EXHIBIT 2.1
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PURCHASE AGREEMENT
dated as of January 25, 2002
by and between
SONIC FOUNDRY, INC.
and
OMICRON PARTNERS, L.P.
________________________
10% CONVERTIBLE NOTE DUE 2004
and
COMMON STOCK PURCHASE WARRANT
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SONIC FOUNDRY, INC.
PURCHASE AGREEMENT
10% CONVERTIBLE NOTE DUE 2004
and
COMMON STOCK PURCHASE WARRANT
TABLE OF CONTENTS
Page
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1. Definitions.......................................................... 1
2. Purchases and Sales of the Note and Warrant.......................... 6
2.1 Purchase and Sale.............................................. 6
2.2 Form of Payment................................................ 6
2.3 Closing........................................................ 7
3. Representations and Warranties of the Company........................ 7
3.1 Organization, Good Standing and Qualification.................. 7
3.2 Authorization.................................................. 8
3.3 Capitalization................................................. 8
3.4 Valid Issuance................................................. 9
3.5 Consents....................................................... 9
3.6 Delivery of SEC Filings; Business; Non-Public Information...... 9
3.7 Use of Proceeds................................................ 9
3.8 No Material Adverse Change..................................... 9
3.9 Registration Statements........................................ 10
3.10 Form S-3 Eligibility........................................... 11
3.11 No Conflict, Breach, Violation or Default...................... 11
3.12 Tax Matters.................................................... 11
3.13 Title to Properties............................................ 12
3.14 Certificates, Licenses, Authorizations and Permits............. 12
3.15 No Labor Disputes.............................................. 12
3.16 Intellectual Property.......................................... 12
3.17 Environmental Matters.......................................... 13
3.18 Litigation..................................................... 14
3.19 Financial Statements........................................... 14
3.20 Insurance Coverage............................................. 14
3.21 Compliance with Nasdaq Continued Listing Requirements.......... 14
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3.22 Acknowledgement of Potential Dilution.......................... 14
3.23 Brokers and Finders. .......................................... 15
3.24 No Directed Selling Efforts or General Solicitation............ 15
3.25 No Integrated Offering......................................... 15
3.26 Disclosures.................................................... 15
3.27 Absence of Rights Agreement.................................... 15
4. Representations and Warranties of the Purchaser...................... 15
4.1 Organization and Existence..................................... 16
4.2 Purchase Entirely for Own Account.............................. 16
4.3 Investment Experience.......................................... 16
4.4 Disclosure of Information...................................... 16
4.5 Restricted Securities.......................................... 16
4.6 Accredited Investor............................................ 16
4.7 No General Solicitation........................................ 16
4.8 Residency of Purchaser......................................... 16
4.9 Brokers and Finders............................................ 17
4.10 Authorization.................................................. 17
4.11 Risk Factors................................................... 17
4.12 Reliance....................................................... 17
4.13 No Representations............................................. 17
4.14 Survival....................................................... 17
5. Registration Rights Agreement........................................ 17
5.1 Registration Rights Agreement.................................. 17
6. Certain Covenants of the Company and the Purchaser................... 18
6.1 19.99% Cap; Rule 144........................................... 18
6.2 Limitation on Certain Transactions............................. 18
6.3 Right of the Purchasers to Participate in Future Transactions.. 19
6.4 Reports and Information........................................ 21
(a) Quarterly Financial Information................................ 21
(b) Annual Financial Information................................... 21
(c) Stockholder and Analyst Reports and Information................ 21
(d) Other Information.............................................. 21
(e) Rule 144....................................................... 22
6.5 Press Releases................................................. 22
6.6 No Conflicting Agreements...................................... 22
6.7 Insurance...................................................... 22
6.8 Compliance with Laws........................................... 23
6.9 Listing of Underlying Shares and Warrant Shares
and Related Matters............................................ 23
6.10 Corporate Existence............................................ 23
6.11 Form 8-K....................................................... 24
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6.12 Legends ....................................................... 24
7. Conditions to the Company's Obligations to Issue and Sell ........... 25
8. Conditions to the Purchaser's Obligations to Purchase ............... 26
9. Miscellaneous ....................................................... 27
9.1 Successors and Assigns ........................................ 27
9.2 Counterparts .................................................. 27
9.3 Titles and Subtitles .......................................... 27
9.4 Notices ....................................................... 27
9.5 Expenses ...................................................... 28
9.6 Amendments and Waivers ........................................ 28
9.7 Severability .................................................. 29
9.8 Entire Agreement .............................................. 29
9.9 Survival ...................................................... 29
9.10 Further Assurances ............................................ 29
9.11 Applicable Law ................................................ 29
9.12 Remedies ...................................................... 29
9.13 Jurisdiction .................................................. 30
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Opinion of Legal Counsel to the Company
Exhibit E - Investment Policies of the Company
Exhibit F - Form of Press Release
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PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT dated as of January 25, 2002 (this
"Agreement"), by and between SONIC FOUNDRY, Inc., a Maryland corporation (the
"Company"), and OMICRON PARTNERS, L.P., a Bahamas limited partnership (the
"Purchaser").
W I T N E S S E T H:
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WHEREAS, the Purchaser wishes to purchase from the Company,
and the Company wishes to sell and issue to the Purchaser, upon the terms and
subject to the conditions of this Agreement, (i) a Note (such capitalized term
and all other capitalized terms used herein having the respective meanings
provided herein) in principal amount of $3,000,000 and (ii) a Warrant initially
entitling the holder to purchase an aggregate of 489,796 shares of Common Stock
for the Purchase Price; and
WHEREAS, at or before the Closing, the parties hereto are
executing and delivering, one to the other, the Registration Rights Agreement,
pursuant to which, among other things, the Company will agree to provide certain
registration rights under the 1933 Act, and the rules and regulations
promulgated thereunder, and applicable state securities laws for the resale of
the shares of Common Stock issuable upon conversion of the Note and issuable
upon exercise of the Warrant;
NOW THEREFORE, in consideration of the premises and the mutual
covenants made herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions.
1.1 As used in this Agreement, the terms "Agreement",
"Company" and "Purchaser" shall have the respective meanings assigned to such
terms in the introductory paragraph of this Agreement.
1.2 All the agreements or instruments herein defined shall
mean such agreements or instruments as the same may from time to time be
supplemented or amended or the terms thereof waived or modified to the extent
permitted by, and in accordance with, the terms thereof and of this Agreement.
1.3 The following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Affiliate" means, with respect to any Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with the subject Person.
For purposes of this definition, "control" (including, with correlative meaning,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Aggregation Parties" shall have the meaning provided in
Section 6.3(b).
"AMEX" means the American Stock Exchange, Inc.
"Approved Markets" shall have the meaning provided in Section
6.9.
"Board of Directors" means the Board of Directors of the
Company.
"Business Day" means any day other than a Saturday, Sunday or
a day on which commercial banks in The City of New York are authorized or
required by law or executive order to remain closed.
"Change in Control Transaction" shall have the meaning to be
provided or provided in the Note.
"Closing" means the closing of the purchase and sale of the
Note and Warrant on the Closing Date.
"Closing Date" means 10 a.m., New York City time, on January
__, 2002, or such other time or date as mutually agreed by the parties hereto.
"Closing Location" means the Law Offices of Xxxxx X Xxxxx,
Penthouse Suite, 29 West 57/th/ Street, New York, New York.
"Common Stock" means the Common Stock, $.01 per share, of the
Company.
"Common Stock Equivalent" means any warrant, option,
subscription or purchase right with respect to shares of Common Stock, any
security convertible into, exchangeable for, or otherwise entitling the holder
thereof to acquire, shares of
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Common Stock or any warrant, option, subscription or purchase right with respect
to any such convertible, exchangeable or other security.
"Default Period" shall have the meaning provided in Section
6.12.
"Encumbrances" means all mortgages, deeds of trust, claims,
security interests, liens, pledges, leases, subleases, charges, escrows,
options, proxies, rights of occupancy, rights of first refusal, preemptive
rights, covenants, conditional limitations, hypothecations, prior assignments,
easements, title retention agreements, indentures, security agreements or any
other encumbrances of any kind.
"Environmental Law" shall have the meaning provided in Section
3.17.
"Event of Default" shall have the meaning to be provided or
provided in the Note.
"Excluded Shares" shall have the meaning provided in Section
6.3(b).
"Generally Accepted Accounting Principles" means, for any
Person, the United States generally accepted accounting principles and practices
applied by such Person from time to time in the preparation of its audited
financial statements.
"Intellectual Property" means all franchises, patents,
trademarks, service marks, tradenames (whether registered or unregistered),
copyrights, corporate names, licenses, trade secrets, proprietary software or
hardware, proprietary technology, technical information, discoveries, designs
and other proprietary rights, whether or not patentable, and confidential
information (including, without limitation, know-how, processes and technology)
used in the conduct of the business of the Company or any Subsidiary, or in
which the Company or any Subsidiary has an interest.
"Material Adverse Effect" means a material adverse effect on
the (i) business, properties, operations, condition (financial or other),
results of operations or prospects of the Company and the Subsidiaries, taken as
a whole; (ii) the validity or enforceability of, or the ability of the Company
to perform its obligations under, the Transaction Documents; or (iii) rights and
remedies of the Purchaser under the terms of the Transaction Documents.
"Monthly Amount" shall have the meaning to be provided or
provided in the Note.
"Nasdaq" means the Nasdaq National Market.
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"Nasdaq Small Cap" means the Nasdaq Small Cap Market.
"1934 Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"1933 Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Note" means the Company's 10% Convertible Note due 2004 in
the principal amount of $3,000,000.00 in the form attached as Exhibit A.
"NYSE" means the New York Stock Exchange, Inc.
"Person" means an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.
"Purchase Price" means with respect to a particular Purchaser
the amount shown on the signature pages to this Agreement as such Purchaser's
Purchase Price.
"Purchaser Share Notice" shall have the meaning provided in
Section 6.11.
"Registration Rights Agreement" means the Registration Rights
Agreement by and between the Company and the Investor in the form attached as
Exhibit C.
"Registration Statement" shall have the meaning provided in
the Registration Rights Agreement.
"Regulation D" means Regulation D adopted by the SEC under the
1933 Act.
"Restricted Ownership Percentage" shall have the meaning
provided in Section 6.3(b).
"SEC" means the U.S. Securities and Exchange Commission.
"SEC Filings" means the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 2001 and all other reports filed by the
Company pursuant to Section 13 or 15(d) of the 1934 Act since September 30,
2001.
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"Securities" means the Note, the Underlying Shares, the
Warrant and the Warrant Shares.
"Subscription Agreement" means the Subscription Agreement,
dated January 3, 2002, between the Company and the Purchaser relating to the
proposed sale and purchase of a 10% Convertible Subordinated Notes with
warrants.
"Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by the
Company.
"Transaction Documents" means this Agreement, the Registration
Rights Agreement, the Note and the Warrant.
"20% Cap" shall have the meaning provided in Section 6.1(a).
"2001 10-K" means the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2001, as filed as the SEC.
"Underlying Shares" means the shares of Common Stock issued or
issuable upon conversion of the Note.
"Variable Rate Transaction" means a transaction in which the
Company issues or sells any Common Stock or Common Stock Equivalent (a) that is
convertible into, exchangeable or exercisable for, or includes the right to
receive additional shares of Common Stock either (x) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the Common Stock at any time after the
initial issuance of such debt or equity securities, or (y) with a fixed
conversion, exercise, exchange or purchase price that is subject to being reset
at some future date after the initial issuance of Common Stock or Common Stock
Equivalent or upon the occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market for the Common
Stock (but excluding standard stock split, reverse stock split and stock
dividend anti-dilution provisions), or (b) pursuant to an "equity line"
structure which provides for the sale, from time to time, of securities of the
Company which are registered for sale or resale pursuant to the 1933 Act.
"Warrant" means the Company's Common Stock Purchase Warrant in
the form attached hereto as Exhibit B.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of or otherwise pursuant to the Warrant.
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2. Purchases and Sales of the Note and Warrant.
2.1 Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, the Purchaser hereby agrees to purchase from the
Company, and the Company hereby agrees to sell to the Purchaser, severally and
not jointly, on the Closing Date, the Note and the Warrant for the Purchase
Price.
2.2 Payment. Payment by the Purchaser of the Purchase Price
to the Company at the Closing on the Closing Date shall be made as follows:
(a) from the portion of the Purchase Price to be paid in
cash the Purchaser shall pay to Law Offices of Xxxxx X Xxxxx an amount equal to
all expenses of the Purchaser payable by the Company pursuant to Section 9.5 in
excess of the $15,000 therefor previously paid by the Company, by wire transfer
of immediately available funds to the following account:
Citibank, N.A.
000 Xxxx 00/xx/ Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA No. 000000000
For credit to account No. 3717 9446
For credit to Xxxxx X. Xxxxx Attorney Escrow Account
(b) by release from the escrow related to the Subscription
Agreement to the Purchaser prior to the Closing, and immediately thereafter
application thereof to payment by the Purchaser to the Company, of funds in the
amount of $600,000 previously deposited in escrow by the Purchaser; and
(c) to the Company, the balance of the portion of the
Purchase Price to be paid in cash, after determination and deduction therefrom
of the amount to be paid pursuant to Section 2.2(a) and application of the
amount provided in Section 2.2(b), to the following account:
State Street Bank & Trust Company
ABA #000000000
DDA #99034167
For further credit to One Group Account #707001516
(d) For all purposes, upon payment of the amounts provided for
in this Section 2.2 the Purchaser shall be deemed to have paid the Purchase
Price in full to the Company and to have disbursed on behalf of the Company the
amount provided in Section 2.2(a). By agreeing to disburse funds on behalf of
the Company
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as provided in this Section 2.2, in no event shall the Purchaser have any
liability to any Person, including, without limitation, the Person identified in
Section 2.2(a), for payment or performance of any obligation or liability of the
Company to such Person.
(e) For all purposes, the funds released from the escrow
related to the Subscription Agreement shall be deemed returned to the Purchaser
and then paid by the Purchaser to the Company as part of the Purchase Price
pursuant to this Agreement. Upon such release from escrow, the Subscription
Agreement shall terminate and neither the Company nor the Purchaser shall have
any liability one to the other under or in connection with the Subscription
Agreement, except the obligation and liability of the Company to return and
repay in full to the Purchaser, without affect or reduction for any amount or
reason, the funds deposited in escrow by the Purchaser in connection with the
Subscription Agreement if the Closing does not occur.
2.3 Closing. The sale and purchase of the Note and Warrant
shall occur on the Closing Date at the Closing Location. At the Closing on the
Closing Date, upon the terms and subject to the conditions of this Agreement,
(A) the Company shall issue and sell to the Purchaser the
Note and the Warrant and payment by the Purchaser to the Company of an amount
equal to the Purchase Price as provided in Section 2.2, and
(B) the Purchaser shall pay to the Company an amount equal
to the Purchase Price, as provided in Section 2.2, against issuance and sale by
the Company to the Purchaser of the Note and Warrant.
3. Representations and Warranties of the Company. The
Company hereby represents and warrants to, and covenants and agrees with, the
Purchaser that:
3.1 Organization, Good Standing and Qualification. The
Company and each Subsidiary is a corporation duly incorporated, validly existing
and subsisting under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted and to own its properties. The Company and each Subsidiary is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or licensing necessary unless the
failure to so qualify would not be reasonably likely to result in a Material
Adverse Effect. The Company has no Subsidiaries other than those listed in
Schedule 3.1 and has no investment in any other Person except such investments
as would be classified as current assets on a
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balance sheet of the Company, prepared in accordance with Generally Accepted
Accounting Principles.
3.2 Authorization. The Company has full corporate power and authority
and has taken all requisite action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization, execution and
delivery of the Transaction Documents, (ii) authorization of the performance of
all obligations of the Company under the Transaction Documents, and (iii) the
authorization, issuance (or reservation for issuance) and delivery of the
Securities. The Transaction Documents constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors'
rights generally.
3.3 Capitalization. Set forth on Schedule 3.3 hereto is (a) the
authorized capital stock of the Company on the date hereof; (b) the number of
shares of capital stock issued and outstanding on the date hereof; (c) the
number of shares of capital stock issuable pursuant to the Company's stock
option, stock purchase, stock award and similar plans; and (d) the number of
shares of capital stock issuable and reserved for issuance pursuant to all
Common Stock Equivalents outstanding or which the Company has agreed to issue
(other than the Note and the Warrant). All of the issued and outstanding shares
of the Company's capital stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. No Person is
entitled to preemptive or similar statutory or contractual rights with respect
to any securities of the Company. Except as set forth on Schedule 3.3 or in the
SEC filings, there are no outstanding Common Stock Equivalents or other rights,
agreements or arrangements of any character under which the Company is or may be
obligated to issue any equity securities of any kind, and except as contemplated
by this Agreement, the Company is not currently in negotiations for the issuance
of any Common Stock Equivalents or capital stock of any kind other than
discussions the Company has held with X.X. Xxxxxxxxx Xxxxx and other investment
banks regarding a potential private equity transaction following the close of
the of the transaction contemplated by this Agreement, which transaction will
not be integrated with the sale of the Note and Warrant for purposes of
applicate state and federal securities laws or for purposes of the rules of
Nasdaq. The Company has no knowledge of any voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among any of the security holders of the Company relating to the
securities of the Company held by them. Except as set forth on Schedule 3.3 and
except for registration statements currently on file, the Company has not
granted any Person the right (which is now outstanding or effective) to require
the Company to register any securities of the Company under the 1933 Act,
whether on a demand basis or in connection with the registration of securities
of the Company for its own account or for the account of any other Person.
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3.4 Valid Issuance. The aggregate number of shares of Common Stock
issued, outstanding and reserved for issuance is 34,960,502. The Company does
not have any obligation to issue shares of Common Stock for which it has not
reserved an adequate number of shares of Common Stock. The Note and Warrant are
duly authorized, and such Securities, and the Underlying Shares issuable upon
conversion of the Note and Warrant Shares issuable upon exercise of the Warrant,
have been duly authorized and when issued in accordance herewith and with the
terms of the Note and Warrant, will be validly issued, fully paid,
non-assessable and free and clear of all Encumbrances and restrictions, except
for restrictions on transfer imposed by applicable securities laws.
3.5 Consents. The execution, delivery and performance by the Company
of the Transaction Documents and the offer, issuance and sale of the Securities
require no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than filings that have been or will
be made pursuant to applicable state securities laws and the requirements of the
Nasdaq and other than the filing of a Form D by the Company with the SEC, each
of which the Company undertakes to file within the applicable time periods.
3.6 Delivery of SEC Filings; Business; Non-Public Information. The
Company has timely filed all material reports and other documents required to be
filed with the SEC pursuant to the 1934 Act since December 31, 1999. At their
respective times of filing with the SEC, the SEC Filings complied in all
material respects with the requirements of the 1934 Act and did not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. The Company and the Subsidiaries are
engaged only in the business described in the SEC Filings, and the SEC Filings
contain a complete and accurate description of the business of the Company and
the Subsidiaries. The Company has not provided to any Purchaser (i) any
information required to be filed under the 1934 Act that has not been so filed
or (ii) any material non-public information concerning the Company and the
Subsidiaries.
3.7 Use of Proceeds. The proceeds of the sale of the Note and the
Warrant hereunder shall be used by the Company for working capital and general
corporate purposes.
3.8 No Material Adverse Change. Since the filing of the Company's
most recent Annual Report on Form 10-K or as otherwise identified and described
in the SEC Filings subsequently filed by the Company with the SEC pursuant to
the 1934 Act there has not been:
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(i) any material change in the consolidated assets,
liabilities, financial condition or operating results of the Company and
the Subsidiaries from that reflected in the financial statements included
in the 2001 10-K, a copy of which has been delivered to the Purchasers,
except changes in the ordinary course of business which have not had, in
the aggregate, a Material Adverse Effect;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock
of the Company, or any redemption or repurchase of any securities of the
Company or any Subsidiary;
(iii) any material damage, destruction or loss, whether or not
covered by insurance, to any assets or properties of the Company or any
Subsidiary;
(iv) any waiver by the Company or any Subsidiary of a material
right or of a material debt owed to it which waiver is adverse to the
Company or any Subsidiary;
(v) any satisfaction or discharge of any Encumbrance or
payment of any obligation by the Company or any Subsidiary, except in the
ordinary course of business and which is not material to the assets,
properties, prospects, financial condition, operating results or business
of the Company and the Subsidiaries taken as a whole (as such business is
presently conducted and the Company has publicly disclosed it is proposed
to be conducted);
(vi) any material change or amendment to a material contract
or arrangement by which the Company or any Subsidiary or any of their
respective assets or properties is bound or subject;
(vii) any material labor difficulties or labor union organizing
activities with respect to employees of or contractors to the Company or
any Subsidiary;
(viii) any transaction entered into by the Company or any
Subsidiary other than in the ordinary course of business; or
(ix) any other event or condition of any character that may
have a Material Adverse Effect.
3.9 Registration Statements. During the preceding two years, each
registration statement and any amendment thereto filed by the Company pursuant
to the 1933 Act, as of the date such registration statement or amendment became
effective, complied as to form in all material respects with the 1933 Act, and
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did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading; and each prospectus or supplement filed pursuant to Rule
424 under the 1933 Act, as of its issue date and as of the closing of any sale
of securities pursuant thereto did not contain any untrue statement of a
material fact or omit to state any 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.
3.10 Form S-3 Eligibility. The Company is currently eligible to
register the resale of its Common Stock in a secondary offering on a
registration statement on Form S-3 under the 1933 Act and the Company shall
maintain such eligibility at least until the Registration Statement is ordered
effective by the SEC.
3.11 No Conflict, Breach, Violation or Default. (a) The execution,
delivery and performance of the Transaction Documents by the Company and the
issuance and sale of the Securities will not conflict with or result in a breach
or violation of any of the terms and provisions of, or constitute a default
under (i) the Company's Articles of Incorporation (including any articles of
amendment or articles designating series of shares) or the Company's Bylaws,
both currently in effect (copies of which have been provided to the Purchaser
before the date hereof) and as in effect on the date of issuance of the
Securities, (ii) any statute, rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of their respective assets or properties, or
(iii) any agreement or instrument to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary is bound or to which any of the
properties of the Company or any Subsidiary is subject.
(b) Except where it would not have a Material Adverse Effect, the
Company and each Subsidiary (i) is not in violation of any statute, rule or
regulation applicable to the Company or any Subsidiary or its assets, (ii) is
not in violation of any judgment, order or decree applicable to the Company or
any Subsidiary or any of their respective assets, and (iii) is not in breach or
violation of any agreement, note or instrument to which it or its assets are a
party or are bound or subject. To the best of the Company's knowledge, neither
the Company nor any Subsidiary has received notice from any Person of any claim
or investigation that, if adversely determined, would render the preceding
sentence untrue or incomplete.
3.12 Tax Matters. The Company and the Subsidiaries have timely
prepared and filed all tax returns required to have been filed by the Company
with all appropriate governmental agencies and timely paid all taxes owed by
them, except where failure to make such payment would not have a Material
Adverse
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Effect. The charges, accruals and reserves on the books of the Company and the
Subsidiaries in respect of taxes for all fiscal periods are adequate in all
material respects, and there are no material unpaid assessments against the
Company or any Subsidiary nor, to the knowledge of the Company, any basis for
the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any foreign, U.S. federal, state, representations or
warranties in or local taxing authority, except such as are not material. All
material taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due. There are no tax liens or claims pending or threatened against the
Company or any Subsidiary or any of their respective assets or property which if
adversely decided, would have a Material Adverse Effect. There are no
outstanding tax sharing agreements or other such arrangements between the
Company or any Subsidiary and any other Person.
3.13 Title to Properties. Except as disclosed in the SEC Filings, the
Company and each Subsidiary has good and marketable title to all real properties
and all other properties and assets owned by it, in each case free from
Encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by the Company or such Subsidiary; and except as disclosed in the SEC Filings,
the Company and each Subsidiary holds any leased real or personal property under
valid and enforceable leases with no exceptions that would materially interfere
with the use made or currently planned to be made thereof by the Company or such
Subsidiary.
3.14 Certificates, Licenses, Authorizations and Permits. The Company
and each Subsidiary possesses adequate certificates, licenses, authorizations or
permits issued by appropriate governmental agencies or bodies necessary to
conduct the business now operated by it and has not received any notice of
proceedings relating to the revocation or modification of any such certificate,
license, authorization or permit that, if determined adversely to the Company or
any Subsidiary, would individually or in the aggregate have a Material Adverse
Effect.
3.15 No Labor Disputes. No material labor dispute with the employees
of or contractors to the Company or any Subsidiary exists or, to the knowledge
of the Company, is imminent.
3.16 Intellectual Property. (1) The Company and each Subsidiary holds
all Intellectual Property, free and clear of all Encumbrances and restrictions
on use or transfer, whether or not recorded, and has sole title to and ownership
of or has the full, exclusive (subject to the rights of its licensees or
licensors) right to use in its field of business, for the life of the
proprietary right all Intellectual Property;
-12-
(2) the use of the Intellectual Property by the Company or any Subsidiary does
not, to the knowledge of the Company after due inquiry, violate or infringe on
the rights of any other Person; (3) neither the Company nor any Subsidiary has
received any notice of any conflict between the asserted rights of others and
the Company or any Subsidiary with respect to any Intellectual Property; (4) the
Company and each Subsidiary has used its best efforts to perfect its rights in
and to all Intellectual Property used by it in its business or in which it has
an interest; (5) the Company and each Subsidiary are in compliance with all
material terms and conditions of its agreements relating to the Intellectual
Property; (6) neither the Company nor any Subsidiary is or has been a defendant
in any action, suit, investigation or proceeding relating to infringement or
misappropriation by the Company or any Subsidiary of any Intellectual Property;
(7) neither the Company nor any Subsidiary has been notified of any alleged
claim of infringement or misappropriation by the Company or any Subsidiary of
any Intellectual Property; (8) the Company has no knowledge of any claim of
infringement or misappropriation by the Company or any Subsidiary of any
Intellectual Property; (9) to the knowledge (after due inquiry) of the Company,
none of the products the Company and the Subsidiaries are researching,
developing, propose to research and develop, make, have made, use, or sell,
infringes or misappropriates any Intellectual Property right of any third party;
(10) none of the trademarks and service marks used by the Company or any
Subsidiary, to the knowledge of the Company after due inquiry, infringes the
trademark or service xxxx rights of any third party; (11) to the Company's
knowledge none of the material processes and formulae, research and development
results and other know-how relating to the Company's or the Subsidiaries'
respective businesses, the value of which to the Company or any Subsidiary is
contingent upon maintenance of the confidentiality thereof, has been disclosed
to any Person other than Persons bound by written confidentiality agreements;
and (12) the Company owns directly, or possesses adequate rights to use, all
Intellectual Property used in or relating to the development, manufacture, use,
distribution or marketing of the Company's products, and none of such
Intellectual Property is owned, claimed or used by, or subject to any
Encumbrance of or by, any Subsidiary.
3.17 Environmental Matters. Neither the Company nor any Subsidiary is
in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), does not own or operate
any real property contaminated with any substance that is subject to any
Environmental Laws, is not liable for any off-site disposal or contamination
pursuant to any Environmental Laws, and is not subject to any claim relating to
any Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate
-13-
have a Material Adverse Effect; and neither the Company nor any Subsidiary is
aware of any pending investigation that might lead to such a claim.
3.18 Litigation. Except as set forth in the SEC Filings, there are no
pending actions, suits or proceedings against or affecting the Company or any
Subsidiary or any of their respective properties that, if determined adversely
to the Company or such Subsidiary, would individually or in the aggregate have a
Material Adverse Effect, or which are otherwise material in the context of the
sale of the Securities; and to the Company's knowledge, no such actions, suits
or proceedings are threatened or contemplated.
3.19 Financial Statements. The consolidated financial statements
included in each SEC Filing present fairly and accurately in all material
respects the consolidated financial position of the Company and the Subsidiaries
as of the dates reported and the consolidated results of operations, changes in
stockholders' equity and cash flows for the periods reported, all in conformity
with Generally Accepted Accounting Principles applied on a consistent basis and
in conformity with the rules and regulations of the SEC under the 1934 Act
applicable to the Company. Except as set forth in the consolidated financial
statements of the Company included in the SEC Filings filed prior to the date
hereof, neither the Company nor any Subsidiary has any liabilities, contingent
or otherwise, except those which individually or in the aggregate are not
material to the financial condition or operating results of the Company and the
Subsidiaries, taken as a whole.
3.20 Insurance Coverage. The Company and each Subsidiary maintains in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by it, and the Company reasonably believes such insurance coverage to be
adequate against all liabilities, claims and risks against which it is customary
for comparably situated companies to insure.
3.21 Compliance with Nasdaq Continued Listing Requirements. The
Company is in compliance with all applicable Nasdaq continued listing
requirements, except where failure to comply would not result in de-listing from
or the imposition of restrictions or limitations by the Nasdaq, and is in good
standing on such market. There are no proceedings pending or to the Company's
knowledge threatened against the Company relating to the continued listing of
the Company's Common Stock on the Nasdaq and the Company has not received any
notice of, nor to the knowledge of the Company is there any basis for, the
suspension of trading of the Common Stock on, or delisting of the Common Stock
from, the Nasdaq.
3.22 Acknowledgement of Potential Dilution. The Company understands
that the number of shares of Common Stock
issuable pursuant to the
-14-
Note and Warrant may increase substantially and that such increase may have a
dilutive effect on the Company's equity capitalization.
3.23 Brokers and Finders. The Purchaser shall have no liability or
responsibility for the payment of any commission or finder's fee to any third
party in connection with or resulting from this Agreement or the transactions
contemplated by this Agreement by reason of any agreement of or action taken by
the Company.
3.24 No Directed Selling Efforts or General Solicitation.
Notwithstanding anything contained on any schedule hereto, neither the Company
nor any Person acting on its behalf has conducted any general solicitation or
general advertising (as those terms are used in Regulation D) in connection with
the offer or sale of any of the Securities.
3.25 No Integrated Offering. Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would (1) adversely affect reliance
by the Company on Section 4(2) of the 1933 Act for the exemption from
registration for the transactions contemplated hereby or would require
registration of the offer and sale of the Note and Warrant to the Purchaser
under the 1933 Act; or (2) require the integration of the offering of the
Securities with any other offering of securities for purposes of determining the
need to obtain stockholder approval of the transactions contemplated hereby
under the rules of the Nasdaq.
3.26 Disclosures. For purposes of this Agreement and the transactions
contemplated hereby, none of the representations or warranties made by the
Company under any of the Transaction Documents and no written information
furnished by the Company pursuant hereto, or in any other document, certificate
or written statement furnished by the Company to the Purchaser or any authorized
representative of the Purchaser, pursuant to the Transaction Documents or in
connection therewith, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which they were made,
not misleading.
3.27 Absence of Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change of control in the Company.
4. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company that:
-15-
4.1 Organization and Existence. Such Purchaser is a validly existing
partnership and has all requisite partnership power and authority to invest in
the Securities pursuant to this Agreement.
4.2 Purchase Entirely for Own Account. The Securities to be acquired
by the Purchaser pursuant to this Agreement will be acquired for the Purchaser's
own account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of applicable securities laws, and
the Purchaser has no present intention of selling, granting any participation
in, or otherwise distributing the same in violation of applicable securities
laws.
4.3 Investment Experience. The Purchaser acknowledges that it can
bear the economic risk and complete loss of its investment in the Securities and
has such knowledge of and experience with securities and financial or business
matters that it is capable of evaluating the merits and risks of the purchase of
the Note and Warrant.
4.4 Disclosure of Information. The Purchaser has had an opportunity
to receive documents related to the Company and to ask questions of and receive
answers from the Company regarding the terms and conditions of the offering of
the Securities; provided however, that neither such inquiries nor any other
investigation conducted by the Purchaser shall modify, amend, limit or otherwise
affect the Purchaser's right to rely on the Company's representations and
warranties contained in the Transaction Documents or made pursuant to the
Transaction Documents.
4.5 Restricted Securities. The Purchaser understands that the Note
and Warrant are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
4.6 Accredited Investor. The Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D.
4.7 No General Solicitation. The Purchaser did not learn of the
offering of the Note and Warrant through any public advertising or general
solicitation (as these terms are used in Regulation D).
4.8 Residency of Purchaser. The Purchaser is a resident of the state
or other jurisdiction indicated below the Purchaser's name on the signature
pages to this Agreement.
-16-
4.9 Brokers and Finders. The Company shall have no liability or
responsibility for the payment of any commission or finder's fee to any third
party in connection with or resulting from this Agreement or the transactions
contemplated by this Agreement by reason of any agreement of the Purchaser.
4.10 Authorization. The Purchaser has full corporate power and
authority and has taken all requisite action on the part of the Purchaser, its
partners, officers necessary for (i) the authorization, execution and delivery
of the Transaction Documents and (ii) authorization of the performance of all
obligations of the Purchaser under the Transaction Documents. The Transaction
Documents constitute the legal, valid and binding obligations of the Purchaser,
enforceable against the Purchaser in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
applicability, relating to or affecting creditors' rights generally.
4.11 Risk Factors. Without limiting any of the Purchaser's other
representations and warranties hereunder, the Purchaser acknowledges that the
Purchaser has reviewed and is aware of the risk factors described in the SEC
Filings.
4.12 Reliance. The Purchaser has consulted its own financial, legal
and tax advisors with respect to the economic, legal and tax consequences of an
investment in the Note and Warrant and has not relied on the SEC Filings or the
Company, its officers, directors or professional advisors as to such
consequences.
4.13 No Representations. No oral representations have been made by
the Company to the Purchaser in connection with the Transaction Documents; and
no written representations have been made by the Company to the Purchaser other
than as stated in the Transaction Documents and the SEC Filings.
4.14 Survival. The Purchaser acknowledges that the representations,
warranties and agreements made by the Purchaser herein shall survive the
execution and delivery of this Agreement and the purchase of the Note and
Warrant.
5. Registration Rights Agreement.
5.1 Registration Rights Agreement. The Company acknowledges and
agrees that the Company's execution and delivery of, and full performance of its
obligations under, the Registration Rights Agreement is a material inducement to
the Purchaser to execute and deliver this Agreement and purchase and pay for the
Note and Warrant. The Company agrees to execute and deliver to the Purchaser the
Registration Rights Agreement at or before the Closing.
-17-
6. Certain Covenants of the Company and the Purchaser.
6.1 19.99% Cap; Rule 144.
(a) 19.99% Cap. Notwithstanding anything contained herein or in the
other Transaction Documents, if Rule 4350(i)(1)(D) of the Nasdaq is applicable
the Company shall not be entitled to issue upon conversion of the Note and
exercise of the Warrant an aggregate number of shares of Common Stock in excess
of 5,246,492 shares of Common Stock (19.99% of the Common Stock issued and
outstanding on the date hereof, which number shall be subject to appropriate and
equitable adjustment for any stock split, stock dividend or reclassification of
the Common Stock or similar event occurring after the date hereof) (the "20%
Cap"), unless the Company receives stockholder approval for such issuance. If
Rule 4350(i)(1)(D) of the Nasdaq is applicable to the shares of Common Stock
issuable upon conversion of the Note and exercise of the Warrant and the
limitations thereof restrict the Company from issuing additional shares of
Common Stock upon conversion of the Note or exercise of the Warrant, then the
Company shall use its commercially reasonable best efforts to obtain, as
promptly as practicable, but in no event later than 120 days thereafter, the
stockholder approval that is necessary under the rules of the Nasdaq so that the
20% Cap would no longer be applicable to issuance of shares of Common Stock upon
conversion of the Note and exercise of the Warrant.
(b) Rule 144. The Company acknowledges that, for purposes of
determining the holding period under Rule 144 for Underlying Shares issued upon
conversion of, or in lieu of cash payment of principal of or interest on, the
Note, the holding period of such Underlying Shares shall be tacked to the
holding period of the Note and for purposes of determining the holding period
under Rule 144 for Warrant Shares issued in a "net" or "cashless" exercise of
the Warrant, the holding period of such Warrant Shares may be tacked to the
holding period of the Warrant. The Company agrees not to take a position
contrary thereto unless the SEC or its staff by rule or interpretation changes
its rules and interpretations thereof in effect on the date of this Agreement or
such rules or interpretations are held invalid or incorrect by a court of
competent jurisdiction.
6.2 Limitation on Certain Transactions.
(a) Beginning as of the date of this Agreement and until the
effective date of the Registration Statement as contemplated by the Registration
Rights Agreement, without the prior written consent of the Purchaser (which
consent may be withheld in the Purchaser's discretion), the Company shall not
issue or sell or agree to issue or sell any securities in a capital raising
transaction prior to such date, unless such securities will not be, and are not,
registered for sale or resale under the 1933 Act until on or after the effective
date of the Registration
-18-
Statement, provided that the limitation of this Section 6.2(a) shall not apply
to securities issued pursuant to the Company's duly adopted employee or director
bona fide share and option plans.
(b) So long as the Note remains outstanding, without the
prior written consent of the registered holder of the Note (which consent may be
withheld in such holder's discretion), the Company shall not issue or sell, or
agree to issue or sell, any securities in a Variable Rate Transaction.
(c) If the Company contemplates an offering of its equity or
debt securities within six months after the Closing Date, the Company agrees
that, upon the reasonable request of the Purchaser, the Company shall first
disclose the terms and conditions and other relevant facts of such proposed
transaction to Nasdaq and, in the event that the proposed transaction is not
pursuant to a sale registered under the 1933 Act, use its best efforts to obtain
from Nasdaq its assurance that such transaction will not be integrated with the
offering which is the subject of this Agreement for purposes of the Nasdaq rules
requiring shareholder approval of the issuance of 20% or more of an issuer's
outstanding common stock. If the Company fails to seek such assurances or obtain
such shareholder approval of the additional transaction, then, at the election
of the Purchaser, the Company shall redeem within five days after such election
all or such portion as specified in writing to the Company by such Purchaser of
the Note at 120% of the original Purchase Price paid by the Purchaser for Note
or portion thereof so specified by the Purchaser (it being understood that
solely for purposes of determining such redemption price, no portion of the
Purchase Price shall be deemed to have been paid for the Warrant).
6.3 Right of the Purchasers to Participate in Future
Transactions.
(a) Right to Participate. So long as the Note remains
outstanding, the Purchaser will have a right to participate in any sales of any
of the Company's securities in a capital raising transaction on the terms and
conditions set forth in this Section 6.3. During such period, the Company shall
give ten Business Days advance written notice to the Purchaser prior to any
non-public offer or sale of any of the Company's capital stock or any Common
Stock Equivalents in a capital raising transaction by providing to the Purchaser
a comprehensive term sheet containing all significant business terms of such a
proposed transaction. The Purchaser shall have the right to participate in such
proposed transaction and to purchase 15 percent of such securities which are the
subject of such proposed transaction for the same consideration and on the same
terms and conditions as contemplated for such third-party sale (or such lesser
portion thereof as specified by the Purchaser). If the Purchaser elects to
exercise its rights hereunder it must deliver written notice to the Company
within five (5) Business Days following receipt of the notice and comprehensive
term sheet from the Company, which notice
-19-
from the Purchaser shall be contingent upon receipt of satisfactory definitive
documents for such transaction from the Company. If, subsequent to the Company
giving notice to the Purchaser hereunder but prior to the Purchaser exercising
its right to participate (or the expiration of the five-day period without
response from the Purchaser or the rejection of such offer for such financing by
the Purchaser), the terms and conditions of the proposed third-party sale are
changed from that disclosed in the comprehensive term sheet provided to the
Purchaser, the Company shall be required to provide a new notice and
comprehensive term sheet reflecting such revised terms to the Purchaser
hereunder and the Purchaser shall have the right, which must be exercised within
five (5) Business Days of such new notice and such revised comprehensive term
sheet, to exercise its rights to purchase the securities on such changed terms
and conditions as provided hereunder. In the event the Purchaser does not
exercise its rights hereunder with respect to a proposed transaction within the
period or periods provided, or affirmatively declines to engage in such proposed
transaction with the Company, then the Company may proceed with such proposed
transaction on the same terms and conditions as noticed to the Purchaser
(assuming the Purchaser has consented to the transaction, if required, pursuant
to Section 6.2 of this Agreement) with the Purchaser if it has elected to
participate in such proposed transaction, provided that if such proposed
transaction is not consummated within 60 days following the Company's notice
hereunder, then the right of first refusal hereunder shall again apply to the
Purchaser for such proposed transaction. The rights and obligations of this
Section 6.3 shall in no way diminish the other rights of the Purchaser pursuant
to this Section 6.
(b) Limitation on Right of First Refusal. Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired directly or through acquisition of Common Stock Equivalents
by the Purchaser pursuant to any capital raising transaction as described in
subsection (a) above shall not exceed a number that, when added to the total
number of shares of Common Stock deemed beneficially owned by the Purchaser
(other than by virtue of the ownership of securities or rights to acquire
securities (including the Note and Warrant) that have limitations on the
Purchaser's right to convert, exercise or purchase similar to the limitation set
forth herein (the "Excluded Shares")), together with all shares of Common Stock
deemed beneficially owned (not counting such affiliate's Excluded Shares) by the
Purchaser (as defined in Rule 144 of the 1933 Act) (the "Aggregation Parties")
that would be aggregated for purposes of determining whether such securities are
beneficially owned by the Purchaser or for purposes of determining whether a
group exists, in each such case for purposes of Section 13(d) of the 1934 Act
and Regulation 13D-G thereunder, would result in beneficial ownership by the
Purchaser or such group of more than 9.9% of the shares of the Company's Common
Stock (the "Restricted Ownership Percentage"), computed in accordance with
Regulation 13D-G. The Purchaser shall have the right at any time and from time
to time to reduce its Restricted Ownership
-20-
Percentage immediately upon notice to the Company in the event and only to the
extent that Section 16 of the 1934 Act or the rules promulgated thereunder (or
any successor statute or rules) is changed to reduce the beneficial ownership
percentage threshold thereunder from 10%. If the Purchaser is unable by reason
of the Restricted Ownership Percentage to acquire the full amount of securities
which the Purchaser would otherwise be entitled to acquire pursuant to this
Section 6.3 and thereafter, at any time prior to the repayment or conversion in
full of the Purchaser's Note the Purchaser could acquire such securities without
exceeding its Restricted Ownership Percentage, then the Purchaser shall be
entitled to acquire such securities at such time.
6.4 Reports and Information. For so long as the Purchaser
beneficially owns any of the Securities, the Company will furnish to the
Purchaser the following reports and information, each of which shall be provided
to the Purchaser by e-mail (at such address as specified in writing by the
Purchaser for such purpose) or reputable overnight courier:
(a) Quarterly Financial Information. In the absence of a
Quarterly Report on Form 10-Q timely filed with the SEC for any of the Company's
first three fiscal quarters in any fiscal year, within 45 days after the end of
any such fiscal quarter consolidated balance sheets of the Company as at the end
of each of the Company's first three fiscal quarters and the related
consolidated statements of operations, stockholders' equity and cash flows for
such period and for the portion of the Company's fiscal year ended on the last
day of such quarter, all in reasonable detail and certified by the principal
financial officer of the Company to have been prepared in accordance with
Generally Accepted Accounting Principles, subject to year-end and audit
adjustments.
(b) Annual Financial Information. In the absence of a Form
10-K timely filed with the SEC within 105 days after the end of any fiscal year,
then within such period consolidated balance sheets of the Company as at the end
of each fiscal year and the related consolidated statements of earnings,
stockholders' equity and cash flows for such year, all in reasonable detail and
accompanied by the report on such consolidated financial statements of an
independent certified public accountant selected by the Company and reasonably
satisfactory to the Purchaser.
(c) Stockholder and Analyst Reports and Information. Copies
of all notices, financial statements, reports and documents as the Company shall
send or make available generally to its stockholders or to financial analysts,
promptly after providing same to the stockholders or financial analysts.
(d) Other Information. Such other information relating to
the Company and the Subsidiaries as from time to time may reasonably be
requested by the Purchaser provided the Company or its Subsidiary has such
information
-21-
available to it in the ordinary course of its business, and further provided
that the Company, solely in its own discretion, determines that such information
is not confidential in nature and disclosure to such Purchaser would not be
harmful to the Company or its Subsidiary.
Notwithstanding anything to the contrary contained in this Section 6.4(b), the
Company shall not disclose material nonpublic information to the Purchaser, or
to advisors to or representatives of the Purchaser, unless prior to disclosure
of such information the Company identifies such information as being material
nonpublic information and provides the Purchaser, such advisors and
representatives with the opportunity to accept or refuse to accept such material
nonpublic information for review. The Company may, as a condition to disclosing
any material nonpublic information hereunder, require the Purchaser's advisors
and representatives to enter into a confidentiality agreement (including an
agreement with such advisors and representatives prohibiting them from trading
in Common Stock during such period of time as they are in possession of material
nonpublic information) in form reasonably satisfactory to the Company and the
Purchaser.
(e) Rule 144. The Company agrees to make publicly available
on a timely basis the information required by Rule 144(c) under the 1933 Act.
6.5 Press Releases. Any press release or other publicity
concerning this Agreement or the transactions contemplated by this Agreement
shall be submitted to the Purchaser for comment at least two (2) Business Days
prior to issuance, unless the release is required to be issued within a shorter
period of time by law or pursuant to the rules of the Nasdaq or a national
securities exchange. The Company shall, on the Closing Date or on the next
succeeding Business Day, issue a press release, in the form of Exhibit F hereto,
concerning the transactions contemplated hereby. The Company's other press
releases and other public information, to the extent concerning the Transaction
Documents, shall contain such information as reasonably requested by the
Purchaser and be reasonably approved by the Purchaser in writing prior to
issuance.
6.6 No Conflicting Agreements. The Company will not take any
action, enter into any agreement or make any commitment that would conflict or
interfere in any material respect with the obligations to the Purchaser under
the Transaction Documents.
6.7 Insurance. For so long as the Purchaser beneficially
owns any of the Securities, the Company shall, and shall cause each Subsidiary
to, have in full force and effect (a) insurance reasonably believed to be
adequate on all assets and activities of a type customarily insured, covering
property damage and loss of income by fire or other casualty, and (b) insurance
reasonably believed to be adequate protection against all liabilities, claims
and risks against which it is
-22-
customary for companies similarly situated as the Company and the Subsidiaries
to insure.
6.8 Compliance with Laws. So long as the Purchaser
beneficially owns any Securities, the Company will use reasonable efforts to
comply with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities, except to the extent non-compliance (in one instance
or in the aggregate) would not have a Material Adverse Effect.
6.9 Listing of Underlying Shares and Warrant Shares and
Related Matters. The Company agrees to obtain the listing of the Underlying
Shares and Warrant Shares on the Nasdaq not later than five days after the
Closing Date (or such earlier date as required by Nasdaq) and, to the extent
necessary, to take such action to cause the Underlying Shares and the Warrant
Shares to continue to be eligible for trading on the Nasdaq. The Company agrees
that if the Company applies to have its Common Stock or other securities traded
on any other principal stock exchange or market, it will include in such
application the Underlying Shares and Warrant Shares and will take such other
action as is necessary to cause such Common Stock to be so listed. For so long
as any Note or Warrant remains outstanding, the Company will take all action
necessary to continue the listing and trading of its Common Stock on at least
one of the Nasdaq, the NYSE or the AMEX (collectively, "Approved Markets"), and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such exchange or market, as applicable,
to ensure the continued eligibility for trading of the Common Stock thereon.
Neither the Company nor any of its Affiliates, nor any Person acting on its or
their behalf, shall directly or indirectly make any offers or sales of any
security or solicit any offers to buy any security which may cause the
integration of the offering hereunder with any other offering of securities for
purposes of determining the need to obtain stockholder approval of the
transactions contemplated hereby under the rules of the Nasdaq. Unless in its
reasonable judgment such would constitute material non-public information, the
Company shall notify the Purchasers in advance if it intends to make any private
placement of securities within the six-month period after the Closing Date, and
unless the Company shall have received stockholder approval of the transactions
contemplated hereby under the rules of Nasdaq, at the Purchaser's reasonable
request, the Company shall request a ruling from the Nasdaq in advance that such
private placement will not be integrated with the transactions contemplated
hereunder pursuant to the rules of the Nasdaq.
6.10 Corporate Existence. So long as any Note or Warrant
remains outstanding, the Company shall maintain its corporate existence, except
in the event of a merger, consolidation, amalgamation or sale of all or
substantially all of the Company's assets, as long as the surviving or successor
entity in such transaction (a) assumes (jointly and severally with the Company
if the Company
-23-
continues to exist) the Company's obligations hereunder and under the agreements
and instruments entered into in connection herewith, regardless of whether or
not the Company would have had a sufficient number of shares of Common Stock
authorized and available for issuance in order to fulfill its obligations
hereunder and effect the conversion in full of all Notes and exercise in full of
all Warrants outstanding as of the date of such transaction; (b) has no legal,
contractual or other restrictions on its ability to perform the obligations of
the Company hereunder and under the agreements and instruments entered into in
connection herewith; and (c)(i) is a publicly traded corporation whose common
stock and the shares of capital stock issuable upon conversion of the Note and
exercise of the Warrant are (or would be upon issuance thereof) listed for
trading on an Approved Market or (ii) if not such a publicly traded corporation,
then the Person who will be the successor or surviving entity in such
transaction, at the time it shall enter into a definitive agreement to complete
such transaction, shall have agreed in writing with the Purchasers that it will,
at the election of any Purchaser, purchase such Purchaser's Securities at a
price equal to the greater of (a) 120% of the Purchase Price of such Securities
or (b) the fair market value of such Securities on an as-converted and
as-exercised basis based on the closing price immediately preceding such
transaction or the redemption date, whichever is greater.
6.11 Form 8-K. Within three Business Days after the Closing
Date, the Company will publicly report the issue and sale of the Note and
Warrant by filing with the SEC a Current Report on Form 8-K under the 1934 Act
which report shall describe the material terms and include copies of the
Transaction Documents as exhibits to such report.
6.12 Legends. Until registration for resale pursuant to the
Registration Rights Agreement or until sales under Rule 144 under the 1933 Act
are permitted, certificates evidencing the Underlying Shares and the Warrant
Shares may bear one or both of the following legends or legends substantially
similar thereto:
(a) "The shares represented by this certificate may not be
transferred without (i) the opinion of counsel reasonably satisfactory
to the corporation that such transfer may lawfully be made without
registration under the Securities Act of 1933 or qualification under
applicable state securities laws; or (ii) such registration or
qualification."
(b) If required by the authorities of any state in
connection with the issuance of sale of the Securities, the legend
required by such state.
Upon registration for resale pursuant to the Registration Rights Agreement or
upon Rule 144(k) under the 1933 Act becoming available, the Company shall
promptly (but in no event later than five Business Days after surrender of the
legended
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certificates to the Company) cause certificates evidencing the Underlying Shares
and Warrant Shares previously issued to be replaced with certificates which do
not bear the restrictive legends set forth in the preceding clause (a) of this
Section, and all Underlying Shares and Warrant Shares subsequently issued shall
not bear the restrictive legend set forth in the preceding clause (a) of this
Section. If the Purchaser notifies the Company that the Purchaser has not
received such certificates without the restrictive legend set forth in the
preceding clause (a) of this Section within three Business Days after surrender
of such legended certificates (each, a "Purchaser Share Notice"), and the
Purchaser does not receive such certificates without the restrictive legend set
forth in the preceding clause (a) of this Section within two Business Days after
giving a particular Purchaser Share Notice, then the Company shall pay cash
liquidated damages to the Purchaser at the rate of 2% per month of the original
Purchase Price of the Note and Warrant in respect of which such Underlying
Shares and Warrant Shares are issuable or issued and for which the certificates
have not been provided in compliance with the above, for so long as the Company
fails to provide such certificates. A Purchaser Share Notice may be given by
telephone or e-mail to the Company's Chief Financial Officer or General Counsel.
The Purchaser agrees that any sale by the Purchaser of Underlying Shares and
Warrant Shares pursuant to the Registration Statement shall be made by the
Purchaser in compliance with the prospectus delivery requirements of the 1933
Act and in accordance with the plan of distribution set forth in the
Registration Statement and related prospectus, as amended and supplemented from
time to time.
7. Conditions to the Company's Obligations to Issue and
Sell. The Company's obligation to issue and sell the Note and Warrant to the
Purchaser pursuant to this Agreement is conditioned upon satisfaction of the
following conditions precedent on or before the Closing Date (any or all of
which may be waived by the Company in its sole discretion):
(a) On the Closing Date, no legal action, suit or proceeding
shall be pending or threatened which seeks to restrain or prohibit the
transactions contemplated by this Agreement; and
(b) The representations and warranties of the Purchaser
contained in this Agreement shall have been true and correct on the date of this
Agreement and the representations and warranties of the Purchaser contained in
the Transaction Documents shall be true and correct on the Closing Date as if
given on and as of the Closing Date (except for representations given as of a
specific date, which representations shall be true and correct as of such date),
and on or before the Closing Date the Purchaser shall have performed all
covenants and agreements of the Purchaser contained herein or in any of the
other Transaction Documents required to be performed by the Purchaser on or
before the Closing Date.
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8. Conditions to the Purchaser's Obligations to Purchase.
The Purchaser's several obligations to purchase their respective Note and
Warrant are conditioned upon satisfaction of the following conditions precedent
on or before the Closing Date (any or all of which may be waived by the
Purchaser in its sole discretion):
(a) On the Closing Date, no legal action, suit or proceeding
shall be pending or threatened which seeks to restrain or prohibit the
transactions contemplated by this Agreement;
(b) The representations and warranties of the Company
contained in this Agreement shall have been true and correct on the date of this
Agreement and the representations and warranties of the Company contained in the
Transaction Documents shall be true and correct on the Closing Date as if given
on and as of the Closing Date (except for representations given as of a specific
date, which representations shall be true and correct as of such date), and on
or before the Closing Date the Company shall have performed all covenants and
agreements of the Company contained herein or in any of the other Transaction
Documents required to be performed by the Company on or before the Closing Date;
(c) No event which, if the Note were outstanding, would
constitute an Event of Default or which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default shall have
occurred and be continuing;
(d) No Change in Control Transaction shall have occurred;
(e) The Company shall have delivered to the Purchaser a
certificate, dated the Closing Date, duly executed by its Chief Executive
Officer or Chief Financial Officer, to the effect set forth in subparagraphs
(a), (b), (c) and (d) of this Section 8;
(f) The Company shall have delivered to the Purchaser a
certificate, dated the Closing Date, of the Secretary of the Company certifying
(A) the Certificate of Incorporation and By-Laws of the Company as in effect on
the Closing Date, (B) all resolutions of the Board of Directors (and committees
thereof) of the Company relating to this Agreement and the other Transaction
Documents and the transactions contemplated hereby and thereby and (C) such
other matters as reasonably requested by the Purchaser;
(g) On the Closing Date, the Purchaser shall have received
an opinion of XxXxxxx & Xxxxx, counsel for the Company, dated the Closing Date,
addressed to the Purchaser, in form, scope and substance reasonably satisfactory
to the Purchaser, substantially in the form attached as Exhibit D; and
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(h) On the Closing Date, (i) trading in securities on the
NYSE, the AMEX or Nasdaq shall not have been suspended or materially limited and
(ii) a general moratorium on commercial banking activities in the State of New
York shall not have been declared by either federal or state authorities, nor
shall there have occurred any material outbreak or escalation of hostilities or
other national or international calamity or crisis of such magnitude in its
effect on, or any material adverse change in any financial market which, in each
case, in the good faith judgment of the Purchaser, makes it impracticable or
inadvisable to purchase the Note and Warrant.
9. Miscellaneous.
9.1 Successors and Assigns. This Agreement may not be
assigned by the Company. This Agreement may not be assigned by the Purchaser
prior to the Closing without the prior written consent of the Company, which
consent may not be unreasonably withheld or delayed, except that after the
Closing, without the prior written consent of the Company, but after notice
given to the Company, the Purchaser may assign its rights and delegate its
duties hereunder in whole or in part to an Affiliate or to any transferee of
Securities from the Purchaser. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
9.2 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.3 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be deemed
effectively given only upon delivery to each party to be notified by (i)
personal delivery, (ii) telephone line facsimile transmission, upon receipt of
confirmation of complete transmittal, or (iii) a recognized overnight air
courier, addressed to the party to be notified at the address as follows, or at
such other address as such party may designate by ten days' advance written
notice to the other party:
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If to the Company:
Sonic Foundry, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Chief Financial Officer
Telephone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
XxXxxxx & Xxxxx
00 X. Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Fax: (000) 000-0000
If to the Purchaser, to the address set forth on the
signature pages hereto.
9.5 Expenses. The parties hereto shall pay their own costs
and expenses in connection herewith, except that the Company shall pay or
reimburse the Purchaser, at or before the Closing, for its legal and due
diligence expenses incurred in connection herewith from gross proceeds of the
offering of the Note and Warrant to the extent not previously paid; provided,
however, in no event shall the Company be required to pay more than $20,000
total towards such expenses of the Purchaser. Prior to execution and delivery of
this Agreement the Company has deposited with legal counsel for the Purchaser
the amount of $15,000 to be applied to such expenses of the Purchaser. The
Company shall pay all fees and expenses of any placement agents in connection
with the transactions contemplated by this Agreement pursuant to a separate
agreement between such parties.
9.6 Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Purchaser;
provided, however, that any such amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Securities purchased
under
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this Agreement at the time outstanding, each future holder of all such
securities, and the Company.
9.7 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
9.8 Entire Agreement. This Agreement, including the Exhibits
and Schedules hereto, the other Transaction Documents and other documents
contemplated hereby and thereby constitute the entire agreement among the
parties hereof with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof and thereof.
9.9 Survival. All representations, warranties, covenants and
agreements contained in this Agreement shall be deemed to be representations,
warranties, covenants and agreements as of the date hereof, except as expressly
provided to be made or deemed made as of another date. The representations and
warranties shall survive the execution and delivery of, and the Closing under,
this Agreement.
9.10 Further Assurances. The parties shall execute and
deliver all such further instruments and documents and take all such other
actions as may reasonably be required to carry out the transactions contemplated
hereby and to evidence the fulfillment of the agreements herein contained.
9.11 Applicable Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York without
regard to principles of conflicts of laws.
9.12 Remedies.
(a) The Purchaser shall be entitled to specific performance
of the Company's obligations under the Transaction Documents.
(b) The Company on the one hand and the Purchaser shall
indemnify the other and hold it harmless from any loss, cost, expense or fees
(including reasonable attorneys' fees and expenses) arising out of any breach of
any of its representations, warranties, covenants or agreements in any of the
Transaction Documents, or arising out of the enforcement of this Section 9.12.
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9.13 Jurisdiction. The parties hereby agree that all actions
or proceedings arising directly or indirectly from or in connection with this
Agreement shall be litigated only in the Supreme Court of the State of New York
or the United States District Court for the Southern District of New York
located in New York County, New York. The parties consent and submit to the
jurisdiction and venue of the foregoing courts and consent that any process or
notice of motion or other application to either of said courts or a judge
thereof may be served inside or outside the State of New York or the Southern
District of New York (but with respect to any party hereto, such consent shall
not be deemed a general consent to jurisdiction and service for any third
parties) by registered mail, return receipt requested, directed to the party
being served at its address provided in or pursuant to this Agreement (and
service so made shall be deemed complete three (3) days after the same has been
posted as aforesaid) or by personal service or in such other manner as may be
permissible under the rules of said courts. The Company hereby waives any right
to a jury trial in connection with any litigation pursuant to this Agreement.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
THE COMPANY:
SONIC FOUNDRY, INC.
By:______________________________________________
Name:
Title:
-00-
XXX XXXXXXXXX:
OMICRON PARTNERS, L.P.
By: OMICRON CAPITAL, L.P.,
as Sub-Advisor
By: OMICRON CAPITAL, INC.,
its General Partner
By:________________________________
Xxxxxxx Xxxxxx
President
Purchase Price: $
Number of Warrant Shares:
Initial Conversion Price of Note: $
Initial Exercise Price of Warrant: $
Address for Notices:
Omicron Partners, L.P.
c/o Olympia Capital International Inc.
Xxxxxxxx House
00 Xxxx Xxxxxx
Xxxxxxxx XX 00
Xxxxxxx
Xxxx: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: xxxxxxx@xxxxxxxxxxxxxx.xxx
with copies to:
Omicron Capital, L.P.
000 Xxxx 00/xx/ Xxxxxx
00/xx/ Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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Law Offices of Xxxxx X Xxxxx
Penthouse Xxxxx
00 Xxxx 00/xx/ Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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