representations and warranties of the Purchasers contained in Section 2.2
hereof, the Company has complied and will comply with all applicable federal and
state securities laws in connection with the offer, issuance and sale of the
Securities hereunder. Neither the Company nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit offers to buy
any of the Securities or similar securities to, or solicit offers with respect
thereto from, or enter into any negotiations relating thereto with, any person,
or has taken or will take any action so as to bring the issuance and sale of any
of the Securities under the registration provisions of the Securities Act and
applicable state securities laws, and neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
any of the Securities.
(x) Governmental Approvals. Except as set forth on Schedule 2.1(x)
hereto, and except for the filing of any notice prior or subsequent to the
Closing that may be required under applicable state and/or federal securities
laws (which if required, shall be filed on a timely basis), no authorization,
consent, approval, license, exemption of, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the
12
execution or delivery of the Securities, or for the performance by the Company
of its obligations under the Transaction Documents.
(y) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth on Schedule 2.1(y) hereto or disclosed in the Commission
Documents. Except as set forth on Schedule 2.1(y) hereto or disclosed in the
Commission Documents, neither the Company nor any Subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
Subsidiary required to be disclosed in the Commission Documents that is not so
disclosed. Since September 30, 2004, no officer, consultant or key employee of
the Company or any Subsidiary whose termination, either individually or in the
aggregate, would be reasonably likely to have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or any
Subsidiary.
(z) Labor Relations. Except as could not reasonably be expected to
have a Material Adverse Effect, (i) neither the Company nor any of its
Subsidiaries is engaged in any unfair labor practice, (ii) there is no strike,
labor dispute, slowdown or stoppage pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries, and (iii) neither the
Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or contract.
(aa) Absence of Certain Developments. Except as disclosed in the
Commission Documents or on Schedule 2.1(aa) hereto, since September 30, 2004,
neither the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
right, options or warrants with respect thereto;
(ii) borrowed any amount in excess of $300,000 or incurred or
become subject to any other liabilities in excess of $100,000 (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion of its
prior fiscal year, as adjusted to reflect the current nature and volume of the
business of the Company and its Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance in excess
of $250,000 or paid any obligation or liability (absolute or contingent) in
excess of $250,000, other than current liabilities paid in the ordinary course
of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock, in each case in excess of $50,000 individually or $100,000 in the
aggregate;
13
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, in each case in excess of $100,000, except in the
ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any material transaction, whether or not in the
ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$10,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment; or
(xiv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(bb) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
Subsidiaries which is or would be materially adverse to the Company and its
Subsidiaries. The execution and delivery of this Agreement and the issuance and
sale of the Securities will not involve any transaction which is subject to the
prohibitions of Section 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or in connection with which a tax could be imposed
14
pursuant to Section 4975 of the Internal Revenue Code of 1986, as amended,
provided that, if any of the Purchasers, or any person or entity that owns a
beneficial interest in any of the Purchasers, is an "employee pension benefit
plan" (within the meaning of Section 3(2) of ERISA) with respect to which the
Company is a "party in interest" (within the meaning of Section 3(14) of ERISA),
the requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are
met. As used in this Section 2.1(cc), the term "Plan" shall mean an "employee
pension benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any Subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any Subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(dd) Independent Nature of Purchasers. The Company acknowledges that
the obligations of each Purchaser under the Transaction Documents are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser under the Transaction Documents and the Company shall not be
excused from performance of its obligations to any Purchaser under the
Transaction Documents as a result of nonperformance or breach by any other
Purchaser. The Company acknowledges that the decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by such Purchaser
independently of any other purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of its Subsidiaries which may have
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any Purchaser (or any other person) relating to or arising from any
such information, materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for one of the
Purchasers and such counsel does not represent all of the Purchasers but only
such Purchaser and the other Purchasers have retained their own individual
counsel with respect to the transactions contemplated hereby. The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers. The Company acknowledges
that such procedure with respect to the Transaction Documents in no way creates
a presumption that the Purchasers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.
(ee) Suppliers and Customers.
15
(i) Schedule 2.1(ee)(i) attached hereto accurately sets forth a
list of the top five suppliers of goods or services in terms of the aggregate
purchases by the Company for the fiscal year ended December 31, 2003 and the
nine (9) months ended September 30, 2004, showing the aggregate amount which the
Company paid to each such supplier during such periods. The relationships of the
Company with its suppliers are good commercial working relationships. The
Company is not in default of nor has the Company breached any agreement with any
such supplier. No such supplier has terminated or threatened to terminate, its
relationship with the Company or has during the last twelve (12) months
materially decreased, limited, or changed the terms and conditions for, the
supply of its goods or services to the Company, or threatened to do so, nor does
the Company know of any written or oral communication, fact, event or action
which exists or has occurred which would indicate that any supplier of the
Company would do so, whether as a result of the transaction contemplated hereby
or otherwise. Except as set forth on Schedule 2.1(ee)(i), no supplier for the
Company is a sole source of supply of any good or service to the Company.
(ii) Schedule 2.1(ee)(ii) attached hereto accurately sets forth a
list of the top five customers of the Company by revenue for the fiscal year
ended December 31, 2003 and the nine (9) months ended September 30, 2004,
showing the approximate aggregate revenues of the Company from each such
customer during such periods. The relationships of the Company with its
customers are good commercial working relationships. No such customer has
terminated or threatened to terminate, its relationship with the Company or has
during the last twelve (12) months materially decreased, limited or otherwise
changed the terms and conditions for, the purchase of goods or services from the
Company, or threatened to do so, nor does the Company know of any written or
oral communication, fact, event or action which exists or has occurred which
would indicate that any customer of the Company would do so, whether as a result
of the transaction contemplated hereby or otherwise.
(ff) Anti-takeover Device. Neither the Company nor any of its
Subsidiaries has any outstanding shareholder rights plan or "poison pill" or any
similar arrangement. There are no provisions of any anti-takeover or business
combination statute applicable to the Company, the Articles of Incorporation and
the Bylaws which would preclude the issuance and sale of the Securities, the
reservation for issuance of the Warrant Shares and the consummation of the other
transactions contemplated by this Agreement or any of the other Transaction
Documents.
(gg) No Integrated Offering. 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 cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Regulation D and Rule 506 thereof under
the Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Securities to be
integrated with other offerings if such other offering, if integrated, would
cause the offer and sale of the Securities not to be exempt from registration
pursuant to Regulation D and Rule 506 thereof under the Securities Act. The
Company does not have any registration
16
statement pending before the Commission or currently under the Commission's
review and except as set forth on Schedule 2.1(gg) hereto, since September 1,
2004, the Company has not offered or sold any of its equity securities or debt
securities convertible into shares of Common Stock.
(hh) Xxxxxxxx-Xxxxx Act(ii). The Company is in compliance with the
applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the "Xxxxxxxx-Xxxxx
Act"), and the rules and regulations promulgated thereunder, that are effective
and for which compliance by the Company is required as of the date hereof and
intends to comply with other applicable provisions of the Xxxxxxxx-Xxxxx Act,
and the rules and regulations promulgated thereunder, upon the effectiveness of
such provisions or the date by which compliance therewith by the Company is
required.
(jj) Series E Preferred Stockholders. The Company has obtained proxies
evidencing the approval of at least two-thirds (2/3) of the outstanding shares
of the Company's Series E Convertible Preferred Stock to the consummation of the
transactions contemplated by this Agreement.
Section 2.2 Representations and Warranties of the Purchasers. Each of
the Purchasers hereby represents and warrants to the Company with respect solely
to itself and not with respect to any other Purchaser as follows as of the date
hereof and as of the Closing Date, except as set forth on the Schedule of
Exceptions attached hereto with each numbered schedule corresponding to the
section number herein:
(a) Organization and Standing of the Purchasers. If the Purchaser is
an entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Such Purchaser has the requisite power
and authority to enter into and perform the Transaction Documents and to
purchase the Securities being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by such Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate, partnership or other action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders,
partners or members, as the case may be, is required. When executed and
delivered by the Purchasers, the other Transaction Documents shall constitute
valid and binding obligations of such Purchaser enforceable against such
Purchaser in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
(c) No Conflict. The execution, delivery and performance of the
Transaction Documents by such Purchaser and the consummation by such Purchaser
of the transactions contemplated thereby and hereby do not and will not (i)
violate any provision of such Purchaser's charter or organizational documents,
(ii) conflict with, or constitute a default (or an
17
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which such Purchaser is a
party or by which such Purchaser's respective properties or assets are bound, or
(iii) result in a violation of any federal, state, local or foreign statute,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to such Purchaser or by which any
property or asset of such Purchaser are bound or affected, except, in all cases,
other than violations pursuant to clauses (i) or (iii) (with respect to federal
and state securities laws) above, for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, materially and adversely affect such
Purchaser's ability to perform its obligations under the Transaction Documents.
(d) Acquisition for Investment. Such Purchaser is purchasing the
Shares and Warrants and will purchase any Warrant Shares solely for its own
account for the purpose of investment and not with a view to or for sale in
connection with distribution. Such Purchaser does not have a present intention
to sell any of the Shares, Warrants or Warrant Shares, nor a present arrangement
(whether or not legally binding) or intention to effect any distribution of any
of the Shares, the Warrants or the Warrant Shares to or through any person or
entity; provided, however, that by making the representations herein, such
Purchaser does not agree to hold the Shares, the Warrants or the Warrant Shares
for any minimum or other specific term and reserves the right to dispose of the
Shares, the Warrants or the Warrant Shares at any time in accordance with
Federal and state securities laws applicable to such disposition. Such Purchaser
acknowledges that it (i) has such knowledge and experience in financial and
business matters such that Purchaser is capable of evaluating the merits and
risks of Purchaser's investment in the Company, (ii) is able to bear the
financial risks associated with an investment in the Securities and (iii) has
been given full access to such records of the Company and the Subsidiaries and
to the officers of the Company and the Subsidiaries as it has deemed necessary
or appropriate to conduct its due diligence investigation.
(e) Rule 144. Such Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Such Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General. Such Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Such Purchaser understands that no
18
United States federal or state agency or any government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
(g) No General Solicitation. Such Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications. Such Purchaser, in making the decision to purchase the
Securities, has relied upon independent investigation made by it and the
representations, warranties, agreements, acknowledgments and understandings set
forth in the Transaction Documents and has not relied on any information or
representations made by third parties.
(h) Accredited Investor. Such Purchaser is an "accredited investor"
(as defined in Rule 501 of Regulation D), and such Purchaser has such experience
in business and financial matters that it is capable of evaluating the merits
and risks of an investment in the Securities. Such Purchaser is not required to
be registered as a broker-dealer under Section 15 of the Exchange Act and such
Purchaser is not a broker-dealer. Such Purchaser acknowledges that an investment
in the Securities is speculative and involves a high degree of risk. Such
Purchaser has completed or caused to be completed the Investor Questionnaire
Certification attached hereto as Exhibit F certifying as to its status as an
"accredited investor" and understands that the Company is relying upon the truth
and accuracy of such information set forth therein to determine the suitability
of such Purchaser to acquire the Securities.
(i) Certain Fees. The Purchasers have not employed any broker or
finder or incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
(j) Independent Investment. No Purchaser has agreed to act with any
other Purchaser for the purpose of acquiring, holding, voting or disposing of
the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Securities.
(k) No Shorting. No Purchaser has engaged in any short sales of the
Common Stock or instructed any third parties to engage in any short sales of the
Common Stock on its behalf prior to the Closing Date. Each Purchaser covenants
and agrees that it will not be in a net short position with respect to the
shares of Common Stock. For purposes of this Section 2.2(k), a "net short
position" means a sale of Common Stock by a Purchaser that is marked as a short
sale and that is made at a time when there is no equivalent offsetting long
position in Common Stock held by such Purchaser.
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ARTICLE III
COVENANTS
The Company covenants with each Purchaser as follows, which covenants are
for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchasers, or their respective subsequent holders.
Section 3.2 Registration and Listing. The Company shall cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, to comply in all respects with its reporting and filing
obligations under the Exchange Act, to comply with all requirements related to
any registration statement filed pursuant to this Agreement, and to not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
OTC Bulletin Board or any successor market. Subject to the terms of the
Transaction Documents, the Company further covenants that it will take such
further action as the Purchasers may reasonably request, all to the extent
required from time to time to enable the Purchasers to sell the Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act. Upon the
request of the Purchasers, the Company shall deliver to the Purchasers a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
Section 3.3 Required Registration. As promptly as practicable after
the Closing, but in no event later than the earlier of (A) the one hundred
fiftieth (150th) day following the Closing Date or (B) the thirtieth (30th) day
following the closing date of the Subsequent Common Stock Financing (as defined
in Section 3.16(b) hereof), the Company agrees to file a registration statement
on the appropriate form with the Commission to register the resale of all of the
Shares and Warrant Shares pursuant to the terms of the Registration Rights
Agreement attached hereto as Exhibit E.
Section 3.4 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Shares or shall beneficially own
any Shares or Warrant Shares, for purposes reasonably related to such
Purchaser's interests as a stockholder to examine and make reasonable copies of
the records and books of account of, and visit and inspect the properties,
assets, operations and business of the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of its officers, consultants, directors, and key employees.
20
Section 3.5 Compliance with Laws. The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which would be reasonably likely to have a Material
Adverse Effect.
Section 3.6 Keeping of Records and Books of Account. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries.
Section 3.7 Reporting Requirements. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall, promptly after filing with the Commission, furnish the following to each
Purchaser so long as such Purchaser shall be obligated hereunder to purchase the
Securities or shall beneficially own Shares or Warrant Shares:
(a) Quarterly Reports filed with the Commission on Form 10-QSB;
(b) Annual Reports filed with the Commission on Form 10-KSB; and
(c) Copies of all notices, information and proxy statements in
connection with any meetings, that are, in each case, provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability of the Company or any Subsidiary to perform its obligations
under any Transaction Document.
Section 3.9 Use of Proceeds. The net proceeds from the sale of the
Shares will be used by the Company for working capital and general corporate
purposes.
Section 3.10 Reporting Status. So long as a Purchaser beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the Commission pursuant to the Exchange Act, and the Company
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
Section 3.11 Disclosure of Transaction. The Company shall issue a
press release describing the material terms of the transactions contemplated
hereby (the "Press Release") as soon as practicable after the date of this
Agreement but in no event later than one day after the date hereof; provided,
however, that if the signing of this Agreement occurs after 4:00 P.M. Eastern
Time on any Trading Day, the Company shall issue the Press Release no later than
9:00 A.M. Eastern Time on the first Trading Day following the date of this
Agreement. The Company shall also file with the Commission a Current Report on
Form 8-K (the "Form 8-K") describing the material terms of the transactions
contemplated hereby (and attaching as exhibits thereto this Agreement, the
Registration Rights Agreement, the Lock-Up Agreement (as defined
21
in Section 3.19 hereof), the form of Warrant and the Press Release) as soon as
practicable following the date hereof but in no event more than two (2) Trading
Days following the date hereof, which Press Release and Form 8-K shall be
subject to prior review and comment by the Purchasers. "Trading Day" means any
day during which the OTC Bulletin Board (or other principal exchange on which
the Common Stock is traded) shall be open for trading.
Section 3.12 Disclosure of Material Information. The Company covenants
and agrees that neither it nor any other person acting on its behalf has
provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
Section 3.13 Form D. The Company agrees to file a Form D with respect
to the Securities as required by Rule 506 under Regulation D and to provide a
copy thereof to the Purchasers promptly after such filing.
Section 3.14 No Integrated Offerings. The Company shall not make any
offers or sales of any security (other than the Securities being offered or sold
hereunder) under circumstances that would require registration of the Securities
being offered or sold hereunder under the Securities Act.
Section 3.15 Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by a Purchaser in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
Common Stock. The pledge of Common Stock shall not be deemed to be a transfer,
sale or assignment of the Common Stock hereunder, and no Purchaser effecting a
pledge of Common Stock shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document; provided that a Purchaser and its pledgee
shall be required to comply with the provisions of Article V hereof in order to
effect a sale, transfer or assignment of Common Stock to such pledgee. At the
Purchasers' expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Common Stock may reasonably request in
connection with a pledge of the Common Stock to such pledgee by a Purchaser.
Section 3.16 Subsequent Financings; Right of First Refusal; Other
Restrictive Covenants.
(a) For a period of one (1) year following the Closing Date and so
long as Sharad Tak or his designees collectively beneficially own at least fifty
percent (50%) of the Shares purchased by such Purchaser pursuant to this
Agreement, the Company covenants and agrees to promptly notify (in no event
later than five (5) trading days after making or receiving an applicable offer)
in writing (a "Rights Notice") the Purchasers of the terms and conditions of any
proposed offer or sale to, or exchange with (or other type of distribution to)
any third party (a "Subsequent Financing"), of any Common Stock or securities
convertible, exercisable or exchangeable into Common Stock, including
convertible preferred and debt securities
22
(collectively, the "Financing Securities"). The Rights Notice shall describe, in
reasonable detail, the proposed Subsequent Financing, the proposed closing date
of the Subsequent Financing, which shall not be sooner than twenty (20) calendar
days from the date the Rights Notice is given nor later than forty five (45)
calendar days from the date the Rights Notice is given, including, without
limitation, all of the material terms and conditions thereof and proposed
definitive documentation to be entered into in connection therewith. The Rights
Notice shall provide each Purchaser an option (the "Rights Option") during the
five (5) trading days following delivery of the Rights Notice (the "Option
Period") to purchase up to its "pro rata" portion, on a basis with all Other
Purchasers (as defined below), of the securities being offered in such
Subsequent Financing on the same terms and conditions as contemplated by such
Subsequent Financing (the "First Refusal Rights"). If any Purchaser or Other
Purchaser elects not to participate in such Subsequent Financing, the other
Purchasers may participate on a pro-rata basis so long as such participation in
the aggregate does not exceed the total Purchase Price hereunder plus the total
purchase price pursuant to the Other Purchase Agreements (as defined below). For
purposes of this Section, all references to "pro rata" means, for any Purchaser
electing to participate in such Subsequent Financing, the percentage obtained by
dividing (x) the total number of Shares purchased by such Purchaser at the
Closing by (y) the total number of Shares purchased by all of the participating
Purchasers at the Closing plus the total number of shares of Common Stock (or
the number of shares of Common Stock into which any convertible securities are
convertible into) purchased by the participating Other Purchasers pursuant to
the Other Purchase Agreements. Delivery of any Rights Notice constitutes a
representation and warranty by the Company that there are no other material
terms and conditions, arrangements, agreements or otherwise except for those
disclosed in the Rights Notice, to provide additional compensation to any party
participating in any proposed Subsequent Financing, including, but not limited
to, additional compensation based on changes in the Purchase Price or any type
of reset or adjustment of a purchase or conversion price or to issue additional
securities at any time after the closing date of a Subsequent Financing. If the
Company does not receive notice of exercise of the Rights Option from any of the
Purchasers or Other Purchasers within the Option Period, the Company shall have
the right to close the Subsequent Financing on the scheduled closing date with a
third party (and, if applicable, with such Purchasers and Other Purchasers as
shall have exercised their Rights Option); provided that all of the material
terms and conditions of the closing are the same as those provided to the
Purchasers and Other Purchasers in the Rights Notice. If the closing of the
proposed Subsequent Financing does not occur within forty-five (45) days from
the date the Rights Notice is given, any closing of the contemplated Subsequent
Financing or any other Subsequent Financing shall be subject to all of the
provisions of this Section, including, without limitation, the delivery of a new
Rights Notice. For purposes hereof, "Other Purchasers" shall mean the other
purchasers of equity securities of the Company that have rights similar to the
rights contained in this Section 3.16(a) pursuant to the purchase agreements
("Other Purchase Agreements") entered into among the Company and the Other
Purchasers.
(b) For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing. A "Permitted
Financing" shall mean (1) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (2) securities issued pursuant to
a bona fide firm underwritten public offering of the Company's securities, (3)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date hereof or
23
issued pursuant to this Agreement, (4) the Warrant Shares, (5) securities issued
in connection with bona fide strategic alliances or other partnering
arrangements so long as such issuances are not for the purpose of raising
capital, (6) Common Stock issued or options to purchase Common Stock granted or
issued pursuant to the Company's stock option plans and employee stock purchase
plans as they now exist (7) any warrants issued to the placement agent for the
transactions contemplated by this Agreement or for other financial advisory
services rendered to the Company and (8) the issuance of up to $2,000,000 of
shares of Common Stock on terms substantially similar to the terms of this
Agreement to be consummated within one hundred twenty (120) days of the Closing
Date (the "Subsequent Common Stock Financing"); provided, however, if the price
per share of Common Stock issued in the Subsequent Common Stock Financing is
less than the Per Share Purchase Price, the Company shall promptly issue
additional shares of Common Stock to Sharad Tak or his designees in an amount
equal to (A) the number of shares of Common Stock such Purchaser would have
purchased pursuant to this Agreement based upon such Purchaser's portion of the
Purchase Price at the price per share of Common Stock issued in the Subsequent
Common Stock Financing, minus (B) the number of shares of Common Stock purchased
by such Purchaser pursuant to this Agreement.
(c) For a period of one (1) year following the Closing Date and so
long as Sharad Tak or his designees collectively beneficially own at least fifty
percent (50%) of the Shares purchased by such Purchaser pursuant to this
Agreement, the Company shall not, without the affirmative vote or consent of
Sharad Tak and stockholders owning at least ten percent (10%) of the shares of
Common Stock issued and outstanding at such time (including any shares of Common
Stock issuable upon conversion of outstanding preferred stock of the Company):
(i) effect a sale of substantially all of the assets of the Company, a
consolidation, merger or other business combination of the Company with or into
another entity or any other type of change of control transaction; (ii)
repurchase any of the Company's outstanding shares of capital stock; or (iii)
enter into any contracts relating to the Company's initiatives requiring
outsourcing activities.
Section 3.17 Board Membership; Board Observer Rights. So long as
Sharad Tak directly or through his designees beneficially owns shares of the
Company which equal at least fifty percent (50%) of the Shares purchased by such
Purchaser pursuant to this Agreement, the Company (i) shall, at its next annual
or special meeting in which members of the Board of Directors are elected,
nominate and recommend to its stockholders for election Sharad Tak or his
designee to serve as a member of the Board of Directors and at each succeeding
annual or special meeting, as necessary to extend the tenure of such director,
nominate and recommend to its stockholders for election Sharad Tak or his
designee to serve as a member of the Board of Directors and (ii) agrees that in
addition to representation on the Board of Directors, Sharad Tak or his designee
shall have the right to serve as an observer of the Board of Directors. The
Company acknowledges its understanding that Sharad Tak is acting independently
and solely on his own behalf and not in conjunction with any other Purchaser.
The Company shall provide Sharad Tak or his designee with such notice as is
given to the other directors of the Company, but in no case less than
forty-eight (48) hours prior written notice of any meetings of the Company's
Board of Directors. Sharad Tak and/or his designee may elect in such person's
sole discretion to attend such meetings of the Company's Board of Directors.
24
Section 3.18 Reverse Stock Split. The Company shall seek stockholder
approval at its next annual or special meeting of stockholders to approve a
reverse stock split of the Common Stock in a ratio to be determined by the
Company (the "Reverse Stock Split"). The Reverse Stock Split shall be effected
at such time as the Company designates and only in connection with the listing
of the Common Stock on the Nasdaq SmallCap Market or the Nasdaq National Market.
Section 3.19 Lock-Up Agreement. The persons listed on Schedule 3.16
attached hereto shall be subject to the terms and provisions of a lock-up
agreement in substantially the form as Exhibit D hereto (the "Lock-Up
Agreement"), which shall provide the manner in which such persons will sell,
transfer or dispose of their shares of Common Stock.
Section 3.20 Confidentiality. Each party agrees that it will not
disclose and it will cause its officers, directors, employees, representatives,
agents, and advisers not to disclose, any Confidential Information (as
hereinafter defined) with respect to the other party furnished, at any time or
in any manner, provided that (i) any disclosure of such information may be made
to which the Company and Purchaser consent in writing; and (ii) such information
may be disclosed if so required by law or regulatory authority. "Confidential
Information" means information or knowledge obtained in any due diligence or
other investigation relating to the negotiation and execution of this Agreement,
information relating to the terms of the transactions contemplated hereby and
any information identified as confidential in writing from one party to the
other; provided, however, that Confidential Information shall not include
information or knowledge that (a) becomes generally available to the public
absent any breach of this Section 3.20, (b) was available on a non-confidential
basis to a party prior to its disclosure pursuant to this Agreement, or (c)
becomes available on a non-confidential basis from a third party who is not
bound to keep such information confidential. In the event of the termination of
this Agreement, each party will promptly return all documents, contracts,
records, or properties to the other party and destroy all copies of such
Confidential Information.
Section 3.21 Subsequent Common Stock Financing. The Company shall use
its best efforts to consummate the Subsequent Common Stock Financing within one
hundred twenty (120) days of the Closing Date in an amount equal to or greater
than $1,500,000; provided, however, if the Company does not consummate the
Subsequent Common Stock Financing within one hundred twenty (120) days of the
Closing Date in an amount equal to or greater than $1,500,000, then (i) the
exercise price of the Warrants issued to Sharad Tak or his designees shall be
adjusted to $.50 per share, and (ii) the Company shall issue within three (3)
business days to Sharad Tak or his designees additional shares of Common Stock
equal to the number of Shares purchased by such Purchaser pursuant to the terms
of this Agreement.
Section 3.22 Best Efforts. Each of the parties hereto shall use its
best efforts to satisfy each of the conditions to be satisfied by it as provided
in Sections 4.1 and 4.2 of this Agreement.
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ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Securities. The obligation hereunder of the Company to
close and issue and sell the Securities to the Purchasers at the Closing Date is
subject to the satisfaction or waiver, at or before the Closing of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchasers shall have delivered to
the Company the Purchase Price for the Shares to be purchased by each Purchaser.
(e) Delivery of Transaction Documents. The Transaction Documents to
which the Purchasers are a party shall have been duly executed by the Purchasers
and delivered to the Company.
(f) Lock-Up Agreement. As of the Closing Date, the persons listed on
Schedule 3.19 hereto shall have delivered to the Company a fully executed
Lock-Up Agreement in the form of Exhibit D attached hereto.
(g) Consent of Series E Preferred Stockholders. Within ten (10) days
of the date of this Agreement, the Company shall have received the consent of at
least two-thirds (2/3) of the outstanding shares of the Company's Series E
Convertible Preferred Stock to the consummation of the transactions contemplated
by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Close and to Purchase the Securities. The obligation hereunder of each
Purchaser to purchase the Securities and consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, at or
before the Closing Date, of each of the conditions set forth below. These
conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser at any time in its sole discretion.
26
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all respects as of
the Closing Date, except for representations and warranties that speak as of a
particular date, which shall be true and correct in all material respects as of
such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. Trading in the Common Stock shall not have
been suspended by the Commission or the OTC Bulletin Board (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets ("Bloomberg") shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported by Bloomberg, or on the New York Stock Exchange, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel. The Purchasers shall have received an opinion
of counsel to the Company, dated the date of such Closing, substantially in the
form of Exhibit G hereto, with such exceptions and limitations as shall be
reasonably acceptable to counsel to the Purchasers.
(g) Shares and Warrants. At or prior to the Closing, the Company shall
have delivered to the Purchasers certificates representing the Shares (in such
denominations as each Purchaser may request) and the Warrants (in such
denominations as each Purchaser may request) duly executed by the Company, in
each case, being acquired by the Purchasers at the Closing.
(h) Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of the Closing Date, as to (i)
the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Certificate, (iii) the Bylaws, each as in effect
at the Closing, and (iv) the authority and
27
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.
(i) Officer's Certificate. On the Closing Date, the Company shall have
delivered to the Purchasers a certificate signed by an executive officer on
behalf of the Company, dated as of the Closing Date, confirming the accuracy of
the Company's representations, warranties and its compliance with covenants as
of the Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in paragraphs (b)-(e) of this Section 4.2 as of
the Closing Date (provided that, with respect to the matters in paragraphs (d)
and (e) of this Section 4.2, such confirmation shall be based on the knowledge
of the executive officer after due inquiry).
(j) Registration Rights Agreement. As of the Closing Date, the Company
shall have duly executed and delivered the Registration Rights Agreement in the
form of Exhibit E attached hereto.
(k) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
(l) Lock-Up Agreement. As of the Closing Date, the persons listed on
Schedule 3.16 hereto shall have delivered to the Purchasers a fully executed
Lock-Up Agreement in the form of Exhibit D attached hereto.
(m) Outsourcing Contract. The Company shall have entered into an
outsourcing contract with entities affiliated with Sharad Tak in the form
attached hereto as Exhibit H.
(n) Certificate of Designation of Rights and Preferences. Prior to the
Closing, the Certificate of Designation in the form of Exhibit C attached hereto
shall have been filed with the Secretary of State of Delaware.
(o) Consent of Series E Preferred Stockholders. Within ten (10) days
of the date of this Agreement, the Company shall have received the consent of at
least two-thirds (2/3) of the outstanding shares of the Company's Series E
Convertible Preferred Stock to the consummation of the transactions contemplated
by this Agreement.
(p) Officer's and Director's Legal Certificate. On the Closing Date,
the Company shall have delivered to the Purchasers a certificate signed by each
of the officers, dated as of the Closing Date, indicating that there are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental regulatory body against the Company or against such
officer of the Company in his/her capacity as such. In addition, on the Closing
Date, the Company shall have delivered to the Purchasers a certificate signed by
each of the directors of the Company, dated as of the Closing Date, indicating
that there are no outstanding orders, judgments, injunctions, awards or decrees
of any court, arbitrator or governmental regulatory body against such director
of the Company in his/her capacity as such.
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ARTICLE V
CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Securities shall
be stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required by applicable state securities or "blue
sky" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR PRESCIENT APPLIED
INTELLIGENCE, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the Shares
and the Warrant Shares, without the legend set forth above if at such time,
prior to making any transfer of any such Shares or Warrant Shares, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer and removal will not be effected until: (a) either (i) the
Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that the registration of the Shares or Warrant Shares
under the Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and has
become and remains effective under the Securities Act, (iii) the Company has
received other evidence reasonably satisfactory to the Company that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the holder provides the Company with reasonable
assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected or a valid
exemption exists with respect thereto. The Company will respond to any such
notice from a holder within five (5) business days. In the case of any proposed
transfer under this Section 5.1, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but shall
in no event be required, (x) to qualify to do business in any state where it is
not then qualified, or (y) to take any action that would subject it to tax or to
the general service of process in any state where it is not then subject. The
restrictions on transfer contained in this Section 5.1 shall be in addition to,
and not by way of limitation of, any other restrictions on transfer contained in
any other section of this Agreement. Whenever a certificate representing the
Shares or Warrant Shares is required to be issued to a Purchaser without a
legend, in lieu of delivering physical certificates representing the Shares or
Warrant
29
Shares, provided the Company's transfer agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program, the Company
shall use its reasonable best efforts to cause its transfer agent to
electronically transmit the Shares or Warrant Shares to a Purchaser by crediting
the account of such Purchaser's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system (to the extent not inconsistent with
any provisions of this Agreement).
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify and
hold harmless the Purchasers (and their respective directors, officers,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers and their directors, officers, affiliates, agents, successors and
assigns as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein. Each Purchaser severally but
not jointly agrees to indemnify and hold harmless the Company and its directors,
officers, affiliates, agents, successors and assigns from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and disbursements)
incurred by the Company and its directors, officers, affiliates, agents,
successors and assigns as a direct result of any inaccuracy in or breach of the
representations, warranties or covenants made by such Purchaser herein. The
maximum aggregate liability of each Purchaser pursuant to its indemnification
obligations under this Article VI shall not exceed the portion of the Purchase
Price paid by such Purchaser hereunder.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any indemnified party to give
notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article VI except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action, proceeding or claim is brought against an indemnified party in respect
of which indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of the
indemnifying party a conflict of interest between it and the indemnified party
exists with respect to such action, proceeding or claim (in which case the
indemnifying party shall be responsible for the reasonable fees and expenses of
one separate counsel for the indemnified parties), to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. In the event that
the indemnifying party advises an indemnified party that it will not contest
such a claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of
30
any such claim, proceeding or action, the indemnified party's costs and expenses
arising out of the defense, settlement or compromise of any such action, claim
or proceeding shall be losses subject to indemnification hereunder. The
indemnified party shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the indemnified party which relates to such action or
claim. The indemnifying party shall keep the indemnified party fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. If the indemnifying party elects to defend any such action or
claim, then the indemnified party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense. The
indemnifying party shall not be liable for any settlement of any action, claim
or proceeding effected without its prior written consent which shall not be
unreasonably withheld. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VII
TERMINATION OF AGREEMENT
Section 7.1 Termination. This Agreement may be terminated by written
notice prior to the Closing as follows:
(a) at any time on or prior to the Closing Date, by mutual written
consent of the Company and the Purchaser;
(b) at the election of either party by written notice to the other
party after 5:00 p.m., Eastern Time, on May 20, 2005, if the Closing shall not
have occurred, unless such date is extended by the mutual written consent of the
Company and the Purchasers; provided, however, that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to a party if that
party's breach of any representation, warranty, covenant or agreement under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date;
(c) at the election of the Purchasers, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of the
Company contained in this Agreement, which breach has not been cured within
fifteen (15) days of written notice to the Company of such breach; or
31
(d) at the election of the Company, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of any
Purchaser contained in this Agreement, which breach has not been cured within
fifteen (15) days of written notice to the Purchaser of such breach, provided
that the Company may terminate this Agreement only with respect to such
Purchaser.
If this Agreement so terminates, it shall become null and void and have no
further force or effect, except as provided in Section 7.2.
Section 7.2 Survival. If this Agreement is terminated and the
transactions contemplated hereby are not consummated as described above, this
Agreement shall become void and of no further force and effect, except for the
provisions of Section 3.19, Article VI, this Section 7.2 and Section 8.1;
provided, however, that (i) none of the parties hereto shall have any liability
in respect of a termination of this Agreement pursuant to Section 7.1(a) or (b)
(except as provided in Section 8.1), (ii) nothing shall relieve the Company from
liability for actual damages resulting from a termination of this Agreement
pursuant to Section 7.1(c), (iii) nothing shall relieve the Company from
liability to pay amounts due under Section 8.1 resulting from a termination of
this Agreement pursuant to Sections 7.1(b) or 7.1(c) and (iv) nothing shall
relieve the Purchaser from liability for actual damages resulting from a
termination of this Agreement pursuant to Section 7.1(d); and provided, further,
that none of the parties hereto shall have any liability for speculative,
indirect, unforeseeable or consequential damages or lost profits resulting from
any legal action relating to any termination of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, provided
that the Company shall pay all actual attorneys' fees and expenses (including
disbursements and out-of-pocket expenses) for one counsel to the Purchasers
incurred by the Purchasers in connection with (i) the preparation, negotiation,
execution and delivery of this Agreement, the Registration Rights Agreement, the
Warrants and the transactions contemplated thereunder, which payment shall be
made at Closing and shall not exceed $50,000 (exclusive of disbursements and
out-of-pocket expenses), (ii) the filing and declaration of effectiveness by the
Commission of the Registration Statement (as defined in the Registration Rights
Agreement) and (iii) any amendments, modifications or waivers of this Agreement
or any of the other Transaction Documents. In addition, the Company shall pay
all reasonable fees and expenses incurred by the Purchasers in connection with
the enforcement of this Agreement or any of the other Transaction Documents,
including, without limitation, all reasonable attorneys' fees and expenses.
Section 8.2 Specific Performance; Consent to Jurisdiction; Venue.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other
32
Transaction Documents are not performed in accordance with their specific terms
or are otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement or the other Transaction Documents and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
(b) The parties agree that venue for any dispute arising under this
Agreement will lie exclusively in the state or federal courts located in New
York County, New York, and the parties irrevocably waive any right to raise
forum non conveniens or any other argument that New York is not the proper
venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 8.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the Registration Rights Agreement, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party.
Section 8.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
Following the Closing, no provision of this Agreement may be waived or amended
other than by a written instrument signed by the Company and the Purchasers
holding at least a majority of all Shares then held by the Purchasers. Any
amendment or waiver effected in accordance with this Section 8.3 shall be
binding upon each Purchaser (and their permitted assigns) and the Company.
Section 8.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Prescient Applied Intelligence, Inc.
0000 Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxx Xxxxxxxxx
33
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
with copies (which copies
shall not constitute notice
to the Company) to: Montgomery, McCracken, Xxxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxx Xxxxxx
Xxxxxx of the Arts
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxxxx X'Xxxxx
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement with a copy to such
Purchaser's counsel set forth on Exhibit A to this
Agreement.
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other parties hereto.
Section 8.5 Waivers. No waiver by any party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 8.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Subject to Section 5.1 hereof, the Purchasers may assign the Securities and its
rights under this Agreement and the other Transaction Documents and any other
rights hereto and thereto without the consent of the Company.
Section 8.8 No 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.
Section 8.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
34
Section 8.10 Survival. The representations and warranties of the
Company and the Purchasers shall survive the execution and delivery hereof and
the Closing until the third anniversary of the Closing Date except the
agreements and covenants set forth in Articles I, III, V, VI and VII of this
Agreement shall survive the execution and delivery hereof and the Closing.
Section 8.11 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart.
Section 8.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the names of the Purchasers
without the consent of the Purchasers, which consent shall not be unreasonably
withheld or delayed, or unless and until such disclosure is required by law,
rule or applicable regulation, and then only to the extent of such requirement.
Section 8.13 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 8.14 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Warrants
and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
PRESCIENT APPLIED INTELLIGENCE, INC.
By:
-------------------------------------
Name:
Title:
PURCHASER:
By:
-------------------------------------
Name:
Title:
EXHIBIT A
LIST OF PURCHASERS
NUMBER OF SHARES, SERIES G
NAMES AND ADDRESSES PREFERRED STOCK AND
OF PURCHASERS & WARRANTS PURCHASED
------------------- --------------------------
1
EXHIBIT B
FORMS OF WARRANTS
2
EXHIBIT C
FORM OF SERIES G PREFERRED STOCK
CERTIFICATE OF DESIGNATION
3
EXHIBIT D
FORM OF LOCK-UP AGREEMENT
4
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
5
EXHIBIT F
INVESTOR QUESTIONNAIRE CERTIFICATION
PRESCIENT APPLIED INTELLIGENCE, INC.
INVESTOR QUESTIONNAIRE
(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)
To: Prescient Applied Intelligence, Inc.
This Investor Questionnaire ("Questionnaire") must be completed by each
potential investor in connection with the offer and sale of the shares of
restricted common stock and warrants of Prescient Applied Intelligence, Inc.
(the "Securities"). The Securities are being offered and sold by Prescient
Applied Intelligence, Inc. (the "Company") without registration under the
Securities Act of 1933, as amended (the "Act"), and the securities laws of
certain states, in reliance on the exemptions contained in Section 4(2) of the
Act and on Regulation D promulgated thereunder and in reliance on similar
exemptions under applicable state laws. The Company must determine that a
potential investor meets certain suitability requirements before offering or
selling Securities to such investor. The purpose of this Questionnaire is to
assure the Company that each investor will meet the applicable suitability
requirements. The information supplied by you will be used in determining
whether you meet such criteria, and reliance upon the private offering
exemptions from registration is based in part on the information herein
supplied.
This Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security. Your answers will be kept strictly confidential.
However, by signing this Questionnaire, you will be authorizing the Company to
provide a completed copy of this Questionnaire to such parties as the Company
deems appropriate in order to ensure that the offer and sale of the Securities
will not result in a violation of the Act or the securities laws of any state
and that you otherwise satisfy the suitability standards applicable to
purchasers of the Securities. All potential investors must answer all applicable
questions and complete, date and sign this Questionnaire. Please print or type
your responses and attach additional sheets of paper if necessary to complete
your answers to any item.
A. BACKGROUND INFORMATION
Name: __________________________________________________________________________
Business Address: ______________________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number: ________________________
If an individual:
Age: __________ Citizenship: ____________
If a corporation, partnership, limited liability company, trust or other entity:
Type of entity: ________________________________________________________________
State of formation: _____________________ Date of formation: ___________________
Social Security or Taxpayer Identification No. _________________________________
B. STATUS AS ACCREDITED INVESTOR
The undersigned is an "accredited investor" as such term is defined in
Regulation D under the Act, and at the time of the offer and sale of the
Securities the undersigned falls and will fall within one or more of the
following categories (Please initial one or more, as applicable): 1
----------
1 As used in this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In computing net worth for the purpose of
subsection (4), the principal residence of the investor must be valued at cost,
including cost of improvements, or at recently appraised value by an
institutional lender making a secured loan, net of encumbrances. In determining
income, the investor should add to the investor's adjusted gross income any
amounts attributable to tax exempt income received, losses claimed as a limited
partner in any limited partnership, contributions to an XXX or XXXXX retirement
plan, alimony payments, and any amount by which income from long-term capital
gains has been reduced in arriving at adjusted gross income.
6
____ (1) a BANK as defined in Section 3(a)(2) of the Act, or a savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity; a BROKER OR DEALER
registered pursuant to Section 15 of the Securities Exchange Act of 1934; an
INSURANCE COMPANY as defined in Section 2(13) of the Act; an INVESTMENT COMPANY
registered under the Investment Company Act of 1940 or a BUSINESS DEVELOPMENT
COMPANY as defined in Section 2(a)(48) of that Act; a SMALL BUSINESS INVESTMENT
COMPANY licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; a PLAN established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; an EMPLOYEE
BENEFIT PLAN within the meaning of the Employee Retirement Income Security Act
of 1974, if the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
the investment decisions made solely by persons that are accredited investors;
____ (2) a PRIVATE BUSINESS DEVELOPMENT COMPANY as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940;
____ (3) an ORGANIZATION DESCRIBED IN SECTION 501(C)(3) of the Internal Revenue
Code of 1986, as amended, CORPORATION, Massachusetts or similar BUSINESS TRUST,
or PARTNERSHIP, not formed for the specific purpose of acquiring the Securities
offered, with total assets in excess of $5,000,000;
____ (4) a NATURAL PERSON whose individual net worth, or joint net worth with
that person's spouse, at the time of such person's purchase of the Securities
exceeds $1,000,000;
____ (5) a NATURAL PERSON who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
____ (6) a TRUST, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
and
____ (7) an entity in which all of the equity owners are accredited investors
(as defined above).
IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this ____
day of April, 2005, and declares under oath that it is truthful and correct.
----------------------------------------
Print Name
By:
------------------------------------
Signature
Title:
---------------------------------
(required for any purchaser that
is a corporation, partnership,
limited liability company, trust
or other entity)
7
EXHIBIT G
FORM OF OPINION
May __, 2005
Those Purchasers Listed
on Exhibit A hereto
Re: Common Stock Purchase Agreement dated May __, 2005 by and among
Prescient Applied Intelligence, Inc. and the Purchasers
Ladies and Gentlemen:
We have been engaged by Prescient Applied Intelligence, Inc., a Delaware
corporation (the "Company") in connection with the Common Stock Purchase
Agreement dated May __, 2005 (the "Agreement") by and among the Company and
those purchasers listed on Exhibit A attached hereto (the "Purchasers"). Any
capitalized term used herein and not defined herein shall have the meaning given
to such term in the Agreement.
This opinion is being delivered pursuant to Section 4.2(f) of the
Agreement.
In connection with this opinion letter, we have examined the following
documents:
(a) The Certificate of Incorporation and bylaws of the Company;
(b) Resolutions of the Company's Board of Directors dated April ___,
2005 relating to and approving the Transaction Documents (as
hereinafter defined), certified by the Secretary of the Company
pursuant to a certificate dated April __, 2005;
(c) A certificate of the Secretary of State of Delaware regarding the
good standing of the Company;
(d) Certificates of one or more officers of the Company as to certain
factual matters;
(e) The Agreement;
(f) The Lock-Up Agreement;
(g) The Certificate of Designation;
(h) The Registration Rights Agreement; and
(i) The Warrants (the Agreement, the Lock-Up Agreement, the
Registration Rights Agreement and the Warrants being referred to
herein collectively as the "Transaction Documents").
8
We also have examined such other certificates, agreements, instruments and
documents as we have deemed necessary or appropriate in order to render the
opinions set forth herein, and we have relied on such certificates of government
officials as we have deemed appropriate. We have relied completely on the
foregoing documents and such other documents as referred to in this letter as to
all matters of fact and conclusions covered therein, and we have not undertaken
any independent verification or investigation of such factual matters.
For the purpose of this opinion, we have assumed the following: (i) the
genuineness of all signatures on the Agreement on behalf of the parties thereto
(except for those of officers of the Company); (ii) the authenticity of all
documents submitted to us as originals, and the conformity to authentic original
documents of all documents submitted to as certified, conformed, photostatic,
electronic or facsimile copies; and (iii) that the facts set forth in all
certificates referred to in this opinion are accurate and complete in all
respects. We have further assumed:
(a) that each of the parties (other than the Company) to the
Agreement has the corporate or other power and authority to enter
into and perform its obligations under the Agreement, has all
necessary governmental or other consents and authorizations to
enter into and perform their respective obligations thereunder
and to effect the transactions required of each of them thereby,
and has taken all necessary corporate or other action to
authorize the execution, delivery and performance of their
respective obligations under the Agreement; and
(b) that the Agreement and the other Transaction Documents have been
duly executed and delivered by the parties thereto (other than
the Company) by themselves or their respective duly authorized
representatives acting within the scope of their respective
authorities in accordance with applicable law, and that the
Agreement and the other Transaction Documents constitute the
legal, valid and binding obligations of the respective parties
enforceable against such parties in accordance with their terms.
Based upon the foregoing, and further subject to the assumptions,
qualifications and exceptions set forth below, we hereby advise you that in our
opinion:
1. The Company is a corporation existing and in good standing under
the laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets, and to carry on its business as
presently conducted. The Company is duly qualified as a foreign corporation to
do business and is in good standing in every state in which the failure to so
qualify would have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Transaction Documents and to
issue the Shares and the Warrants. The execution, delivery and performance of
each of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated thereby have been duly and validly authorized by
all necessary corporate action and no further consent or authorization of the
Company, its Board of Directors or its stockholders is required. Each of the
9
Transaction Documents has been duly executed and delivered and each of the
Transaction Documents constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its respective terms.
The Shares are not subject to any preemptive rights under the Certificate of
Incorporation or the Bylaws.
3. The Shares and the Warrants have been duly authorized by all
corporate action on the part of the Company and, the Shares when delivered
against payment in full as provided in the Purchase Agreement, will be validly
issued, fully paid and nonassessable. The shares of Common Stock issuable upon
exercise of the Warrants have been duly authorized by all corporate action on
the part of the Company and reserved for issuance, and when delivered against
payment in full as provided in the Warrants, will be validly issued, fully paid
and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Shares and the
Warrants do not (a) subject to receipt of approval of the Series F stockholders,
violate any provision of the Certificate of Incorporation or Bylaws, (b)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party and which is attached
as an exhibit to the Company's Form 10K for the year ending December 31, 2004,
(c) create or impose a lien, charge or encumbrance on any property of the
Company under any agreement or any commitment known to us to which the Company
is a party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (d) result in a violation of any federal or
state statute, rule, regulation, order, judgment, injunction or decree known to
us (excluding federal and state securities laws and regulations) applicable to
the Company or by which any property or asset of the Company is bound or
affected, except, in all cases other than violations pursuant to clauses (a) and
(d) above, for such conflicts, default, terminations, amendments, acceleration,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect.
5. Other than receipt of the approval of the Series F stockholders, no
consent, approval or authorization of or designation, declaration or filing with
any governmental authority on the part of the Company is required under federal
or state law, rule or regulation in connection with the valid execution,
delivery and performance of the Transaction Documents, or the offer, sale or
issuance of the Shares and the Warrants other than filings as may be required by
applicable federal and state securities laws.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Agreement or the transactions contemplated thereby or any action
taken or to be taken pursuant thereto. To our knowledge, there is no action,
suit, claim, investigation or proceeding pending, or threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, would result in a Material Adverse Effect.
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7. On the assumption that the representations, warranties and
covenants of the Purchasers contained in the Agreement are true and complete,
the issuance and sale of the Shares and the Warrants under the Transaction
Documents are exempt from the registration requirements of section 5 of the
Securities Act of 1933, as amended.
8. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
The words "our knowledge," as used above, signify the actual knowledge that
any such opinion is not accurate or that any of the documents, certificates,
reports, or information on which we have relied is not accurate and complete. We
have undertaken no independent investigations or verifications and have
performed no independent due diligence other than an examination of the
Transaction Documents. The words "our knowledge" and "our attention" are
intended to be limited to the knowledge of the lawyers within our firm who we
reasonably believe have knowledge of certain of the affairs of the Company
through their representation of the Company: Xxxxxxxx X'Xxxxx, Xxxxxx X.
Xxxxxxxxx and Xxxxxxxxxxx X Xxxxx.
The foregoing opinions are rendered only to the Purchasers and are intended
solely for the Purchasers' benefit in connection with the transaction described
above. These opinions may not be quoted or furnished to or relied upon by such
addressee or any other person or entity for any other purpose without our prior
written consent. We are not assuming any professional responsibility to any
other person by rendering these opinions.
The foregoing opinions are given as of the date hereof and no opinion is
expressed as to the effect of any amendment to any of the documents mentioned
herein or any change in fact, circumstance or law. We disclaim any
responsibility to inform the addressee hereof or any other entity of any such
amendment or change that may come to our attention.
The foregoing opinions are subject to (i) the exercise of judicial
discretion in accordance with general principles of equity (whether applied by a
court of law or by a court of equity); (ii) a finding by a court having
jurisdiction that the enforcement of a particular provision or remedy would be
contrary to public policy; (iii) the valid exercise of the constitutional powers
of the United States of America and the sovereign police and taxing powers of
any state or other governmental units having jurisdiction. The opinions given
above are further subject to (a) bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance or transfer and other laws and
decisions relating to or affecting debtor's obligations or creditors' rights,
whether now or hereafter in effect, and (b) general principles of equity
(whether enforcement is sought at law or in equity), including, without
limitation, requirements that parties to agreements act reasonably, in good
faith and in a commercially reasonable manner and give reasonable notice prior
to exercising rights and remedies, all to the extent required by applicable law,
and limitations on the ability of a party to accelerate the due date of any
payments due or to exercise other remedies available to it on the occurrence of
a non-material breach of an agreement. We express no opinion with respect to
federal or state securities laws, rules or regulations other than as expressly
set forth herein. We express no opinion as to any waivers, indemnities or powers
of attorney in the Transaction Documents. The enforceability of certain of the
remedial, waiver and other provisions of the Transaction Documents may be
11
further subject to the exercise of judicial discretion. We express no opinion on
the enforceability of any provisions in the Transaction Documents relating to
conflicts of law, consent to jurisdiction, choice of forum, choice of law or
waiver of trial by jury. We express no opinion on the effect on the Transaction
Documents or any of the opinions set forth above of any documents which we have
not reviewed. Our opinion is subject to judicial decisions which indicate that
public policy may render unenforceable provisions respecting payment of costs
and expenses of enforcement, including, without limitation, attorneys' fees. We
express no opinion on compliance with fiduciary duty requirements. We express no
opinion with respect to the statutes, ordinances, administrative decisions,
rules and regulations, or other laws (collectively, "Local Laws") of counties,
towns, municipalities and special political subdivisions (whether created or
enabled through legislative action at the federal, state or regional level) and
judicial decisions to the extent that they deal with any such Local Laws. Our
opinions as to enforceability are subject to the effect of generally applicable
rules of law that (i) may, where less than all of a contract may be
unenforceable, limit the enforceability of the balance of the contract to
circumstances in which the unenforceable portion is not an essential part of the
agreed exchange, or that permit a court to reserve to itself a decision as to
whether any provision of any agreement is severable and (ii) limit the
availability of a remedy under certain circumstances when another remedy has
been elected.
We are members of the bar of the Commonwealth of Pennsylvania and do not
purport to be experts respecting, and do not express any opinions herein
concerning, any laws other than the existing substantive laws of Pennsylvania,
the General Corporation Law of the State of Delaware and the federal law of the
United States of America.
Very truly yours,
Montgomery, McCracken, Xxxxxx & Xxxxxx, LLP
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EXHIBIT H
FORM OF OUTSOURCING CONTRACT
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