EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
BLUEFLY, INC.
QUANTUM INDUSTRIAL PARTNERS LDC
SFM DOMESTIC INVESTMENTS, LLC
AND
THE INVESTORS LISTED ON THE SIGNATURE PAGE ATTACHED HERETO
DATED AS OF JUNE 5, 2006
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions........................................................1
SECTION 1.2 Definitions........................................................4
SECTION 1.3 Interpretation and Rules of Construction...........................5
ARTICLE II
PURCHASE AND SALE OF THE SHARES
SECTION 2.1 Purchase and Sale of the Shares....................................6
SECTION 2.2 Closing............................................................6
SECTION 2.3 Deliveries.........................................................7
SECTION 2.4 Xxxxx Payments.....................................................8
ARTICLE III
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
SECTION 3.1 Organization, etc..................................................8
SECTION 3.2 Authorization......................................................8
SECTION 3.3 Validity; Enforceability...........................................8
SECTION 3.4 Capitalization.....................................................9
SECTION 3.5 No Violation......................................................10
SECTION 3.6 Issuances of Shares...............................................10
SECTION 3.7 Absence of Certain Developments...................................10
SECTION 3.8 Commission Filings................................................11
SECTION 3.9 Financial Statements..............................................11
SECTION 3.10 Brokers...........................................................12
SECTION 3.11 Filings, Consents and Approvals...................................12
SECTION 3.12 Litigation........................................................12
SECTION 3.13 Compliance........................................................13
SECTION 3.14 Registration Rights...............................................13
SECTION 3.15 Listing and Maintenance Requirements..............................13
SECTION 3.16 Acknowledgment Regarding New Investors' Purchase of Shares........13
SECTION 3.17 Title to Properties...............................................14
SECTION 3.18 Intellectual Property.............................................14
SECTION 3.19 Environmental Matters.............................................14
SECTION 3.20 Employee Benefits.................................................15
SECTION 3.21 Taxes.............................................................16
SECTION 3.22 Licenses and Permits..............................................16
SECTION 3.23 Labor Relations...................................................16
SECTION 3.24 Inventory, Etc....................................................17
SECTION 3.25 Receivables.......................................................17
SECTION 3.26 Insurance.........................................................17
SECTION 3.27 Trade Relations...................................................17
SECTION 3.28 Affiliate Transactions............................................17
i
SECTION 3.29 Investment Company................................................18
SECTION 3.30 Disclosure........................................................18
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE XXXXX PARTIES
SECTION 4.1 Organization, etc.................................................18
SECTION 4.2 Authority.........................................................18
SECTION 4.3 Validity; Enforceability..........................................18
SECTION 4.4 Xxxxx Shares......................................................18
SECTION 4.5 Governmental Consents.............................................18
SECTION 4.6 No Violation......................................................19
SECTION 4.7 Brokers...........................................................19
SECTION 4.8 Short Sales and Confidentiality Prior To The Date Hereof..........19
ARTICLE V
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE NEW INVESTORS
SECTION 5.1 Organization, etc.................................................19
SECTION 5.2 Authority.........................................................20
SECTION 5.3 Validity; Enforceability..........................................20
SECTION 5.4 Investment Representations........................................20
SECTION 5.5 Governmental Consents.............................................21
SECTION 5.6 No Violation......................................................21
SECTION 5.7 No Additional Representations.....................................21
SECTION 5.8 Brokers...........................................................21
SECTION 5.9 Short Sales and Confidentiality Prior To The Date Hereof..........22
ARTICLE VI
COVENANTS
SECTION 6.1 Registration Rights...............................................22
SECTION 6.2 Conduct of Business by the Company................................27
SECTION 6.3 Reporting Requirements Under the Exchange Act.....................27
SECTION 6.4 Conversion........................................................28
SECTION 6.5 Series D Notice...................................................28
SECTION 6.6 Use of Proceeds...................................................28
SECTION 6.7 Further Action....................................................28
SECTION 6.8 Access; Notification of Certain Matters...........................28
SECTION 6.9 D&O Insurance.....................................................29
SECTION 6.10 Directors.........................................................29
SECTION 6.11 Standstill........................................................29
SECTION 6.12 Right of First Refusal on Future Financings.......................30
SECTION 6.13 Removal of Legends................................................31
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.1 Conditions to Obligations of the New Investor.....................32
SECTION 7.2 Conditions to Obligations of the Company and the Xxxxx Parties....33
ii
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination.......................................................34
SECTION 8.2 Effect of Termination.............................................35
ARTICLE IX
SURVIVAL; INDEMNIFICATION
SECTION 9.1 Survival..........................................................35
SECTION 9.2 Indemnification...................................................35
SECTION 9.3 Indemnification Procedure.........................................36
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Expenses..........................................................37
SECTION 10.2 Publicity.........................................................37
SECTION 10.3 Non-Public Information............................................37
SECTION 10.4 Sales and Confidentiality After The Date Hereof...................38
SECTION 10.5 Entire Agreement..................................................38
SECTION 10.6 Assignments; Parties in Interest..................................38
SECTION 10.7 Amendments........................................................39
SECTION 10.8 Descriptive Headings..............................................39
SECTION 10.9 Notices and Addresses.............................................39
SECTION 10.10 Severability......................................................40
SECTION 10.11 Governing Law; Choice of Forum....................................40
SECTION 10.12 Further Assurances................................................41
SECTION 10.13 Counterparts; Facsimile Signatures................................41
SECTION 10.14 Independent Nature of Investors' Obligations and Rights...........41
SECTION 10.15 Specific Performance..............................................42
SECTION 10.16 Adjustments in Share Numbers and Prices...........................42
EXHIBITS
Exhibit A Voting Agreement
Exhibit B Matters to be Covered in Opinion of Dechert LLP
iii
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of June 5, 2006 (this "Agreement"),
is entered into by and among Bluefly, Inc., a Delaware corporation (the
"Company"), Quantum Industrial Partners LDC ("QIP"), SFM Domestic Investments,
LLC ("SFM" and, together with QIP, the "Xxxxx Parties") and the investors listed
on the signature pages attached hereto (the "New Investors").
RECITALS
WHEREAS, the New Investors desire to purchase from the Company, and the
Company desires to issue and sell to the New Investors, sixty million nine
hundred seventy five thousand six hundred ten (60,975,610) shares of Common
Stock (the "Shares"), on the terms and subject to the conditions contained
herein.
AGREEMENT
NOW, THEREFORE, in consideration for the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. As used in this Agreement, the following
terms shall have the following meanings:
"affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"Business Day" means any day that is not a Saturday, a Sunday or other day
on which banks are required or authorized by Law to be closed in the State of
New York.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Common Stock Equivalents" means any securities of the Company which would
entitle the holder thereof to acquire at any time Common Stock, including
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
"Company Notes" means, collectively, the Company's Convertible Promissory
Notes, dated July 16, 2003, in the aggregate principal amount of $1,936,564
payable to the order of QIP and
1
$63,436 payable to the order of SFM and the Convertible Promissory Notes, dated
October 17, 2003, in the aggregate principal amount of $1,936,564 payable to the
order of QIP and $63,436 payable to the order of SFM.
"Company Options" means, collectively, the Common Stock options granted to
employees, officers and directors of the Company under the Amended and Restated
1997 Stock Option Plan, the Company 2000 Stock Option Plan and the Company 2005
Stock Incentive Plan.
"Company Warrants" means, collectively: (i) the warrants, exercisable to
purchase 100,000 shares of Common Stock, dated March 31, 2001, executed by the
Company in favor of the Xxxxx Parties; (ii) the warrants, exercisable to
purchase 60,000 shares of Common Stock, dated March 22, 2002, executed by the
Company in favor of the Xxxxx Parties; (iii) the warrants, exercisable to
purchase 100,000 shares of Common Stock, dated March 22, 2002, executed by the
Company in favor of the Xxxxx Parties; (iv) the warrants, exercisable to
purchase 296,644 shares of Common Stock, dated May 24, 2002, executed by the
Company in favor of the Xxxxx Parties; (v) the warrants, exercisable to purchase
25,000 shares of Common Stock, dated January 28, 2003, executed by the Company
in favor of the Xxxxx Parties; (vi) the warrants, exercisable to purchase 25,000
shares of Common Stock dated March 17, 2003, executed by the Company in favor of
the Xxxxx Parties; (vii) the warrants, exercisable to purchase 250,000 shares of
Common Stock, dated December 22, 2003, executed by the Company in favor of one
of the Company's suppliers; (viii) the warrants, exercisable to purchase 385,801
shares of Common Stock, dated January 12, 2004, executed by the Company in favor
of Longview Fund, LP, Longview Equity Fund, LP, Longview International Equity
Fund, LP, Alpha Capital Aktiengesellscft, Gamma Opportunity Capital Partners,
LP, Enable Growth Partners, LP, Genesis Microcap Inc., Barucha LLC and X.X. Xxxx
Associates, L.P.; (ix) the warrants, exercisable to purchase 603,448 shares of
Common Stock, dated June 24, 2005, executed by the Company in favor of PEF
Advisors Ltd., Palisades Master Fund LP, JGB Capital L.P., Crescent
International, Ltd., SRG Capital, LLC (which subsequently assigned a portion of
its warrant to each of Truk Opportunity Fund, LP and Truk International Fund,
LP), Portside Growth and Opportunity Fund and Bristol Investment Fund; and (x)
the warrants exercisable to purchase 100,000 shares of Common Stock, dated
February 8, 2006, executed by the Company in favor of Genesis Select
Corporation.
"Conversion" means the conversion into shares of Common Stock of all
outstanding shares of the Company of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock, Series C Convertible Preferred Stock,
Series D Convertible Preferred Stock, Series E Convertible Preferred Stock, the
Series F Convertible Preferred Stock held by the Xxxxx Parties and their
affiliates; provided, that, any accrued but unpaid dividends that are paid in
cash at Closing pursuant to Section 2.4 shall not be taken into account for
purposes of the conversion.
"Effective Date" means the date that the Registration Statement filed
pursuant to Section 6(a) is first declared effective by the Commission.
"Encumbrance" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, restriction
(whether on voting, sale, transfer, disposition or otherwise), whether imposed
by agreement, understanding, Law, equity or otherwise,
2
except for any restrictions on transfer generally arising under any applicable
United States federal or state securities law.
"Environmental Laws" means federal, state and local Laws, principles of
common law, regulations and codes, as well as orders, decrees, judgments or
injunctions issued, promulgated, approved or entered thereunder relating to
pollution, protection of the environment or public health and safety.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means United States generally accepted accounting principles and
practices in effect from time to time applied consistently throughout the
periods involved.
"Governmental Authority" means any federal, national, supranational, state,
provincial, local, or similar government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"Governmental Order" means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.
"Knowledge of the Company" and "the Company's Knowledge" means the
knowledge, after due inquiry, of the executive officers of the Company.
"Law" means any United States or non-United States federal, national,
supranational, state, provincial, local or similar statute, law, ordinance,
regulation, rule, code, order, requirement or rule of law (including, without
limitation, common law).
"Lenders Consent" means the waiver and consent of Xxxxx Fargo Retail
Finance, LLC ("Xxxxx Fargo") with respect to the transactions contemplated
hereby, including, the payment of the Company Notes and the payment of dividends
on preferred stock of the Company, in form and substance satisfactory to the New
Investors, under the Loan and Security Agreement, dated as of July 26, 2005 (the
"Loan Agreement").
"Lenders Liens" means the Encumbrances granted to Xxxxx Fargo in connection
with the Loan Agreement, and Encumbrances granted to the Xxxxx Parties in
connection with their issuance of a letter of credit as additional collateral
under the Loan Agreement.
"Licenses" means any certificates, permits, licenses, franchises, consents,
approvals, orders, authorizations and clearances from appropriate Governmental
Authorities.
"Material Adverse Effect" means any (i) circumstance, change in or effect
on the Company that, individually or in the aggregate with all other
circumstances, changes in or effects on the Company, is or is reasonably likely
to be materially adverse to the business, operations, assets or liabilities
(including contingent liabilities), results of operations or the condition
(financial or otherwise) of the Company; provided that any adverse change in the
stock price of the Company as quoted on the Nasdaq Capital Market shall not, in
and of itself, be deemed a Material Adverse
3
Effect or (ii) material and adverse effect on the legality, validity or
enforceability of any Transaction Document.
"Maverick Parties" means, collectively, Maverick Fund USA, Ltd., Maverick
Fund, L.D.C. and Maverick Fund II, Ltd.
"Modified Share Cap" means the Share Cap, but without the 30% limitation in
clauses (x)(i) and (y)(i) therein, and, in the case of the Xxxxx Parties, an
amount up to 15% of the outstanding shares of Common Stock of the Company on the
Closing Date.
"Prentice Parties" means Prentice Capital Management, L.P. and its
affiliated entities.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Cap" means, (x) in the case of the Maverick Parties, that number of
shares of Common Stock that, when added to the number of shares of Common Stock
beneficially owned by the Maverick Parties, would result in the Maverick Parties
beneficially owning the lesser of (i) 30% or more of the total outstanding
shares of Common Stock of the Company on the date of such purchase or (ii) one
share of Common Stock less than the number of shares of Common Stock as is
beneficially owned by the Xxxxx Parties on the date of such purchase, and, (y)
in the case of the Prentice Parties, that number of shares of Common Stock that,
when added to the number of shares of Common Stock beneficially owned by the
Prentice Parties, would result in the Prentice Parties beneficially owning the
lesser of (i) 30% or more of the total outstanding shares of Common Stock of the
Company on the date of such purchase or (ii) one share of Common Stock less than
the number of shares of Common Stock as is beneficially owned by the Xxxxx
Parties on the date of such purchase. For purposes of any determination of a
Share Cap, the Company shall provide a calculation of the Share Cap upon request
by the Maverick Parties or the Prentice Parties.
"Subsidiary" means, with respect to any Person, a corporation or other
entity of which more than 50% of the voting power of the outstanding voting
equity securities or more than 50% of the outstanding economic equity interests
are held, directly or indirectly, by such Person.
"Voting Agreement" means an agreement in the form of Exhibit A among the
Company, the Xxxxx Parties and the New Investors.
SECTION 1.2 Definitions. The following terms have the meanings set
forth in the Sections set forth below:
Definition Location
-------------------------------------------------- --------
"Action".......................................... 3.12
"Affiliate Transactions".......................... 3.28
"Agreement"....................................... Preamble
"Xxxxx"........................................... 3.10
"Benefit Plans"................................... 3.20(a)
"Blackout Period"................................. 6.1(c)
"Closing"......................................... 2.2
"Closing Date".................................... 2.2
4
"Company"......................................... Preamble
"Company Underwriter"............................. 6.1(f)
"Commission"...................................... 3.8
"Commission Filings".............................. 3.8
"Disposition"..................................... 10.4(a)
"DTC"............................................. 6.1(g)
"Effectiveness Period"............................ 6.1(a)
"ERISA"........................................... 3.20(a)
"Event"........................................... 6.1(h)
"Event Date"...................................... 6.1(a)
"Filing Deadline"................................. 3.20(a)
"Indemnified Party"............................... 9.2(a)
"Indemnifying Party".............................. 9.2(a)
"Intellectual Property"........................... 3.18
"Loss"............................................ 9.2(a)
"New Investors"................................... Preamble
"New Investor's Subscription Amount".............. 6.1(h)
"Participating Investors"......................... 6.12
"Per Share Price"................................. 2.1
"Potential Material Event"........................ 6.1(c)
"Pre-Notice"...................................... 6.12
"Pro Rata Portion"................................ 6.12
"Purchase Price".................................. 2.1
"QIP"............................................. Preamble
"Registrable Securities".......................... 6.1(a)
"Registration Statement".......................... 6.1(a)
"Requesting Holders".............................. 6.1(f)
"Required Effectiveness Deadline"................. 6.1(a)
"Rule 144"........................................ 6.1(a)
"SFM"............................................. Preamble
"Series D Notice"................................. 6.5
"Shares".......................................... Recitals
"Xxxxx Parties"................................... Preamble
"Xxxxx Shares".................................... 4.4
"Subsequent Financing"............................ 6.12
"Subsequent Financing Notice"..................... P6.12
"Tax"............................................. 3.21
"Third Party Claims".............................. 9.3
"Transaction Documents"........................... 3.12
"Transaction Expenses"............................ 10.1
SECTION 1.3 Interpretation and Rules of Construction. In this
Agreement, except to the extent otherwise provided or that the context otherwise
requires:
5
i. when a reference is made in this Agreement to an Article,
Section, Exhibit or Schedule, such reference is to an Article or Section
of, or a Schedule or Exhibit to, this Agreement unless otherwise indicated;
ii. whenever the words "include," "includes" or "including" are
used in this Agreement, they are deemed to be followed by the words
"without limitation";
iii. the words "hereof," "herein" and "hereunder" and words of
similar import, when used in this Agreement, refer to this Agreement as a
whole and not to any particular provision of this Agreement;
iv. all terms defined in this Agreement have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto, unless otherwise defined therein;
v. the definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms;
vi. any Law defined or referred to herein or in any agreement or
instrument that is referred to herein means such Law or statute as from
time to time amended, modified or supplemented, including by succession of
comparable successor Laws;
vii. references to a Person are also to its successors and
permitted assigns; and
viii. the use of "or" is not intended to be exclusive unless
expressly indicated otherwise.
ARTICLE II
PURCHASE AND SALE OF THE SHARES
SECTION 2.1 Purchase and Sale of the Shares. Subject to the terms and
conditions hereof, on the Closing Date (as defined below), the Company hereby
agrees to issue and sell to the New Investors, and each New Investor hereby
agrees to purchase from the Company: the number of shares of Common Stock set
forth opposite such New Investor's name in Schedule 1, which number of shares
shall be reduced pro rata to the extent holders of the Series D Convertible
Preferred Stock exercise preemptive rights between the date hereof and the
Closing Date, for a purchase price of $0.82 per share (the "Per Share Price"),
resulting in an aggregate purchase price for all Shares sold pursuant to the
terms hereof, including to any holders of the Series D Convertible Preferred
Stock pursuant to their exercise of preemptive rights, of fifty million dollars
($50,000,000) (the "Purchase Price").
SECTION 2.2. Closing. Subject to the terms and conditions of this
Agreement, the issuance, sale and purchase of the Shares contemplated by this
Agreement shall take place at a closing (the "Closing") to be held at the
offices of Dechert LLP, 00 Xxxxxxxxxxx Xxxxx, Xxx Xxxx, XX 00000, at 10:00 A.M.,
Eastern Standard Time on the later of (a) June 15, 2006 or (b) two Business Days
following the satisfaction or waiver of all other conditions to the obligations
of the parties set forth in Article VII (other than those conditions that by
their nature are to be fulfilled at
6
Closing), or at such other place or at such other time or such other date as the
parties shall mutually agree upon in writing (the date on which the Closing
takes place being the "Closing Date").
SECTION 2.3. Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to
be delivered the following:
i. to each New Investor, a certificate evidencing a number of
shares of Common Stock purchased by such New Investor from the Company,
registered in the name of such New Investor;
ii. to each New Investor and Xxxxx Parties, duly executed
counterparts of the Voting Agreement; and
iii. to each New Investor, the certificates, opinions and other
documents required to be delivered pursuant to Section 7.1 and any other
certificates or documents reasonably requested by such New Investor.
(b) On the Closing Date, each Xxxxx Party shall deliver or cause
to be delivered the following:
i. to each New Investor, duly executed counterparts of the
Voting Agreement;
ii. to each New Investor, the certificates and other documents
required to be delivered by such Xxxxx Party pursuant to Section 7.1;
iii. to the Company, the original Company Notes stamped
"Cancelled";
iv. to the Company, a payoff letter, in form and substance
reasonably acceptable to the Company, evidencing the payment in full and
cancellation of each of the Company Notes; and
v. to the Company, a waiver of preemptive rights under the
Series A, B, C , D and E Convertible Preferred Stock which the Xxxxx
Parties would otherwise have had in connection with the issuance of the
Shares.
(c) On the Closing Date, each New Investor shall deliver or
cause to be delivered, the following:
i. the purchase price for such New Investor's shares, which
shall be delivered by wire transfer of immediately available funds to an
account of the Company designated in writing by the Company to such New
Investor not later than three (3) Business Days prior to the Closing Date
and which shall be held in escrow pending the Closing (to the extent this
Agreement is terminated, the Company shall immediately return such funds to
the New Investors);
7
ii. to the Company and the Xxxxx Parties, duly executed
counterparts of the Voting Agreement; and
iii. the certificates and other documents required to be
delivered pursuant to Section 7.2 and any other certificates or documents
reasonably requested by the Company or the Xxxxx Parties.
SECTION 2.4 Xxxxx Payments. On the Closing Date, the Company shall pay
to the Xxxxx Parties by wire transfer of immediately available funds in
accordance with instructions provided by the Xxxxx Parties, (i) all outstanding
obligations under the Company Notes, including all accrued but unpaid interest
to the Closing Date (which accrued and unpaid interest amount was $1,462,873 as
of May 31, 2006), and (ii) all accrued but unpaid dividends to the Closing Date
on the Series A, B, C, D, E and F Convertible Preferred Stock held by the Xxxxx
Parties (which amount was $19,915,006 as of May 31, 2006); provided that, to the
extent that the aggregate amounts payable under clauses (i) and (ii) would
otherwise exceed 50% of the sum of the Purchase Price and the amount, if any,
received by the Company upon exercise of the preemptive rights referred to in
Section 2.1, then the Company shall elect to pay a portion of the accrued
dividends on the Series D Convertible Preferred Stock equal to the amount of
such excess pursuant to the terms thereof in Common Stock, instead of electing
to pay such amounts in cash.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
The Company represents and warrants to, and agrees with, the New Investors
as follows:
SECTION 3.1 Organization, etc. The Company has been duly organized,
and is validly existing as a corporation in good standing under the laws of the
State of Delaware, and is qualified to do business as a foreign corporation in
each jurisdiction in which the failure to be so qualified could reasonably be
expected to have Material Adverse Effect. The Company has the requisite
corporate power and authority to own, lease and operate its properties and to
conduct its businesses as presently conducted. The Company has no Subsidiaries.
SECTION 3.2 Authorization. The Company has the requisite corporate
power and authority to enter into, execute, deliver and perform all of its
duties and obligations under this Agreement and the other Transaction Documents
and to consummate the Conversion and the other transactions contemplated hereby
and thereby.
SECTION 3.3 Validity; Enforceability. This Agreement and the other
Transaction Documents to which the Company is a party have been duly authorized,
executed and delivered by the Company, and constitute the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by, or subject to,
any bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and subject to general principles
of equity.
8
SECTION 3.4 Capitalization.
(a) As of the date hereof, the authorized capital stock of the
Company consists of a total of 177,000,000 shares, divided into 152,000,000
shares of Common Stock and 25,000,000 shares of preferred stock, $0.01 par value
per share. The authorized preferred stock consists of 500,000 shares of Series A
Convertible Preferred Stock, 9,000,000 shares of Series B Convertible Preferred
Stock, 3,500 shares of Series C Convertible Preferred Stock, 7,150 shares of
Series D Convertible Preferred Stock, 1,000 shares of Series E Convertible
Preferred Stock and 7,000 shares of Series F Convertible Preferred Stock. As of
the date hereof, (i) 460,000 shares of Series A Convertible Preferred Stock,
8,889,414 shares of Series B Convertible Preferred Stock, 1,000 shares of Series
C Convertible Preferred Stock, 5,386.745 shares of Series D Convertible
Preferred Stock, 1,000 shares of Series E Convertible Preferred Stock and
3,857.143 shares of Series F Convertible Preferred Stock and 21,426,154 shares
of Common Stock are issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable, (ii) no shares of Common Stock are
held in the treasury of the Company, (iii) 1,945,893 shares of Common Stock are
reserved for future issuance pursuant to the Company Warrants, (iv) 8,107,025
shares of Common Stock are reserved for future issuance pursuant to the Company
Options and (v) no shares of Common Stock are reserved for further issuance
pursuant to the Company Notes. All shares of Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Schedule 3.4(a) sets forth the
true and correct amounts as of the date hereof of all accrued and unpaid
dividends, the conversion price and/or exercise price, as applicable, of the
Series A, B, C, D, E and F Convertible Preferred Stock, the Company Options, the
Company Warrants and the Company Notes. Except as set forth on Schedule 3.4(a)
hereto, there are no outstanding options, warrants or other equity securities
that are convertible into, or exercisable for, shares of the Company's capital
stock and there are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of Common Stock or to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any person and there are no voting or other agreements with
respect to the Company's capital stock.
(b) As of the Closing Date, after giving effect to the
Conversion and the other transactions contemplated hereby, but excluding any
shares of Common Stock issued upon exercise of any Company Options or Company
Warrants (assuming that there has not been any conversion of Series F
Convertible Preferred Stock held by stockholders other than the Xxxxx Parties
between the date hereof and the Closing Date and assuming that all accrued
dividends on the Series D Convertible Preferred Stock are paid in cash (although
certain of such dividends will be paid in Common Stock) on the Closing Date),
between the date hereof and the Closing Date, the only outstanding capital stock
of the Company will be 857.143 shares of Series F Convertible Preferred Stock
and 127,081,364 shares of Common Stock all of which will be duly authorized,
validly issued, fully paid and nonassessable. Other than the Series F Preferred
Stock antidilution adjustments, the issuance of Common Stock pursuant to the
Conversion and the other transactions contemplated hereby will not require any
adjustments pursuant to antidilution or similar provisions of the articles of
incorporation, by-laws, certificates of designation, similar organizational
documents of the Company or the Company Warrants.
9
SECTION 3.5 No Violation. The execution and delivery of this
Agreement, the other Transaction Documents, the consummation of the Conversion
and the other transactions contemplated hereby will not (i) conflict with or
result in a breach of any provision of the articles of incorporation or by-laws
of the Company, (ii) result in a default or breach of, or, except as set forth
in Section 3.11, require any consent, approval, authorization or permit of, or
filing or notification to, any person, company or entity (including, without
limitation, any stockholder or holder of the Company's equity or debt
securities) under any of the terms, conditions or provisions of any material
note, bond, mortgage, indenture, loan, factoring arrangement, license,
agreement, lease or other instrument or obligation to which the Company is a
party or by which the Company or any of its assets may be bound; or (iii)
violate any material Law or Governmental Order applicable to the Company;
except, in the case of clause (ii) above, any such event that could not
reasonably be expected to have a Material Adverse Effect or materially impair
the transactions contemplated hereby. The Company is in compliance, in all
material respects, with the listing requirements of the Nasdaq Capital Market.
No material default or breach by the Company exists under any material agreement
of the Company, other than any such default or breach that could not reasonably
be expected to have a Material Adverse Effect.
SECTION 3.6 Issuances of Shares. The Shares, upon payment therefor as
contemplated by this Agreement, will be validly issued, fully paid and
non-assessable, free and clear of all Encumbrances, and shall not be subject to
preemptive or similar rights of stockholders. The shares of the Common Stock to
be issued to the Xxxxx Parties and their affiliates, upon conversion of the
preferred stock of the Company in accordance with their terms, will be validly
issued, fully paid and non-assessable. The offering, issuance, sale and delivery
of the Shares as contemplated by this Agreement are exempt from the registration
and prospectus delivery requirements of the Securities Act, are being made in
compliance with all applicable federal and (except for any violation or
non-compliance that could not reasonably be expected to have a Material Adverse
Effect) state Laws and regulations concerning the offer, issuance and sale of
securities, and are not being issued in violation of any preemptive or other
rights of any stockholder of the Company. The parties hereto agree and
acknowledge that, in making the representations and warranties in the foregoing
sentence of this Section 3.6, the Company is relying on the representations and
warranties made by the New Investors in Section 5.4. Neither the Company nor any
of its Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, at any time within the past six months made any offers or sales of
any Company security or solicited any offers to buy any security, under
circumstances that would (i) eliminate the availability of the exemption from
registration under Regulation D under the Securities Act in connection with the
offer and sale by the Company of the Shares as contemplated hereby or (ii) cause
the offering of the Shares pursuant to the Transaction Documents to be
integrated with prior offerings by the Company for purposes of any applicable
law, regulation or stockholder approval provisions, including, without
limitation, under the rules and regulations of the Nasdaq Capital Market or the
Boston Stock Exchange.
SECTION 3.7 Absence of Certain Developments. Since March 31, 2006,
other than as contemplated by this Agreement, there has not been any: (i)
Material Adverse Effect; (ii) declaration, setting aside or payment of any
dividend or other distribution with respect to, or any direct or indirect
redemption or acquisition of, any capital stock of the Company; (iii) waiver of
any valuable right of the Company or cancellation of any material debt or claim
held by the
10
Company; (iv) material loss, destruction or damage to any property or asset of
the Company, whether or not insured; (v) acquisition or disposition of any
material assets (or any contract or arrangement therefor) or any other material
transaction by the Company otherwise than for fair value in the ordinary course
of business consistent with past practice; (vi) any material change in the
depreciation or amortization policies or rates adopted by it, in either case,
except as may be required by Law or applicable accounting standards; (vii) loss
of any material supplier which could reasonably be expected to result in a
Material Adverse Effect; or (viii) other agreement or understanding, whether in
writing or otherwise, for the Company to take any action of the type specified
in clauses (i) through (vii).
SECTION 3.8 Commission Filings. The Company has filed all forms,
reports and documents required to be filed by it with the Securities and
Exchange Commission (the "Commission") since January 1, 2003, including, (i) its
Annual Reports on Form 10-K for the fiscal years ended December 31, 2003, 2004
and 2005, respectively, (ii) its Quarterly Reports on Form 10-Q for the period
ended Xxxxx 00, 0000, (xxx) all proxy statements relating to the Company's
meetings of stockholders (whether annual or special) and (iv) all other forms,
reports and other registration statements filed by the Company with the
Commission since January 1, 2003 (the forms, reports and other documents
referred to in clauses (i), (ii), (iii) and (iv) above being, collectively, the
"Commission Filings"). The Commission Filings (i) were prepared, in all material
respects, in accordance with either the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations promulgated
thereunder, and (ii) did not, at the time they were filed, or, if amended, as of
the date of such amendment, 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 made therein, in the light of the circumstances
under which they were made, not misleading.
SECTION 3.9 Financial Statements.
(a) The audited financial statements and unaudited interim
financial statements of the Company included or incorporated by reference in
Commission Filings have been prepared in accordance with GAAP (except as may be
indicated in the notes thereto or, in the case of the unaudited statements, as
permitted by Form 10-Q), complied as of their respective dates in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto, and fairly present, in all
material respects, the financial position of the Company as of the dates thereof
and the results of operations for the periods then ended (subject, in the case
of any unaudited interim financial statements, to the absence of footnotes
required by GAAP and normal year-end adjustments).
(b) The Company has complied, in all material respects, with the
provisions of the Xxxxxxxx-Xxxxx Act of 2002 applicable to it. The Company
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
11
action is taken with respect to any differences. The Company has disclosure
controls and procedures (as defined in Rules 13a-14 and 15d-14 under the
Exchange Act) that are designed to ensure that material information relating to
the Company is made known to the Company's principal executive officer and the
Company's principal financial officer or persons performing similar functions.
There is no transaction, arrangement, or other relationship between the Company
and an unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed.
(c) The Company has no liabilities of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
other than (i) liabilities to the extent disclosed or provided for in the
financial statements of the Company or set forth in the notes thereto or
disclosed in the Commission Filings, or (ii) liabilities incurred in the
ordinary course of business since the date of the financial statements disclosed
in the Commission Filings that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
SECTION 3.10 Brokers. Except for Xxxxx & Company LLC ("Xxxxx"),
neither the Company, nor any of its officers, directors or employees, has
employed any broker or finder, or (except for the finders fee due to Xxxxx from
the Company and the Xxxxx Parties, for which the Company and the Xxxxx Parties
will be solely responsible) incurred any liability for any brokerage fees,
commissions, finder's or other similar fees or expenses in connection with the
transactions contemplated hereby. The Company has made available to the New
Investors, a true and correct copy of its agreement with Xxxxx.
SECTION 3.11 Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any Governmental Authority,
stockholder or other Person in connection with the execution and delivery of the
Transaction Documents and performance by the Company of its obligations
thereunder, other than (i) filings required pursuant to Section 10.2, (ii) the
filing with the Commission of the Registration Statement, (iii) the notice
and/or application(s) to the Nasdaq Stock Market and the Boston Stock Exchange
for the issuance and sale of the Shares and the Conversion, (iv) the Lenders
Consent and (v) any such consent, waiver, notice, filing, or registration of
which failure to obtain could not reasonably be expected to result in a Material
Adverse Effect. No approval of the shareholders of the Company is required under
the rules of the Nasdaq Stock Market or the Boston Stock Exchange for the
issuance of the Shares and the consummation of the transactions contemplated by
the Transaction Documents.
SECTION 3.12 Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the Knowledge of the
Company, threatened against or affecting the Company, any of its properties
before or by any Governmental Authority (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability of any
of this Agreement, the Voting Agreement and the other documents delivered in
connection herewith (collectively, the "Transaction Documents") or the Shares or
(ii) could reasonably be expected to result in a Material Adverse Effect. None
of the Company, or, to the Company's Knowledge, any director or officer thereof,
acting in their capacity as such, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state securities
Laws or a claim of breach of fiduciary duty. There has not been, and to the
Knowledge
12
of the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company, acting in their capacity as such. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company under the Exchange Act or the Securities Act.
SECTION 3.13 Compliance. The Company (i) is not in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company
under), nor has the Company received notice of a pending claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is not in violation of any order of any
Governmental Authority, or (iii) is not in violation of any Law, including
without limitation all Laws applicable to its business except in each case as
would not have a Material Adverse Effect.
SECTION 3.14 Registration Rights. Other than the Xxxxx Parties, the
selling stockholders listed on the Company's currently effective registration
statements on Form S-3, each investor listed on Schedule 3.14 and each of the
New Investors, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company. Except
as set forth on Schedule 3.14, no Person's right to cause the Company to effect
the registration under the Securities Act of any securities of the Company will
have any priority over the rights granted to the New Investors pursuant to
Section 6.1.
SECTION 3.15 Listing and Maintenance Requirements. The Company's
Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge is likely
to have the effect of, terminating the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that the
Commission is contemplating terminating such registration. The Company has not,
in the 12 months preceding the date hereof, received notice from any trading
market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such trading market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements in all material respects,
other than maintenance requirements relating to minimum share price.
SECTION 3.16 Acknowledgment Regarding New Investors' Purchase of
Shares. The Company acknowledges and agrees that each of the New Investors is
acting solely in the capacity of an arm's length investor with respect to the
Transaction Documents and the transactions contemplated hereby. The Company
further acknowledges that no New Investor is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
New Investor or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is merely
incidental to the New Investors' purchase of the Shares. The Company further
represents to each New Investor that the Company's decision to enter into
13
this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
SECTION 3.17 Title to Properties. The Company has sufficient title to
all material properties (real and personal) owned by the Company that are
necessary for the conduct of the business of the Company as described in the
Commission Filings filed with the Commission prior to the date of this Agreement
and as currently conducted, free and clear of any Encumbrance (other than the
Lenders Liens) that may materially interfere with the conduct of its business,
and all material properties held under lease by the Company are held under
valid, subsisting and enforceable leases.
SECTION 3.18 Intellectual Property. The Company owns or possesses
sufficient rights to use all material patents, patent rights, trademarks,
copyrights, licenses, inventions, trade secrets, trade names and know-how
(including trade secrets and other unpatented and/or unpatentable property or
confidential information, systems, processes or procedures) (collectively,
"Intellectual Property") necessary for its business as presently conducted
without any material conflict or infringement of rights of others. Other than
those contracts, agreements, and instruments filed as exhibits to the Commission
Filings, there are no material outstanding options, licenses, or agreements of
any kind relating to the Intellectual Property nor is the Company bound by or a
party to any material options, licenses, or agreements of any kind with respect
to the intellectual property of any other person or entity. To the Knowledge of
the Company, the Company has not materially infringed upon or otherwise violated
the intellectual property rights of any third party. The Company has not
received any currently pending claim, charge, demand, notice or other
communication alleging that the Company has violated or, by conducting its
business as proposed, would violate any intellectual property rights of any
other person or entity, other than claims, charges, demands, notices or other
communications that could not reasonably be expected to have a Material Adverse
Effect. The Company is unaware of any facts that would form a reasonable basis
for an action or claim by others alleging a material infringement by the Company
of Intellectual Property of others. All of the Company's Intellectual Property
is owned or licensed by the Company, free and clear of all Encumbrances (other
than the Lenders Liens) and (to the extent owned) is held in the Company's name.
None of the execution or delivery of any Transaction Documents, or the carrying
on of the Company's business by the employees of the Company, will conflict with
or result in a breach of the terms, conditions, or provisions of, or constitute
a default under, any contract, covenant or instrument related to the Company's
Intellectual Property or related Intellectual Property, except any such event
that could not reasonably be expected to have a Material Adverse Effect. The
Company has taken all action reasonably necessary and desirable to maintain and
protect each material item of Intellectual Property owned by the Company. Each
employee and officer of the Company has executed an agreement regarding
inventions and confidentiality substantially in the form or forms delivered to
the New Investors. The Company does not have any patents or patent applications.
SECTION 3.19 Environmental Matters. To the Company's Knowledge, the
Company and its operations and properties are and have been in compliance in all
material respects with all applicable Environmental Laws, and no material
expenditures are or, to the Company's Knowledge, will be required in order to
comply with any applicable Environmental Laws. There is no civil, criminal or
administrative judgment, action, suit, demand, claim, hearing, notice of
14
violation, investigation, proceeding, notice or demand letter pending or to the
Company's Knowledge, threatened against the Company pursuant to Environmental
Laws which could reasonably be expected to result in a material fine, penalty or
other obligation, cost or expense. There are no past or present events,
conditions, circumstances, activities, practices, incidents, agreements, actions
or plans which may prevent compliance by the Company with, or which have given
rise to, or, to the Company's Knowledge, will give rise to, material liability
to the Company under Environmental Laws.
SECTION 3.20 Employee Benefits.
(a) Except for the plans described in the Commission Filings and
those listed in Schedule 3.20(a) (the "Benefit Plans"), there are no employee
benefit plans or arrangements of any type (including, without limitation, plans
described in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended and the regulations thereunder ("ERISA")) under which the
Company has or in the future could have directly, or indirectly through a
Commonly Controlled Entity (within the meaning of Sections 414(b), (c), (m) and
(o)) of the Code), any material liability with respect to any current or former
employee of the Company or any Commonly Controlled Entity. No such Benefit Plan
is a "multiemployer plan" (within the meaning of ERISA Section 4001(a)(3)) or
subject to Title IV of ERISA and, the Company has never contributed to, or had
any obligation to contribute to, any such multiemployer plan or any plan subject
to Title IV of ERISA.
(b) With respect to each Benefit Plan: (i) such Benefit Plan has
been maintained and administered at all times in material compliance with its
terms and applicable Law and regulation; (ii) no event has occurred and to the
Knowledge of the Company, there exists no circumstance under which the Company
could directly, or indirectly through a Commonly Controlled Entity, incur any
material liability under ERISA, the Code or otherwise; (iii) there are no
actions, suits or claims pending or, to the Knowledge of the Company,
threatened, with respect to any Benefit Plan or against the assets of any
Benefit Plan with respect to which suits management of the Company reasonably
believes the Company could incur any material liability; (iv) all contributions
and premiums due and owing to any Benefit Plan have been made or paid on a
timely basis and no "accumulated funding deficiency," as defined in Code Section
412, has been incurred, whether or not waived; and (v) if such Benefit Plan is
intended to be qualified under Section 401(a) of the Code, such Benefit Plan has
been determined to be so qualified and each trust created under such Benefit
Plan has been determined to be exempt from tax under Section 501(a) of the Code
and to the Knowledge of the Company, no event has occurred since the date of
such determinations, including effective changes in laws or regulations or
modifications to the Benefit Plans, that would adversely affect such
qualification or tax exempt status.
(c) The Company has no Postretirement Benefit Obligation (as
defined in Statement of Financial Accounting Standards No. 106) in respect of
post-retirement health and medical benefits for current and former employees of
the Company. Subject to its obligations under COBRA, no condition exists that
would prevent the Company from amending or terminating any plan providing health
or medical benefits in respect of current or former employees of the Company.
15
(d) Except as set forth on Schedule 3.20(d), no employee or
former employee of the Company will become entitled to any bonus, retirement,
severance, job security or similar benefit or enhanced such benefit (including
acceleration of vesting or exercise of an incentive award, stock option or
restricted security) as a result of the transactions contemplated hereby.
(e) All persons classified by the Company as independent
contractors satisfy the requirements of applicable law to be so classified and
the Company has no obligation to provide benefits to any such person under any
Benefit Plan.
SECTION 3.21 Taxes. The Company has filed or caused to be filed, or
has properly filed extensions for, all material Tax returns that are required to
be filed and has paid or caused to be paid all Taxes as shown on said returns
and on all material assessments received by it to the extent that such Taxes
have become due, except Taxes the validity or amount of which is being contested
in good faith by appropriate proceedings and with respect to which adequate
reserves, in accordance with GAAP, have been set aside. The Company has paid or
caused to be paid, or has established reserves that it reasonably believes to be
adequate in all material respects, for all Tax liabilities applicable to the
Company for all fiscal years that have not been examined and reported on by the
taxing authorities (or closed by applicable statutes). The Company's United
States Federal income tax returns have been examined and closed through tax year
2004. For purposes of this Section 3.21, "Tax" or "Taxes" means any federal,
state, county, local, foreign and other taxes (including, without limitation,
income, profits, premium, estimated, excise, sales, use, occupancy, gross
receipts, franchise, ad valorem, severance, capital levy, production, transfer,
withholding, employment, unemployment compensation, payroll and property taxes,
import duties and other governmental charges and assessments), whether or not
measured in whole or in part by net income, and including deficiencies,
interest, additions to tax or interest, and penalties with respect thereto, and
including expenses associated with contesting any proposed adjustments related
to any of the foregoing.
SECTION 3.22 Licenses and Permits. The Company has such Licenses as
are necessary to own, lease or operate its properties and to conduct its
business in the manner described in the Commission Filings and as currently
owned or leased and conducted and all such Licenses are valid and in full force
and effect except such Licenses that the failure to have or to be in full force
and effect individually or in the aggregate have not had, and would not
reasonably be expected to have, a Material Adverse Effect. The Company has not
received any written notice that any violations are being or have been alleged
in respect of any such License and no proceeding is pending or, to the Knowledge
of the Company, threatened, to suspend, revoke or limit any such License the
effect of which would reasonably be expected to have a Material Adverse Effect.
The Company is in compliance with its obligations under such Licenses, with such
exceptions as individually or in the aggregate have not had, and would not
reasonably be expected to have, a Material Adverse Effect, and no event has
occurred that allows, or after notice or lapse of time would allow, revocation,
suspension, limitation or termination of such Licenses, except such events as
have not had, or would not reasonably be expected to have, a Material Adverse
Effect.
SECTION 3.23 Labor Relations. The Company is not engaged in any
material unfair labor practice. No grievance or arbitration proceeding arising
out of or under collective bargaining agreements is pending or, to the Knowledge
of the Company, threatened against the Company. No
16
strike, material labor dispute, slowdown or stoppage has occurred within the
past 36 months or is pending or, to the Knowledge of the Company, threatened
against the Company. The Company is not a party to any collective bargaining
agreement or contract. No union organizing activities are taking place that
affect the employees of the Company.
SECTION 3.24 Inventory, Etc. The inventory of the Company is recorded
in the financial statements of the Company in accordance with GAAP and
consistent with past practice. The Company has in place reasonable procedures to
ensure that it does not purchase counterfeit articles and, to the Knowledge of
the Company, the inventory does not contain any counterfeit articles. The
Company has good and valid title to all of the inventory and other personal
property reflected on the March 31, 2006 unaudited financial statements as being
owned by it (other than inventory and other property that has been subsequently
sold or otherwise disposed of in the ordinary course of business). The Company
has no knowledge of any existing fact or circumstance which would be reasonably
likely to have a Material Adverse Effect on the supply of materials available to
the Company.
SECTION 3.25 Receivables. Except as set forth on Schedule 3.25, all
accounts and notes receivable reflected on the March 31, 2006 unaudited
financial statements, and all accounts and notes receivable arising subsequent
to the March 31, 2006 unaudited financial statements, (i) have arisen in the
ordinary course of business of the Company and (ii) subject only to a reserve
for bad debts and normal returns, credits, adjustments and warranty coverage, in
each case reflected in the March 31, 2006 unaudited financial statements in
accordance with GAAP and consistent with past practice, have been collected or,
subject to the occurrence of unforeseen events occurring after the date hereof,
are collectible in the ordinary course of business of the Company in the
aggregate recorded amounts thereof in accordance with their terms.
SECTION 3.26 Insurance. The Company has in full force and effect (i)
general liability, (ii) directors and officers, and (iii) media insurance
policies, in each case, with financially sound and responsible insurance
companies, with extended coverage, in amounts previously disclosed to the New
Investors.
SECTION 3.27 Trade Relations. There exists no actual or, to the
Company's Knowledge, threatened termination, cancellation or limitation of, or
any adverse modification or change in, the business relationship of the Company
with any supplier the loss of which would have a Material Adverse Effect, and,
to the Company's Knowledge, there exists no present condition or state of fact
or circumstances that would materially adversely affect the condition of the
Company or, to the Company's Knowledge, prevent the Company from conducting its
business after the consummation of the transactions contemplated by this
Agreement and each of the other Transaction Documents, in substantially the same
manner in which such business has heretofore been conducted and described in the
Commission Filings.
SECTION 3.28 Affiliate Transactions. The Commission Filings disclose
all contracts, agreements, rights and liabilities between or among a Xxxxx Party
or an affiliate of a Xxxxx Party (other than the Company), on the one hand, and
the Company and its officers, directors and consultants, on the other hand
(collectively, the "Affiliate Transactions"). Except as described in
17
the Commission Filings, the Company has not entered into or is subject to any
Affiliate Transaction.
SECTION 3.29 Investment Company. Neither the Company nor any Person
controlling the Company is, and no such Person after giving effect to the
transactions contemplated hereby will be, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 3.30. Disclosure. No event or circumstance has occurred or
information exists with respect to the Company or its business, properties,
operations or financial conditions, 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, except for the announcement of
this Agreement and related transactions.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE XXXXX PARTIES
Each Xxxxx Party represents and warrants to, and agrees with, the Company
and each New Investor, severally but not jointly, as follows:
SECTION 4.1 Organization, etc. Such Xxxxx Party has been duly formed
and is validly existing and in good standing under the Laws of its jurisdiction
of organization. Such Xxxxx Party has the requisite organizational power and
authority to enter into, execute, deliver and perform all of its duties and
obligations under this Agreement, the other Transaction Documents and to
consummate the transactions contemplated hereby and thereby.
SECTION 4.2 Authority. The execution, delivery and performance of this
Agreement, the other Transaction Documents and the transactions contemplated
hereby and thereby have been duly authorized by all necessary organizational or
other action on the part of such Xxxxx Party.
SECTION 4.3 Validity; Enforceability. This Agreement has been duly
executed and delivered by such Xxxxx Party, and constitutes the legal, valid and
binding obligation of such Xxxxx Party, enforceable against such Xxxxx Party in
accordance with its terms, except as such enforceability may be limited by, or
subject to, any bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and subject to
general principles of equity.
SECTION 4.4 Xxxxx Shares. As of the date hereof, the Xxxxx Parties own
free and clear of all liens and Encumbrances 5,460,077 shares of Common Stock,
460,000 shares of Series A Convertible Preferred Stock, 8,889,414 shares of
Series B Convertible Preferred Stock, 1,000 shares of Series C Convertible
Preferred Stock, 4,821.09 shares of Series D Convertible Preferred Stock, 1,000
shares of Series E Convertible Preferred Stock, 3,000 shares of Series F
Convertible Preferred Stock (collectively, the "Xxxxx Shares") and the Company
Warrants issued in favor of the Xxxxx Parties as described in the definition of
the term "Company Warrants".
SECTION 4.5 Governmental Consents. The execution and delivery by such
Xxxxx Party of this Agreement and the performance by such Xxxxx Party of the
transactions contemplated
18
hereby, do not and will not require such Xxxxx Party to effectuate or obtain any
registration with, consent or approval of, or notice to any federal state or
other Governmental Authority or regulatory body, except for (to the extent
applicable) the filing with the Commission of a Schedule 13D, Form 3 and/or Form
4 under the Exchange Act.
SECTION 4.6 No Violation. The execution and delivery of this
Agreement, the other Transaction Documents, the performance by such Xxxxx Party
of the transactions contemplated hereby and thereby and the Conversion, will not
(i) conflict with or result in a breach of any provision of the articles of
incorporation, by-laws or similar organizational documents of such Xxxxx Party,
or (ii) violate any Law or Governmental Order applicable to such Xxxxx Party,
except any such violation that could not reasonably be expected to materially
impair the transactions contemplated by this Agreement, the other Transaction
Documents and the Conversion or have a material adverse effect on such Xxxxx
Party.
SECTION 4.7 Brokers. Except as described in Section 3.10, neither such
Xxxxx Party, nor any of its officers, directors or employees, has employed any
broker or finder, or incurred any liability for any brokerage fees, commissions,
finder's or other similar fees or expenses in connection with the transactions
contemplated hereby.
SECTION 4.8 Short Sales and Confidentiality Prior To The Date Hereof.
Other than the transaction contemplated hereunder, such Xxxxx Party has not
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Xxxxx Party, executed any Disposition (as defined in
Section 10.4) during the period commencing from the time that such Xxxxx Party
first received a term sheet from the Company or any other Person setting forth
the material terms of the transactions contemplated hereunder until the date
hereof. Notwithstanding the foregoing, in the case of a Xxxxx Party that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Xxxxx Party's assets and the portfolio managers have
no direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Xxxxx Party's assets, the representation set
forth above shall only apply with respect to the portion of assets managed by
the portfolio manager that made the investment decision to purchase the Shares
covered by this Agreement. Other than to other Persons party to this Agreement
and the representatives and advisors of the Xxxxx Parties, such Xxxxx Party has
maintained the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction).
ARTICLE V
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE NEW INVESTORS
Each New Investor represents and warrants to, and agrees with, the Company
severally but not jointly, as follows:
SECTION 5.1 Organization, etc. Such New Investor has been duly formed
and is validly existing and in good standing under the laws of its jurisdiction
of organization. Such New Investor has the requisite organizational power and
authority to enter into, execute, deliver and perform all of its duties and
obligations under this Agreement, the other Transaction Documents and to
consummate the transactions contemplated hereby and thereby.
19
SECTION 5.2 Authority. The execution, delivery and performance of this
Agreement, the other Transaction Documents and the transactions contemplated
hereby and thereby have been duly authorized by all necessary organizational or
other action on the part of such New Investor.
SECTION 5.3 Validity; Enforceability. This Agreement has been duly
executed and delivered by such New Investor, and constitutes the legal, valid
and binding obligation of such New Investor, enforceable against such New
Investor in accordance with its terms, except as such enforceability may be
limited by, or subject to, any bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and subject to general principles of equity.
SECTION 5.4 Investment Representations.
(a) Such New Investor acknowledges that the offer and sale of
the Shares to such New Investor have not been registered under the Securities
Act, or the securities laws of any state or regulatory body and are being
offered and sold in reliance upon exemptions from the registration requirements
of the Securities Act and such laws and may not be transferred or resold without
registration under such laws unless an exemption is available. The Shares, will
be imprinted with a legend in substantially the following form:
"THE OFFER AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER SUCH ACT AND UNDER ANY APPLICABLE STATE SECURITIES
LAWS UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY, AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND STATE SECURITIES LAWS IS AVAILABLE."
(b) Such New Investor is acquiring the Shares for investment and
not with a view to the resale or distribution thereof and is acquiring such
Shares for its own account, without prejudice, however, to such New Investor's
right, subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Shares pursuant to an effective
registration statement under the Securities Act or under an exemption from such
registration and in compliance with applicable federal and state securities
laws. Such New Investor is purchasing the Shares in the ordinary course of
business and, as of the date hereof, has no agreements or understandings,
directly or indirectly, with any person to distribute the Shares.
(c) Such New Investor is an "accredited investor" (as that term
is defined in Rule 501 of Regulation D promulgated under the Securities Act), is
sophisticated in financial matters and is familiar with the business of the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
Such New Investor has had the opportunity to investigate on its own, or together
with its advisors,
20
the Company's business, management and financial affairs and has had the
opportunity to review the Company's operations and facilities and to ask
questions and obtain whatever other information concerning the Company as such
New Investor has deemed relevant in making its investment decision. Neither such
inquiries nor any other investigation conducted by or on behalf of such New
Investor or its representatives or counsel shall modify, amend or affect such
New Investor's right to rely on the truth, accuracy and completeness of the
Company's and the Xxxxx Party's representations and warranties contained in the
Transaction Documents.
(d) Such New Investor is in compliance with the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001. To such New Investor's knowledge, neither it,
nor any of its principal owners, partners, members, directors or officers is
included on: (i) the Office of Foreign Assets Control list of foreign nations,
organizations and individuals subject to economic and trade sanctions, based on
U.S. foreign policy and national security goals; (ii) Executive Order 13224,
which sets forth a list of individuals and groups with whom U.S. persons are
prohibited from doing business because such persons have been identified as
terrorists or persons who support terrorism or (iii) any other watch list issued
by any Governmental Authority, including the Commission.
(e) Such New Investor has adequate funds immediately available
to satisfy all of its obligations hereunder.
SECTION 5.5 Governmental Consents. The execution and delivery by such
New Investor of this Agreement and the performance by such New Investor of the
transactions contemplated hereby, do not and will not require such New Investor
to effectuate or obtain any registration with, consent or approval of, or notice
to any federal state or other Governmental Authority or regulatory body, except
for (to the extent applicable) the filing with the Commission of a Schedule 13D
and/or Schedule 13G and/or Form 3 under the Exchange Act with respect to the
acquisition by such New Investor of the Shares.
SECTION 5.6 No Violation. The execution and delivery of this Agreement
and the performance by such New Investor of the transactions contemplated
hereby, will not (i) conflict with or result in a breach of any provision of the
articles of incorporation, by-laws or similar organizational documents of such
New Investor or (ii) violate any Law or Governmental Order applicable to such
New Investor, except any such violation that could not reasonably be expected to
materially impair the transactions contemplated hereby or have a material
adverse effect on such New Investor.
SECTION 5.7 No Additional Representations. No representations or
warranties have been made to any New Investor by the Company or any director,
officer, employee, agent or affiliate of the Company, other than the
representations and warranties of the Company set forth herein, and the decision
of each New Investor to purchase the Shares is based on information contained
herein, in the Commission Filings and such New Investor's own independent
investigation of the Company.
SECTION 5.8 Brokers. Neither such New Investor, nor any of its
officers, directors or employees, has employed any broker or finder, or incurred
any liability for any brokerage fees,
21
commissions, finder's or other similar fees or expenses in connection with the
transactions contemplated hereby.
SECTION 5.9 Short Sales and Confidentiality Prior To The Date Hereof.
Other than the transaction contemplated hereunder, such New Investor has not
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such New Investor, executed any Disposition during the
period commencing from the time that such New Investor first received a term
sheet from the Company or any other Person setting forth the material terms of
the transactions contemplated hereunder until the date hereof . Notwithstanding
the foregoing, in the case of a New Investor that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such New
Investor's assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of
such New Investor's assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager that made
the investment decision to purchase the Shares covered by this Agreement. Other
than to other Persons party to this Agreement, and the representatives and
advisors of the New Investors, such New Investor has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
ARTICLE VI
COVENANTS
SECTION 6.1 Registration Rights.
(a) The Company shall use its commercially reasonable best
efforts to: (i) prepare and file with the Commission a registration statement
under the Securities Act (as the same may be amended or supplemented from time
to time, the "Registration Statement") with respect to the offer and sale of the
Shares (together with any securities hereafter issued upon any stock split,
dividend or other distribution, recapitalization or similar event with respect
to the Shares, the "Registrable Securities") within one hundred twenty (120)
days of the Closing Date (the one hundred twentieth (120th) day following the
Closing Date being referred to herein as the "Filing Deadline"); and (ii) cause
the Registration Statement to be declared effective by the Commission, subject
to receipt of necessary information from the New Investors, within one hundred
and eighty (180) days of the Closing Date (the one hundred and eightieth (180th)
day following the Closing Date being referred to herein as the "Required
Effectiveness Deadline"). The Company shall not file any registration statement
under the Securities Act (other than a registration statement on Form S-8
relating to Common Stock underlying stock options or restricted stock/units or a
registration statement on Form S-4 relating to securities issued in connection
with a merger or acquisition) prior to the Effective Date. The Company shall use
commercially reasonable efforts to maintain the effectiveness of such
Registration Statement until the earliest to occur (the "Effectiveness Period")
of the following: (i) all of the Registrable Securities have been disposed of by
the New Investors pursuant to the Registration Statement; or (ii) all of the
Shares can be resold, without registration, pursuant to clause (k) of Rule 144,
promulgated under the Securities Act, or any similar provisions to clause (k) of
Rule 144 that may hereafter be in effect.
22
(b) Each New Investor will promptly furnish to the Company in
writing all information reasonably requested by the Company for use in
connection with the preparation of the Registration Statement and obtaining the
effectiveness thereof. Each New Investor, severally but not jointly, hereby
represents and warrants that all such information furnished by it shall be true,
accurate and complete. In addition, each New Investor covenants and agrees that
it will comply with all applicable securities laws when trading the Company's
Common Stock.
(c) If at any time or from time to time after the date of
effectiveness of the Registration Statement, the Company notifies the New
Investors in writing of the existence of a Potential Material Event (as defined
below), the New Investors shall not offer or sell any of the Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until such New Investor receives written notice from
the Company that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event (such period of time
hereinafter referred to as a "Blackout Period"). As used herein, "Potential
Material Event" means any of the following: (i) the possession by the Company of
material information not ripe for disclosure in a registration statement, which
shall be evidenced by determinations in good faith by the Board of Directors of
the Company that disclosure of such information in the registration statement
would be detrimental to the business and affairs of the Company; or (ii) any
material engagement or activity by the Company which would, in the good faith
determination of the Board of Directors of the Company, be adversely affected by
disclosure in a Registration Statement at such time, which determination shall
be accompanied by a good faith determination by the Board of Directors of the
Company that the registration statement would be materially misleading absent
the inclusion of such information. No Blackout Period shall exceed thirty (30)
consecutive days, and there shall be no more than sixty (60) days (which need
not be consecutive) during any twelve-month period in which a Blackout Period is
in effect.
(d) All registration and filing fees, fees and expenses of
compliance with securities laws, printing expenses and all independent certified
public accountants fees and expenses of counsel to the Company and other persons
retained by the Company will be borne by the Company. The Company shall have no
obligation to pay any fees or expenses of brokers, underwriters, or counsel or
others retained by any New Investor (except as otherwise set forth in Section
10.1) in connection with the sale, or potential sale, of the Registrable
Securities.
(e) The Company agrees to indemnify, to the fullest extent
permitted by Law, each New Investor and its officers, directors, partners,
employees, advisors and agents against any and all Loss arising out of or based
upon any untrue, or alleged untrue, statement of a material fact contained in
the Registration Statement or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except (i) insofar
as the same are caused by or contained in any information furnished in writing
by such New Investor pursuant to Section 6.1(b) or (ii) insofar as the same are
caused by a failure by such New Investor, following written notification from
the Company that an updated prospectus should be delivered, to deliver an
updated prospectus that has been filed with the Commission and made available to
such New Investor or its representatives on a timely basis for delivery to a
purchaser. The indemnity by the Company of the New Investors pursuant to this
Section 6.1(e) shall survive the transfer of the Registrable Securities
by the New
23
Investors. Each New Investor, severally, but not jointly, agrees to indemnify,
to the fullest extent permitted by Law, the Company and its officers, directors,
partners, employees, advisors and agents against any and all Loss arising out of
or based upon any untrue, or alleged untrue statement of a material fact
contained in the Registration Statement or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (i)
insofar as the same are caused by or contained in any information furnished in
writing by such New Investor, following written notification from the Company
that an updated prospectus should be delivered, pursuant to Section 6.1(b) or
(ii) insofar as the same are caused by a failure by such New Investor to deliver
an updated prospectus that has been filed with the Commission and made available
to such New Investor or its representatives on a timely basis for delivery to a
purchaser. Any indemnity obligation arising under this Section 6.1 shall be
governed by the provisions of Section 9.3. Notwithstanding the foregoing, the
liability of each New Investor under this Section 6.1(e) shall not exceed the
net proceeds received by it in connection with any sale of the Registrable
Securities.
If a claim for indemnification under the first paragraph of Section 6.1(e)
is unavailable to any Person entitled to be indemnified pursuant thereto (by
reason of public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in the following paragraph, any reasonable
attorneys' or other reasonable fees or expenses incurred by such party in
connection with any Action to the extent such party would have been indemnified
for such fees or expenses if the indemnification provided for in this Section
was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.1(e) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.1(e), no New Investor
(including any transferee of the registration rights) shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
net proceeds actually received by such New Investor from the sale of the
Registrable Securities subject to the Action exceeds the amount of any damages
that such New Investor has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) Piggy-Back Registration. If the Company proposes to file a
registration statement under the Securities Act with respect to an underwritten
offering by the Company for its own
24
account or for the account of a Stockholder of any class of security (other than
a registration statement on Form S-4 or S-8 or any successor forms thereto),
then the Company shall give written notice of such proposed filing to each of
the holders of Registrable Securities, and such notice shall describe in detail
the proposed registration and distribution and shall offer such holders the
opportunity to register the number of Registrable Securities as each such holder
may request. The Company shall, and shall use commercially reasonable efforts
(within ten (10) days of the notice provided for in the preceding sentence) to
cause the managing underwriter or underwriters of a proposed underwritten
offering (the "Company Underwriter") to, permit the holders of Registrable
Securities who have requested in writing (within ten (10) days of the giving of
the notice of the proposed filing by the Company) to participate in the
registration for such offering (the "Requesting Holders") to include such
Registrable Securities in such offering on the same terms and conditions as the
securities of the Company included therein. In connection with any offering
under this Section 6.1 involving an underwriting, the Company shall not be
required to include any Registrable Securities in such underwriting unless the
holders thereof accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it. If, in the opinion of the Company
Underwriter, the registration of all, or part, of the Registrable Securities
which the Requesting Holders have requested to be included would materially and
adversely affect such public offering, then the Company shall be required to
include in the underwriting only that number of Registrable Securities, if any,
which the Company Underwriter believes may be sold without causing such adverse
effect, and the amount of securities to be offered in the underwriting shall be
allocated first, to the Company based on the number of shares it desires to sell
in the underwritten offering for its own account; and thereafter pro rata among
the stockholders of the Company based on the number of shares otherwise proposed
to be included therein by the Stockholders. If the number of Registrable
Securities to be included in the underwriting in accordance with the foregoing
is less than the total number of shares which the Requesting Holders of
Registrable Securities have requested to be included, then such Requesting
Holders shall participate in the underwriting pro rata based upon their total
ownership of the Registrable Securities and such other shares of Common Stock as
are requested to be included by other holders of shares of Common Stock which
have registration rights. If any Requesting Holder would thus be entitled to
include more shares than such holder requested to be registered, the excess
shall be allocated among other Requesting Holders pro rata based upon their
total ownership of Registrable Securities and such other shares of Common Stock.
The Xxxxx Parties agree that to the extent this subparagraph (f) conflicts with
any prior registration rights provision to which the Xxxxx Parties are entitled
regarding the allocation of shares among stockholders of the Company in the
event of an underwriter's cutback, this subparagraph (f) shall govern.
(g) The Company shall furnish to each New Investor such number
of conformed copies of the Registration Statement and the prospectus included
therein, in conformity with the requirements of the Securities Act, that such
New Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities. In connection with any sale of
Registrable Securities pursuant to the Registration Statement, in lieu of
delivering physical certificates representing the Registrable Securities, if the
Company's transfer agent is participating in the Depositary Trust Company
("DTC") Fast Automated Securities Transfer program, upon request of the
applicable New Investor, so long as the certificates therefore are not required
to bear a legend, the Company shall cause its transfer agent to electronically
transmit the Registrable
25
Securities by crediting the account of such New Investor's prime broker with DTC
through its Deposit Withdrawal Agent Commission system within three (3) business
days of such request.
(h) If: (i) the Registration Statement is not filed on or prior
to the Filing Deadline, (ii) a Registration Statement is not declared effective
by the Commission (or otherwise does not become effective) on or prior to the
Required Effectiveness Deadline or (iii) after its Effective Date, such
Registration Statement ceases for any reason (including without limitation by
reason of a stop order, or the Company's failure to update the Registration
Statement), but excluding the inability of any New Investor to sell the
Registrable Securities covered thereby due to market conditions, to be effective
and available to the New Investors as to all Registrable Securities to which it
is required to cover at any time prior to the expiration of the Effectiveness
Period for an aggregate of more than thirty (30) consecutive days or for more
than an aggregate of sixty (60) days in any 12-month period (which need not be
consecutive), (any such failure or breach being referred to as an "Event," and
for purposes of clauses (i) or (ii) the date on which such Event occurs, or for
purposes of clause (iii) the date which such thirty (30) consecutive or sixty
(60) day period (as applicable) is exceeded, being referred to as "Event Date"),
then in addition to any other rights available to the New Investors: (x) on such
Event Date the Company shall pay to each New Investor an amount in cash, as
partial liquidated damages and not as a penalty, equal to 1.5% of the product of
(A) the Per Share Price, and (B) the number of Shares held by such New Investor
as of the Event Date that are Registrable Securities as of the Event Date (such
product, the "New Investor's Subscription Amount") (which remedy shall not be
exclusive of any other remedies available under this Agreement); and (y) on each
monthly anniversary of each such Event Date thereof (if the applicable Event
shall not have been cured by such date) until the applicable Event is cured, the
Company shall pay to each New Investor an amount in cash, as partial liquidated
damages and not as a penalty, equal to 1.5% of the New Investor's Subscription
Amount paid by such New Investor for Shares pursuant to this Agreement. If the
Company fails to pay any partial liquidated damages pursuant to this Section
6.1(h) in full within seven days after the date payable, the Company will pay
interest thereon at a rate of 10% per annum (or such lesser maximum amount that
is permitted to be paid by applicable law) to the New Investor, accruing daily
from the date such partial liquidated damages are due until such amounts, plus
all such interest thereon, are paid in full. The partial liquidated damages
pursuant to the terms hereof shall apply on a daily pro-rata basis for any
portion of a month prior to the cure of an Event, except in the case of the
first Event Date. Notwithstanding the foregoing, the maximum amount of payment
to a New Investor associated with all Events in the aggregate shall equal 10.0%
of the New Investor's Subscription Amount paid by such New Investor for Shares
pursuant to the Purchase Agreement.
(i) The rights of a New Investor under this Section 6.1 may be
assigned (in whole or in part) by such New Investor to transferees or assignees
of all or any portion of its Registrable Securities, but only if (i) the New
Investor (or subsequent transferor) agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being transferred
or assigned, (iii) at or before the time the Company received the written notice
contemplated by clause (ii) of this sentence, the transferee or assignee agrees
in writing with the
26
Company to be bound by all of the provisions contained in Section 6.1 hereof and
(iv) the transferee is an "accredited investor" as that term is defined in Rule
501 of Regulation D and such transfer complies with the other restrictions
governing the transfer of Shares set forth in this Agreement.
(j) Before filing the Registration Statement and the prospectus
included therein or any amendments or supplements thereto, the Company will
furnish to the New Investors copies of all such documents in substantially the
form proposed to be filed, to enable the New Investors to review such documents
prior to the filing thereof, and the Company shall make such reasonable changes
thereto as may be reasonably requested by the New Investors.
(k) The Company shall promptly notify each New Investor and
promptly confirm such notice in writing, if such notice was verbally given, (A)
when the Registration Statement covering the Registrable Securities has become
effective and when any post effective amendments thereto have become effective,
(B) of the receipt of any comments from the Commission with respect to any such
document or a document incorporated by reference therein, (C) of any request by
the Commission or any other federal or state securities authority for amendments
or supplements to the Registration Statement or a prospectus or for additional
information after the Registration Statement has become effective, (D) of the
issuance or threatened issuance by the Commission or any state securities
authority of any stop order suspending the effectiveness of the Registration
Statement, and (E) of the happening of any event or the failure of any event to
occur or the discovery of any facts, during the Effectiveness Period, which
makes any statement made in the Registration Statement or the related prospectus
or any document incorporated therein untrue in any material respect or which
causes the Registration Statement or prospectus to omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(l) Upon the occurrence of any event contemplated by paragraph
(k)(E) above, prepare a supplement or post-effective amendment to the
Registration Statement or the prospectus or any document incorporated therein or
file any other required documents so that, as thereafter delivered to the
purchasers of the Registrable Securities, such documents will not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading.
SECTION 6.2 Conduct of Business by the Company. The Company covenants
and agrees that, prior to the Closing Date or earlier termination of this
Agreement as provided, the Company shall act and carry on its business in the
ordinary course of business consistent with past practice and use its reasonable
commercial efforts to preserve intact its current material business
organizations, keep available the services of its current officers and employees
(except for terminations or departures of employees in the ordinary course of
business) and preserve its material relationships with others having business
dealings with it.
SECTION 6.3 Reporting Requirements Under the Exchange Act. To the
extent the Company remains subject to the reporting requirements under the
Exchange Act, for a period of three (3) years from the Closing Date or until
such time as each New Investor or Xxxxx Party owns less than 10% of the
outstanding Common Stock, whichever is longer, the Company shall use
commercially reasonable efforts to timely file such information, documents and
reports as it may be required to file under Section 13 or 15 of the Exchange
Act; provided, however, that no such
27
filing shall be made later than 30 days after its due date. The Company
acknowledges and agrees that the purposes of the requirements contained in this
Section 6.3 are to enable the New Investors and the Xxxxx Parties to comply with
the current public information requirement contained in paragraph (c) of Rule
144, if applicable, should any such New Investor or Xxxxx Party ever wish to
dispose of any of the Shares without registration under the Securities Act in
reliance upon Rule 144 (or any other similar exemptive provision).
SECTION 6.4 Conversion. The Xxxxx Parties and the Company hereby
covenant and agree to take or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable consistent with applicable
Laws and regulations to consummate the Conversion at the Closing and the
repayment of the Company Notes and accrued dividends as provided in Section 2.4
at the Closing. The Xxxxx Parties hereby waive any preemptive rights or other
rights they many have as holders of the Xxxxx Shares and the Company Warrants
and any other preemptive rights the Xxxxx Parties may have to participate in the
purchase of Shares hereunder. The Company hereby represents to each of the Xxxxx
Parties that the shares of the Common Stock to be issued to the Xxxxx Parties
and their affiliates, upon conversion of the preferred stock of the Company in
accordance with their terms, will be validly issued, fully paid and
non-assessable, free and clear of all Encumbrances, and shall not be subject to
preemptive or similar rights of stockholders.
SECTION 6.5 Series D Notice. The Company shall, no later than the
Business Day following the date hereof, send to the holders of Series D
Convertible Preferred Stock the notices and take any other action required under
the Certificate of Powers, Designations, Preferences and Rights of Series D
Convertible Preferred Stock of the Company (the "Series D Notice").
SECTION 6.6 Use of Proceeds. The Company shall use the proceeds of the
sale of the Shares to the New Investors to make the payments at the Closing to
the Xxxxx Parties as set forth in Section 2.4. The Company shall use the
remaining proceeds for general corporate purposes, including, if the Board of
Directors of the Company determines to do so, the redemption of any or all of
the outstanding shares of the Series F Convertible Preferred Stock.
SECTION 6.7 Further Action. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its reasonable best efforts to
take, or cause to be taken, all action and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable consistent with applicable Laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
SECTION 6.8 Access; Notification of Certain Matters.
(a) Upon reasonable notice, the Company shall afford the New
Investors, (i) between the date hereof and the Closing and (ii) to the extent
and for so long as the beneficial ownership of the New Investors and their
affiliates exceeds 10% of the outstanding Common Stock of the Company, after the
Closing, and their representatives reasonable access during normal business
hours to the offices, senior management, copies of requested documents of the
Company and such additional information concerning the business and properties
of the Company as the New Investors and their representatives may reasonably
request. The Company shall instruct its
28
employees, counsel (other than with respect to matters that could adversely
affect the attorney-client privilege) and financial advisors to cooperate with
the New Investors in their investigation of the business of the Company.
(b) Between the date hereof and the Closing or the earlier
termination of this Agreement as provided herein, the Company shall promptly
(and in any event within two (2) Business Days after obtaining knowledge
thereof) notify the New Investors of any action or event which individually or
in the aggregate could reasonably be expected to have a Material Adverse Effect;
provided that the New Investors acknowledge that such information provided by
the Company constitutes material non-public information and that the New
Investors have otherwise complied with the provisions of Section 10.3 with
respect to the receipt of such information.
SECTION 6.9 D&O Insurance. The Company shall use commercially
reasonable efforts to maintain adequate directors' and officers' liability
insurance with coverage and on terms and conditions no less advantageous than
the current directors' and officers' liability insurance of the Company.
SECTION 6.10 Directors. The Company shall take all actions necessary
to facilitate the election of one director designated by the Maverick Parties
and one director designated by the Prentice Parties to the Board of Directors of
the Company within thirty (30) days of the Closing Date.
SECTION 6.11 Standstill.
(a) Each of the Xxxxx Parties and the New Investors agree that they
shall not, without the approval of a majority of the independent directors of
the Company, directly or indirectly, (i) for a period of three years from the
Closing Date, purchase or acquire, or agree to purchase or acquire, any shares
of capital stock of the Company, including by means of a tender offer or "going
private" transaction involving a merger; provided, however, that the foregoing
restriction shall not apply to (w) any acquisition or purchase or deemed
acquisition or purchase of capital stock of the Company upon exercise of any
warrants or other securities convertible into capital stock of the Company held
by or for the benefit of the Xxxxx Parties outstanding on the Closing Date, (x)
any purchase of shares in a Subsequent Financing pursuant to Section 6.12, (y)
from and after the date which is eighteen months from the Closing Date, a
purchase by the Maverick Parties or the Prentice Parties of shares of capital
stock, up to their respective Share Cap, or (z) from and after the date which is
eighteen months from the Closing Date, a purchase by the Xxxxx Parties of shares
of capital stock in an amount up to fifteen percent (15%) of the outstanding
shares of Common Stock on the Closing Date, (ii) for a period of five years from
the Closing Date, except as provided in the Voting Agreement or this Agreement,
join a partnership, limited partnership, syndicate or other group within the
meaning of Section 13(d) of the Exchange Act, including a group consisting of
other New Investors for the purpose of acquiring, holding or voting any shares
of capital stock of the Company, or (iii) for a period of three years from the
Closing Date, seek to commence a proxy contest or other proxy solicitation for
the purposes of modifying the composition of the Board.
29
(b) The Xxxxx Parties will not and shall cause their affiliates not
to, prior to the date on which the Registration Statement has been declared
effective by the Commission, sell, offer to sell, solicit offers to buy, dispose
of, loan, pledge or grant any right with respect to Common Stock or any other
security of the Company (other than (x) pursuant to a merger, consolidation,
sale or other similar transaction involving the sale of 50% or more of the
outstanding capital stock of the Company or (y) the lending of such Common Stock
held in brokerage accounts for margin purposes), nor will the Xxxxx Parties or
any of their affiliates engage in any hedging or other similar transaction,
which is designed to or could reasonably be expected to lead to or result in a
sale, offer to sell, solicitation of offers to buy, disposition of, loan, pledge
or grant of any right with respect to Common Stock or any other security of the
Company by any Xxxxx Party or Person or entity affiliated with any Xxxxx Party;
provided, however, that the restrictions provided for in this Section 6.11(b)
shall not apply to any exercise of any warrants or other securities convertible
into capital stock of the Company held by or on behalf of the Xxxxx Parties on
the Closing Date to the extent that such exercise may otherwise be deemed a
violation of such restrictions.
(c) Each of the Xxxxx Parties and the New Investors agrees that,
for a period of six (6) months after the Closing Date, they shall not sell,
offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any
right with respect to, any shares of capital stock of the Company (other than
the lending of such shares held in brokerage accounts for margin purposes).
SECTION 6.12 Right of First Refusal on Future Financings. From the
date hereof until one year after the Closing Date, upon any financing by the
Company of its Common Stock or Common Stock Equivalents (a "Subsequent
Financing"), each New Investor and the Xxxxx Parties shall have the right to
participate in such Subsequent Financing as provided herein, subject to their
respective Modified Share Cap. At least five (5) Business Days prior to the
closing of the Subsequent Financing, the Company shall deliver to each New
Investor and the Xxxxx Parties a written notice of its intention to effect a
Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such New
Investor and such Xxxxx Party if it wants to review the details of such
financing (such additional notice, a "Subsequent Financing Notice"). Upon the
request of a New Investor or Xxxxx Party, and only upon a request by such New
Investor or Xxxxx Party, for a Subsequent Financing Notice, the Company shall
promptly, but no later than one Business Day after such request, deliver a
Subsequent Financing Notice to such New Investor or Xxxxx Party. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating thereto.
Each New Investor and Xxxxx Party shall notify the Company by 6:30 p.m. (New
York City time) on or prior to the fifth (5th) Business Day after their receipt
of the Subsequent Financing Notice of its willingness to provide the Subsequent
Financing on the terms described in the Subsequent Financing Notice, subject to
their respective Modified Share Cap and the completion of mutually acceptable
documentation. If one or more New Investors or Xxxxx Parties shall fail to so
notify the Company of their willingness to participate in the Subsequent
Financing, the New Investors and the Xxxxx Parties agreeing to participate in
the Subsequent Financing (the "Participating Investors") shall have the right to
provide all of the Subsequent Financing, to the extent not exceeding their
respective Modified Share Cap. If one or more of the New Investors or the Xxxxx
Parties fail to notify the Company of their willingness to provide all of the
Subsequent Financing and the Participating Investors do not agree to provide all
30
of the Subsequent Financing, the Company may effect the remaining portion of
such Subsequent Financing on the terms and to the Persons set forth in the
Subsequent Financing Notice; provided that the Company must provide the New
Investors and the Xxxxx Parties with a second Subsequent Financing Notice, and
the New Investors and the Xxxxx Parties will again have the right of first
refusal set forth above in this Section 6.12, if the Subsequent Financing
subject to the initial Subsequent Financing Notice is not consummated for any
reason on the terms set forth in such Subsequent Financing Notice within 60
Business Days after the date of the initial Subsequent Financing Notice with the
Person identified in the Subsequent Financing Notice. In the event the Company
receives responses to Subsequent Financing Notices from the New Investors or the
Xxxxx Parties seeking to purchase more than the financing sought by the Company
in the Subsequent Financing, such New Investors and Xxxxx Parties shall have the
right to purchase, subject to their respective Modified Share Cap, their Pro
Rata Portion (as defined below) of the Common Stock or Common Stock Equivalents
to be issued in such Subsequent Financing. "Pro Rata Portion" is the ratio of
(x) the number of shares of Common Stock held by such New Investor or Xxxxx
Party as of the Closing Date (excluding shares of Common Stock underlying
options, warrants or other convertible or exercisable securities) and (y) the
total number of shares of Common Stock held by the New Investors and the Xxxxx
Parties as of the Closing Date (excluding shares of Common Stock underlying
options, warrants or other convertible or exercisable securities).
Notwithstanding anything to the contrary in the foregoing and for the avoidance
of doubt, in no event shall any New Investor or Xxxxx Party be entitled to
purchase in a Subsequent Financing an amount in excess of their respective
Modified Share Cap. Notwithstanding the foregoing, this Section 6.12 shall not
apply in respect of the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose (b) shares of Common Stock
or options or warrants to consultants or other service providers of the Company
in a transaction that is not for the purpose of providing financing to the
Company, (c) shares of Common Stock pursuant to an underwritten public offering
by the Company, and (d) securities upon the exercise of or conversion of any
convertible securities, options or warrants issued and outstanding on the date
of this Agreement, provided that such securities have not been amended since the
date of this Agreement to increase the number of shares of Common Stock issuable
thereunder or to lower the exercise or conversion price thereof.
SECTION 6.13 Removal of Legends. Certificates evidencing Shares shall
not be required to contain the legend in Section 5.4(a) or any other legend (i)
while a registration statement (including the Registration Statement) covering
the resale of such Shares is effective under the Securities Act, (ii) following
any sale of such Shares pursuant to Rule 144 (assuming the transferor is not an
affiliate of the Company), (iii) if such Shares are eligible for sale under Rule
144(k) (to the extent that the applicable New Investor provides a certification
or legal opinion to the Company to that effect), or (iv) if such legend is not
required under applicable requirements of the Securities Act (including
controlling judicial interpretations and pronouncements issued by the
Commission). Following the Effective Date or at such earlier time as a legend is
no longer required for certain Shares, the Company will no later than three (3)
trading days following the delivery by a New Investor to the Company or its
transfer agent (with notice to the Company) of a legended certificate
representing such Shares deliver or cause to be delivered to such New Investor a
certificate representing such Shares that is free from all restrictive and other
legends. The
31
Company may not make any notation on its records or give instructions to the
transfer agent that enlarge the restrictions on transfer set forth in this
Section 6.13.
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.1 Conditions to Obligations of the New Investor. The
obligations of the New Investors to consummate the transactions contemplated by
this Agreement and the other Transaction Documents shall be subject to the
satisfaction or waiver of each of the following conditions precedent on or prior
to the Closing Date:
(a) (i) The representations and warranties of the Company and
the Xxxxx Parties contained in this Agreement (A) that are not qualified by
"materiality" or "material" or "Material Adverse Effect" shall have been true
and correct in all material respects when made and shall be true and correct in
all material respects as of the Closing Date with the same force and effect as
if made as of the Closing Date, except to the extent such representations and
warranties are as of another date, in which case, such representations and
warranties shall be true and correct in all material respects as of that date
and (B) that are qualified by "materiality" or "material" or "Material Adverse
Effect" shall have been true and correct when made and shall be true and correct
as of the Closing Date with the same force and effect as if made as of the
Closing Date, except to the extent such representations and warranties are as of
another date, in which case, such representations and warranties shall be true
and correct as of that date and (ii) the covenants and agreements contained in
this Agreement to be complied with by the Company and the Xxxxx Parties on or
before the Closing Date shall have been complied with in all material respects,
and the New Investors shall have received a certificate of the Company and each
Xxxxx Party to such effect signed by a duly authorized officer thereof;
(b) All consents, exemptions, authorizations, or other actions
by, or notices to, or filings with Governmental Authorities and other Persons in
respect of all requirements of Law which are necessary or required in connection
with the execution, delivery or performance (including the issuance of the
Shares) of this Agreement and each of the other Transaction Documents (other
than those of which the failure to obtain could not reasonably be expected to
have a Material Adverse Effect) shall have been obtained and be in full force
and effect, and each of the New Investors shall have been furnished with
appropriate evidence thereof;
(c) No Action shall have been commenced by or before any
Governmental Authority, and no Governmental Order shall exist, to set aside,
restrain, enjoin or otherwise prevent the execution, delivery or performance of
this Agreement or any other Transaction Document, or the consummation of the
transactions contemplated hereby and thereby;
(d) No event or events shall have occurred, which, individually
or in the aggregate, have, or could reasonably be expected to have, a Material
Adverse Effect;
(e) The New Investors shall have received an opinion of Dechert
LLP, counsel to the Company, in form and substance reasonably satisfactory to
the New Investors and covering the matters set forth on Exhibit B;
32
(f) The Conversion shall have been consummated concurrently with
the Closing and each of the New Investors shall have been furnished with
appropriate evidence thereof;
(g) The Lenders Consent shall have been obtained and each of the
New Investors shall have been furnished with appropriate evidence thereof;
(h) A period of ten (10) calendar days after the date on which
the Company gave the Series D Notice shall have expired;
(i) A period of fifteen (15) calendar days after the date on
which the Company gave notice to the Nasdaq Capital Market shall have expired,
unless such period is shortened by the Nasdaq Capital Market;
(j) The Company and the Xxxxx Parties shall have made the
deliveries required by Sections 2.3(a) and (b)(i) and (ii), respectively, and
the Company shall have issued instructions for the payments to be made pursuant
to Section 2.4 to be paid out of the proceeds of the sale of the Shares; and
(k) Trading in the Common Stock shall not have been suspended by
the Commission, the Nasdaq Capital Market or the Boston Stock Exchange (except
for any suspensions of trading of not more than one trading day solely to permit
dissemination of material information regarding the Company) at any time since
the date of execution of this Agreement, and the Common Stock shall have been at
all times since such date listed for trading on the Nasdaq Capital Market and
the Boston Stock Exchange.
SECTION 7.2 Conditions to Obligations of the Company and the Xxxxx
Parties. The obligation of the Company and the Xxxxx Parties to consummate the
transactions contemplated by this Agreement and the other Transaction Documents
shall be subject to the satisfaction or waiver of each of the following
conditions precedent on or prior to the Closing Date:
(a) (i) The representations and warranties of the New Investors
contained in this Agreement (A) that are not qualified by "materiality" or
"material" or "Material Adverse Effect" shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects as of the Closing Date with the same force and effect as if made as of
the Closing Date, except to the extent such representations and warranties are
as of another date, in which case, such representations and warranties shall be
true and correct as of that date and (B) that are qualified by "materiality" or
"material" or "Material Adverse Effect" shall have been true and correct when
made and shall be true and correct as of the Closing Date with the same force
and effect as if made as of the Closing Date, except to the extent such
representations and warranties are as of another date, in which case, such
representations and warranties shall be true and correct as of that date and
(ii) the covenants and agreements contained in this Agreement to be complied
with by the New Investors on or before the Closing Date shall have been complied
with in all material respects, and the Company and the Xxxxx Parties shall have
received a certificate of the New Investors to such effect signed by a duly
authorized officer thereof;
(b) All consents, exemptions, authorizations, or other actions
by, or notices to, or filings with Governmental Authorities and other Persons in
respect of all requirements of Law
33
which are necessary or required in connection with the execution, delivery or
performance (including the issuance of the Shares) of this Agreement and each of
the other Transaction Documents (other than those of which the failure to obtain
could not reasonably be expected to have a Material Adverse Effect) shall have
been obtained and be in full force and effect;
(c) No Action shall have been commenced by or before any
Governmental Authority (other than a shareholder litigation which is not
reasonably likely to have a Material Adverse Effect), and no Governmental Order
shall exist, to set aside, restrain, enjoin or otherwise prevent the execution,
delivery or performance of this Agreement or any other Transaction Document, or
the consummation of the transactions contemplated hereby or thereby;
(d) The New Investors shall have made the deliveries required by
Section 2.3(c); and
(e) In the case of the Company's and the New Investors
obligation to consummate the transactions contemplated by this Agreement and the
other Transaction Documents, the Xxxxx Parties shall have made the deliveries
required by Section 2.3(b)(iii), (iv) and (v).
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by the New Investors if, between the date hereof and the
Closing: (i) any representations and warranties of the Company or the Xxxxx
Parties contained in this Agreement (1) that are not qualified by "materiality"
or "Material Adverse Effect" shall not have been true and correct in all
material respects when made or (2) that are qualified by "materiality" or
"Material Adverse Effect" shall not have been true and correct when made, (ii)
the Company or the Xxxxx Parties shall not have complied in all material
respects with the covenants or agreements contained in this Agreement to be
complied with by it and such default is not capable of being cured on or prior
to July 20, 2006 or (iii) the Company makes a general assignment for the benefit
of creditors, or any proceeding shall be instituted by or against the Company
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up or reorganization, arrangement, adjustment, protection, relief or
composition of its debts under any Law relating to bankruptcy, insolvency or
reorganization;
(b) by the Company or the Xxxxx Parties if, between the date
hereof and the Closing: (i) any representations and warranties of any New
Investor contained in this Agreement (1) that are not qualified by "materiality"
or "Material Adverse Effect" shall not have been true and correct in all
material respects when made or (2) that are qualified by "materiality" or
"Material Adverse Effect" shall not have been true and correct when made, or
(ii) any New Investor shall not have complied in all material respects with the
covenants or agreements contained in this Agreement to be complied with by it
and such default is not capable of being cured on or prior to July 20, 2006;
34
(c) by any of the New Investors, the Company or the Xxxxx
Parties if the Closing shall not have occurred by July 20, 2006; provided,
however, that the right to terminate this Agreement under this Section 8.1(c)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement shall have been the cause of, or shall have resulted in,
the failure of the Closing to occur on or prior to such date; and
(d) by the mutual written consent of the New Investors, the
Company and the Xxxxx Parties.
SECTION 8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto, except with
respect to Section 10.2, which shall survive any termination of this Agreement,
and except that nothing herein shall relieve either party from liability for any
breach of this Agreement.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
SECTION 9.1 Survival. The representations and warranties contained in
Articles III, IV and V hereof shall survive the Closing and the delivery of the
Shares. The covenants and agreements contained in this Agreement shall survive
the Closing and remain in full force and effect until fully performed in
accordance with their terms; provided, that the covenants in Section 6.8 and 6.9
shall survive only for so long as the New Investors and their affiliates
beneficially own Common Stock representing more than 10% of the outstanding
Common Stock of the Company, and shall be enforceable only by such New Investors
who, together with their affiliates, own in excess of such amount; provided,
further, that with respect to any of the Xxxxx Parties and New Investors, the
covenants in Section 6.11(a) shall survive only for so long as such Xxxxx Party
or New Investor, as applicable, beneficially owns more than 10% of the
outstanding Common Stock of the Company, but such covenants shall be reinstated
if such Xxxxx Party or New Investor becomes the beneficial owner of 10% of the
outstanding Common Stock of the Company for so long as such ownership remains
above such threshold.
SECTION 9.2 Indemnification.
(a) The Company (the "Indemnifying Party") will indemnify and
hold the New Investors and their directors, officers, shareholders, partners,
members, managers, employees and agents (each, an "Indemnified Party") harmless
from any and all losses, liabilities, obligations, claims, contingencies,
damages, costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys' fees and costs of
investigation (collectively, "Losses") that any such Indemnified Party may
suffer or incur as a result of or relating to any misrepresentation, breach or
inaccuracy of any representation, warranty, covenant or agreement made by the
Company in any Transaction Document. In addition to the indemnity contained
herein, the Company will reimburse each Indemnified Party for its reasonable
legal and other expenses (including the cost of any investigation, preparation
and travel in connection therewith) incurred in connection therewith, as such
expenses are incurred. If and to the extent that such
35
indemnification is unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of such losses permissible
under applicable law.
(b) Notwithstanding anything to the contrary otherwise contained
herein, no party's obligations under this Article IX shall include any
obligation to compensate for punitive damages. The aggregate liability of the
Company for breaches of representations or warranties under Section 9.2(a) with
respect to any Indemnified Party shall not exceed the purchase price of the
Shares paid by the New Investor that is or is affiliated with such Indemnified
Party.
SECTION 9.3 Indemnification Procedure. The obligations and liabilities
of the Indemnifying Party under Section 6.1(e) and this Article IX with respect
to Losses arising from claims of any third party which are subject to the
indemnification provided for in Section 6.1(e) and this Article IX ("Third Party
Claims") shall be governed by and contingent upon the following additional terms
and conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give the Indemnifying Party notice of such
Third Party Claim promptly after the receipt by the Indemnified Party of such
notice (which notice shall include the amount of the Loss, if known, and method
of computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises); provided, however, that the failure to provide such notice shall not
release the Indemnifying Party from any of its obligations under Section 6.1(e)
and this Article IX except to the extent the Indemnifying Party is materially
prejudiced by such failure and shall not relieve the Indemnifying Party from any
other obligation or Liability that it may have to any Indemnified Party
otherwise than under Section 6.1(e) and this Article IX. Upon written notice to
the Indemnified Party within ten (10) days of the receipt of such notice, the
Indemnifying Party shall be entitled to assume and control the defense of such
Third Party Claim at its or his expense and through counsel of its or his choice
(which counsel shall be reasonably satisfactory to the Indemnified Party);
provided, however, that, if there exists or is reasonably likely to exist, in
the reasonable opinion of counsel to the Indemnified Party a conflict of
interest that would make it inappropriate in the reasonable judgment of the
Indemnified Party for the same counsel to represent both the Indemnified Party
and the Indemnifying Party, then the Indemnified Party shall be entitled to
retain its or his own counsel in each jurisdiction for which the Indemnified
Party reasonably determines counsel is required, at the expense of the
Indemnifying Party. In the event the Indemnifying Party exercises the right to
undertake any such defense against any such Third Party Claim as provided above,
the Indemnified Party shall cooperate with the Indemnifying Party in such
defense and make available to such Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and information in
the Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably required by the Indemnifying Party. Similarly,
in the event the Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party in such defense and make available to the
Indemnified Party, at the Indemnifying Party's expense, all such witnesses
(including himself), records, materials and information in the Indemnifying
Party's possession or under the Indemnifying Party's control relating thereto as
is reasonably required by the Indemnified Party. No such Third Party Claim may
be settled by the Indemnifying Party or the Indemnified Party on behalf of the
other without the prior written consent of the other (which consent shall not be
unreasonably withheld); provided, however, in the event that the Indemnified
Party does not consent to any such settlement that would provide it with a full
release from
36
indemnified Loss and would not require it to take, or refrain from taking, any
action, the Indemnifying Party's liability for indemnification shall not exceed
the amount of such proposed settlement. The Indemnified Party will refrain from
any act or omission that is inconsistent with the position taken by the
Indemnifying Party in the defense of a Third Party Claim unless the Indemnified
Party determines that such act or omission is reasonably necessary to protect
its own interest.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Expenses. The Company shall reimburse (i) the Maverick
Parties for up to $125,000 of their reasonable legal fees and expenses, (ii) the
Prentice Parties for up to $125,000 of their reasonable legal fees and expenses,
and (iii) the Xxxxx Parties for up to $125,000 of their reasonable legal fees
and expenses incurred in connection with the negotiation of this Agreement, the
other Transaction Documents, the filings required to be made in connection with
the transactions contemplated hereby and thereby and the review of the
Registration Statement (the "Transaction Expenses"), subject to the receipt of
appropriate supporting documentation and the receipt of all amounts owed by the
New Investors hereunder. Except as provided above, all costs and expenses,
including, without limitation, fees and disbursements of counsel, incurred in
connection with the negotiation, execution and delivery of this Agreement and
its related documents shall be paid by the party incurring such costs and
expenses, whether or not the Closing shall have occurred.
SECTION 10.2 Publicity. The Company shall, prior to 9:00 a.m., EST, on
the first Business Day following the date hereof, issue a press release
announcing the execution of this Agreement (which press release shall be subject
to the reasonable approval of the New Investors and the Xxxxx Parties) and
shall, within four (4) Business Days of the execution of this Agreement and
within four (4) Business Days of the Closing Date, file with the Commission
Current Reports on Form 8-K announcing the execution of this Agreement and the
consummation of the transactions contemplated hereby, respectively. Except as
set forth above or as may be required by applicable Law or the rules of any
securities exchange or market on which securities of the Company are traded,
(including, the obligation of the Xxxxx Parties to file amendments to their
Schedule 13D, Form 3 or Form 4 promptly after the date hereof) no party hereto
shall issue a press release or public announcement or otherwise make any
disclosure concerning this Agreement and the transactions contemplated hereby,
without prior approval of the others; provided, however, that nothing in this
Agreement shall restrict any party from disclosing such information (a) that is
already publicly available, (b) that may be required or appropriate in response
to any summons or subpoena (provided that the disclosing party will use
commercially reasonable efforts to notify the other parties in advance of such
disclosure under this clause (b) so as to permit the non-disclosing parties to
seek a protective order or otherwise contest such disclosure, and the disclosing
party will use commercially reasonable efforts to cooperate, at the expense of
the non-disclosing parties, in pursuing any such protective order) or (c) in
connection with any litigation involving disputes as to the parties' respective
rights and obligations hereunder.
SECTION 10.3 Non-Public Information. The Company covenants and agrees
that, except as otherwise contemplated by the Transaction Documents and except
the supply of
37
information to the members of the Board of Directors of the Company designated
by the Maverick Parties and the Prentice Parties in their capacities as
directors of the Company, neither it nor any other Person acting on its behalf
will provide any New Investor or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless such
New Investor shall have indicated that it desires to receive material non-public
information and written agreement regarding the confidentiality and use of such
information shall then be in effect. The Company understands and confirms that
each New Investor shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
SECTION 10.4 Sales and Confidentiality After The Date Hereof. The New
Investors will not, prior to the Closing, sell, offer to sell, solicit offers to
buy, dispose of, loan, pledge or grant any right with respect to (collectively,
a "Disposition"), the Common Stock, nor will the New Investors engage in any
hedging or other similar transaction, which is designed to or could reasonably
be expected to lead to or result in a Disposition of Common Stock by any New
Investor or person or entity affiliated with any New Investor. Such prohibited
hedging or similar transaction would include, without limitation, effecting any
short sale or having in effect a short position (whether or not such sale or
position is against the box and regardless of when such position was entered
into) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to the common stock or with
respect to any security (other than a broad-based market basket or index) that
includes, relates or derived any significant part of its value from the Common
Stock. Notwithstanding the foregoing, no New Investor makes any representation,
warranty or covenant hereby that it will not engage in short sales in the
securities of the Company after the Closing Date, provided that all such
transactions will comply with all applicable securities laws. Notwithstanding
the foregoing, in the case of a New Investor that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such New
Investor's assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of
such New Investor's assets, the covenant set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Shares covered by this Agreement.
SECTION 10.5 Entire Agreement. This Agreement, the Voting Agreement
and the other Transaction Documents constitute the entire Agreement between the
parties hereto with respect to the subject matter hereof and supersede all
previous negotiations, commitments and writings with respect to such subject
matter.
SECTION 10.6 Assignments; Parties in Interest. Neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by any
of the parties hereto without the prior written consent of the other parties;
provided, that, each New Investor shall have the right to assign this Agreement
to an affiliate of such New Investor without the consent of the other parties;
provided further, that: (a) the Shares may be transferred (i) pursuant to the
Registration Statement or (ii) in accordance with the legend set forth in
Section 5.4(a) (it being acknowledged and agreed that no opinion of counsel
needs to be furnished by the New Investors in connection with a transfer
pursuant to Rule 144(k)). This Agreement shall be binding upon and inure solely
to the benefit of each party hereto, and nothing herein, express or implied, is
intended to or shall confer upon any
38
person not a party hereto any right, benefit or remedy of any nature whatsoever
under or by reason hereof, except as otherwise provided herein.
SECTION 10.7 Amendments. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, the parties
against whom such amendment or modification is sought to be enforced.
SECTION 10.8 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.
SECTION 10.9 Notices and Addresses. Any notice, demand, request,
waiver, or other communication under this Agreement shall be in writing and
shall be deemed to have been duly given on the date of service, if personally
served or sent by facsimile; on the business day after notice is delivered to a
courier or mailed by express mail, if sent by courier delivery service or
express mail for next day delivery; and on the fifth business day after mailing,
if mailed to the party to whom notice is to be given, by first class mail,
registered, return receipt requested, postage prepaid and addressed as follows:
To the Company: Bluefly, Inc.
00 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx Xxxxx
Chief Financial Officer and
Chief Operating Officer
With a copy (which shall not constitute notice) to:
Dechert LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
To the Xxxxx Parties: c/x Xxxxx Fund Management LLC
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxx Xxxxxxxxxxxx
With a copy (which shall not constitute notice) to:
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
39
Attention: Xxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
To the Maverick Parties: Maverick Fund USA, Ltd.
Maverick Fund, L.D.C.
Maverick Fund II, Ltd.
c/o Maverick Capital, Ltd.
000 Xxxxxxxx Xxxxx, 00xx Xxxxx
Xxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
Attention: General Counsel
With a copy (which shall not constitute notice) to:
Shearman & Sterling
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
To the Prentice Parties: Prentice Capital Management, L.P.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx
With a copy (which shall not constitute notice) to:
Xxxxxxx Xxxx & Xxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
SECTION 10.10 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
SECTION 10.11 Governing Law; Choice of Forum. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without
40
regard to conflicts of law principles. Each of the parties hereto hereby
irrevocably and unconditionally submits to the exclusive jurisdiction of any
court of the State of New York or any federal court sitting in the City of New
York for purposes of any suit, action or other proceeding arising out of this
Agreement (and agrees not to commence any action, suit or proceedings relating
hereto except in such courts). Each of the parties hereto agrees that service of
any process, summons, notice or document by U.S. registered mail at its address
set forth herein shall be effective service of process for any action, suit or
proceeding brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement, which is
brought by or against it, in the courts of the State of New York or any federal
court sitting in the State of New York and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
SECTION 10.12 Further Assurances. The parties agree to execute such
other documents and take or cause to be taken all such other actions, including,
in their capacity as a stockholder of the Company, the voting of securities held
by them or the execution of any written consent in lieu thereof, that may
hereafter be required by any third party, including any regulatory authority,
stock exchange or self-regulatory organization, to give effect to and/or approve
the transactions contemplated hereby.
SECTION 10.13 Counterparts; Facsimile Signatures. This Agreement may
be executed in one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other party, it
being understood that all parties need not sign the same counterpart. This
Agreement may be executed by facsimile, and a facsimile signature shall have the
same force and effect as an original signature on this Agreement.
SECTION 10.14 Independent Nature of Investors' Obligations and Rights.
The obligations of each New Investor under any Transaction Document are several
and not joint with the obligations of any other New Investor, and no New
Investor shall be responsible in any way for the performance of the obligations
of any other New Investor under any Transaction Document. The decision of each
New Investor to purchase Shares pursuant to the Transaction Documents has been
made by such New Investor independently of any other New Investor 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 which
may have been made or given by any other New Investor or by any agent or
employee of any other New Investor, and no New Investor and any of its agents or
employees shall have any liability to any other New Investor (or any other
Person) relating to or arising from any such information, materials, statement
or opinions. Nothing contained herein or in any Transaction Document, and no
action taken by any party hereto pursuant thereto, shall be deemed to constitute
the New Investors and the Xxxxx Parties as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the New
Investors and the Xxxxx Parties are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each New Investor acknowledges that no other New Investor
has acted as agent for such New Investor in connection with making its
investment
41
hereunder and that no New Investor will be acting as agent of such
New Investor in connection with monitoring its investment in the Shares or
enforcing its rights under the Transaction Documents. Each New Investor 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 New Investor
to be joined as an additional party in any proceeding for such purpose. The
Company acknowledges that each of the New Investors has been provided with the
same Transaction Documents for the purpose of closing a transaction with
multiple purchasers and not because it was required or requested to do so by any
New Investor. Each New Investor has been represented by its own separate legal
counsel in their review and negotiation of the Transaction Documents.
SECTION 10.15 Specific Performance. Each of the parties hereto, in
addition to being entitled to exercise all of its rights hereunder, including
recovery of damages, shall be entitled to specific performance of its rights
under this Agreement. Each party agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
SECTION 10.16 Adjustments in Share Numbers and Prices. In the event of
any stock split, subdivision, dividend or distribution payable in shares of
Common Stock (or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly shares of Common Stock),
combination or other similar recapitalization or event occurring after the date
hereof but prior to the Closing Date, each reference in any Transaction Document
to a number of shares or a price per share shall be amended to appropriately
account for such event.
[SIGNATURE PAGE FOLLOWS]
42
IN WITNESS WHEREOF, this Agreement has been duly executed on the date
first set forth above.
BLUEFLY, INC.
By:
---------------------------------
Name:
Title:
QUANTUM INDUSTRIAL PARTNERS LDC
By:
---------------------------------
Name:
Title:
SFM DOMESTIC INVESTMENTS LLC
By:
---------------------------------
Name:
Title:
MAVERICK FUND USA, LTD
By: MAVERICK CAPITAL, LTD.,
as its Investment Manager
By:
---------------------------------
Name:
Title:
MAVERICK FUND L.D.C.
By: MAVERICK CAPITAL, LTD.,
as its Investment Manager
By:
---------------------------------
Name:
Title:
MAVERICK FUND II, LTD
By: MAVERICK CAPITAL, LTD.,
as its Investment Manager
By:
---------------------------------
Name:
Title:
PRENTICE-BLUEFLY, LLC
By: PRENTICE CAPITAL MANAGEMENT, LP,
as its Manager
By:
---------------------------------
Name:
Title:
