PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of August 18, 2000, by and between XXXXXX.XXX, INC., a Delaware
corporation (the "Company") and NET VALUE HOLDINGS, INC., a Delaware corporation
(the "Investor").
RECITALS
The Company desires to sell to the Investor, and the Investor desires
to purchase from the Company, shares of the Company's Series B Convertible
Preferred Stock and shares of the Company's Series C Convertible Preferred Stock
on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
1.1 Authorization. As of the Closing (as defined below), the
Company will have authorized the issuance, pursuant to the terms and conditions
of this Agreement, of (i) up to Two Million Two Hundred Eight Thousand One
Hundred and Sixty-Six (2,208,166) shares of the Company's Series B Convertible
Preferred Stock, $0.001 par value per share (the "Series B Stock") having the
rights, preferences, privileges and restrictions set forth in Article FOURTH,
Section D of the Restated Certificate of Incorporation designating the Series B
Stock of the Company attached to this Agreement as Exhibit A (the "Certificate")
and (ii) One Million Five Hundred Fifty Thousand One Hundred and Twelve
(1,550,112) shares of the Company's Series C Convertible Preferred Stock, $0.001
par value per share (the "Series C Stock") having the rights, preferences,
privileges and restrictions set forth in Article FOURTH, Section E of the
Certificate.
1.2 Agreement to Purchase and Sell.
(a) The Company agrees to sell to the Investor at the
First Closing (as defined below), and the Investor agrees to purchase from the
Company at the First Closing, 2,208,166 shares of Series B Stock, at a price of
$1.41925235 per share, or an aggregate purchase price of $3,133,945, and 775,056
shares of Series C Stock, at a price of $1.41925235 per share, or an aggregate
purchase price of $1,100,000.
(b) The Company agrees to sell to the Investor at the
Second Closing (as defined below), and the Investor agrees to purchase from the
Company at the Second Closing, up to 387,528 shares of Series C Stock, at a
price of $1.41925235 per share, or an aggregate purchase price of up to
$550,000.
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(c) The Company agrees to sell to Investor at the
Third Closing (as defined below), and the Investor agrees to purchase from the
Company at the Third Closing, up to 387,528 shares of Series C Stock at a price
of $1.41925235 per share, or an aggregate purchase price of up to $550,000.
(d) The shares of Series B Stock and Series C Stock
purchased and sold pursuant to this Agreement will be collectively referred to
as the "Purchased Shares" and the shares of Common Stock issuable upon
conversion of the Purchased Shares will be collectively referred to as the
"Conversion Shares."
(e) The Certificate shall provide that the Series B
Stock and Series C Stock shall be pari passu and have identical rights and
preferences, provided that the Series B Stock shall have an initial conversion
price equal to $1.41925235 per share and the Series C Stock shall have an
initial conversion price equal to (i) if the Company closes on a subsequent
round of financing for aggregate proceeds in excess of two million dollars
($2,000,000) (a "Subsequent Financing") within three (3) months following the
Closing Date, that amount that represents a twenty percent (20%) discount from
the conversion price per share of Common Stock of the securities issued in the
Subsequent Financing, and (ii) if the Company does not close on a Subsequent
Financing within such three (3) month period, an amount equal to $1.41925235 per
share.
2. CLOSING.
2.1 First Closing. The purchase and sale of Purchased Shares
at the First Closing will take place at the offices of Klehr, Harrison, Xxxxxx,
Xxxxxxxxx & Xxxxxx LLP, counsel to the Investor, at 000 X. Xxxxx Xxxxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000, at 9:00 a.m. Eastern Time, on August 18, 2000,
or at such other time and place as the Company and the Investor mutually agree
upon (the "First Closing"). At the First Closing, the Company will deliver to
the Investor certificates representing the Purchased Shares being sold at the
First Closing against delivery to the Company by the Investor of (i) $300,000,
paid by a wire transfer of funds to the Company and (ii) the promissory notes of
the Company in the aggregate principal amount of Three Million Eight Hundred
Thousand Dollars ($3,800,000) dated March 13, 2000, March 31, 2000, May 19,
2000, May 30, 2000, June 19, 2000, June 28, 2000, July 6, 2000, July 12, 2000,
July 18, 2000, August 4, 2000 and August 17, 2000, the "Promissory Notes",
marked "Cancelled," the cancellation of which (including accrued interest
thereon of $133,945), shall be applied to the payment of the purchase price.
2.2 Second Closing. The purchase and sale of Purchased Shares
at the Second Closing will take place at the offices of Klehr, Harrison, Xxxxxx,
Branzburg & Xxxxxx LLP, counsel to the Investor, at 000 Xxxxx Xxxxx Xxxxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx, 00000, at 9:00 a.m. eastern Time, on or before
September 1, 2000 or such other time and place as the Company and the Investor
mutually agree upon (the "Second Closing"). At the Second Closing, the Company
will deliver to Investor certificates representing the Purchased Shares being
sold at the Second Closing against delivery to the Company by the Investor of
$550,000, which amount shall be paid by a wire transfer of funds to the Company.
2.2 Third Closing. The purchase and sale of Purchased Shares
at the Third Closing will take place at the offices of Klehr, Harrison, Xxxxxx,
Branzburg & Xxxxxx, LLP, counsel to the Investor, at 000 Xxxxx Xxxxx Xxxxxx,
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Xxxxxxxxxxxx, Xxxxxxxxxxxx, 00000, at 9:00 a.m. eastern Time, on or before
October 1, 2000 or such other time and place as the Company and the Investor
mutually agree upon (the "Third Closing") (together with the First Closing and
the Second Closing, each Closing is referred to in this Agreement as the
"Closing"). At the Third Closing, the Company will deliver to Investor
certificates representing the Purchased Shares to be sold at the Third Closing
against delivery to the Company by the Investor of $550,000, which amount shall
be paid by a wire transfer of funds to the Company (together with the purchase
price paid at the First Closing and the Second Closing, the "Aggregate Purchase
Price").
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Investor that the statements in the
following paragraphs of this Section 3 are all true and correct:
3.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own its properties and assets and to carry on its business as now
conducted and as presently proposed to be conducted. The Company is duly
qualified and in good standing to do business as a foreign corporation in each
jurisdiction where failure to be so qualified would have a material adverse
effect on its financial condition, business, prospects or operations.
3.2 Capitalization. Upon filing the Certificate, immediately
prior to the Closing, the capitalization of the Company will consist of the
following:
(a) Preferred Stock. A total of Nine Million Five Hundred
Thousand (9,500,000) authorized shares of preferred stock, $0.001 par value per
share of which Four Hundred Ninety-Five Thousand Eight Hundred Ninety Nine
(495,899) shares are designated as Series A Convertible Preferred Stock, Four
Hundred Ninety-Five Thousand Eight Hundred Ninety-Nine (495,899) of which shares
are issued and outstanding, Two Million Two Hundred and Eight Thousand One
Hundred and Sixty-Six (2,208,166) are designated as Series B Stock, none of
which will be issued and outstanding and One Million Five Hundred Fifty Thousand
One Hundred Twelve (1,550,112) shares are designated as Series C Stock, none of
which will be issued and outstanding. The rights, preferences and privileges of
the Series B Stock and the Series C Stock will be as stated in the Certificate
and as provided by law.
(b) Common Stock. A total of Thirteen Million Five Hundred
Thousand (13,500,000) authorized shares of common stock, $0.001 par value per
share (the "Common Stock"), of which Three Million Nine Hundred Seventeen
Thousand (3,917,000) shares are issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except as set
forth on Schedule 3.2(c), there are not outstanding any options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its capital stock or
any securities convertible into or ultimately exchangeable or exercisable for
any shares of the Company's capital stock. Except as set forth on Schedule
3.2(c), no shares of the Company's outstanding capital stock, or stock issuable
upon exercise or exchange of any outstanding options, warrants or rights, or
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other stock issuable by the Company, are subject to any rights of first refusal
or other rights to purchase such stock (whether in favor of the Company or any
other person), pursuant to any agreement or commitment of the Company. Set forth
on Schedule 3.2(c) is a listing of all outstanding options, warrants, rights and
restricted stock grants and a summary of the vesting provisions of each
individual grant of such securities. The Company has provided to the Investor a
copy of its current stock option and restricted stock grant plan, if any, and a
copy of all option grant agreements, restricted stock award agreements and
common stock purchase warrants which are outstanding as of the date of this
Agreement or which the Company presently contemplates granting or issuing within
30 days of the date of this Agreement.
(d) Outstanding Security Holders. Attached to this
Agreement as Schedule 3.2(d) is a complete list of all outstanding stockholders,
option holders, warrant holders, convertible note holders and other security
holders of the Company as of immediately prior to the Closing, which schedule
lists the type of instruments, certificate numbers in sequential order (if
applicable), the dates of issuance, the names of holders and the number of
Shares held or to be held upon exercise of such instrument.
3.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association, or other entity.
3.4 Due Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of
the Company under, this Agreement, the Investor Rights Agreement (as defined in
Section 5.14), and the Stockholders' Agreement (as defined in Section 5.15),
(collectively, the "Related Agreements") and the authorization, issuance,
reservation for issuance and delivery of all of the Purchased Shares being sold
under this Agreement and of the Conversion Shares has been taken or will be
taken prior to the Closing, and this Agreement constitutes, and the Related
Agreements, when executed, will constitute, valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or others laws of general application relating to or affecting
the enforcement of creditors' rights generally and (ii) the effect of rules of
law governing the availability of equitable remedies.
3.5 Valid Issuance of Stock.
(a) The Purchased Shares, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
provided for herein, will be duly and validly issued, fully paid and
nonassessable. The Conversion Shares have been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Certificate,
will be duly and validly issued, fully paid and nonassessable.
(b) Based in part on the representations made by the
Investor in Section 4 hereof, the Purchased Shares and (assuming no change in
applicable law and no unlawful distribution of Purchased Shares by the Investor
or other parties) the Conversion Shares will be issued in full compliance with
the registration and prospectus delivery requirements of the U.S. Securities Act
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of 1933, as amended (the "1933 Act") and the registration and qualification
requirements of all applicable state securities laws; provided that, with
respect to the Conversion Shares, no commission or other remuneration is paid or
given, directly or indirectly, for soliciting the issuance of Conversion Shares
upon the conversion of the Purchased Shares and no additional consideration is
paid for the Conversion Shares other than surrender of the applicable Purchased
Shares upon conversion thereof in accordance with the Certificate.
(c) The outstanding shares of the capital stock of the
Company are duly and validly issued, fully paid and nonassessable, and such
shares of capital stock, and all outstanding options, warrants, convertible
notes and other securities of the Company, have been issued in full compliance
with the registration and prospectus delivery requirements of the 1933 Act or in
compliance with applicable exemptions therefrom, the registration and
qualification requirements of all applicable securities laws of states of the
United States and all other provisions of applicable securities laws of States
of the United States, including, without limitation, anti-fraud provisions.
3.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Related Agreements, except for such
qualifications or filings under the 1933 Act and the regulations thereunder and
all other applicable securities laws of states of the United States as may be
required in connection with the transactions contemplated by this Agreement. All
such qualifications and filings will, in the case of qualifications, be
effective on the Closing and will, in the case of filings, be made within the
time prescribed by law.
3.7 Litigation. Except as set forth on Schedule 3.7, there is
no action, suit, proceeding, claim, arbitration or investigation ("Action")
pending or, to the best of the Company's Knowledge (as defined below), currently
threatened against the Company, its activities, properties or assets or, to the
best of the Company's Knowledge, against any officer, director or employee of
the Company in connection with such officer's, director's or employee's
relationship with, or actions taken on behalf of, the Company. Except as set
forth on Schedule 3.7, to the best of the Company's Knowledge, there is no
factual or legal basis for any such Action that might result, individually or in
the aggregate, in any material adverse change in the business, properties,
assets, financial condition, affairs or prospects of the Company. By way of
example but not by way of limitation, there are no Actions pending or, to the
best of the Company's Knowledge, threatened (or any basis therefor known to the
Company) relating to the prior employment of any of the Company's employees or
consultants, their use in connection with the Company's business of any
information, technology or techniques allegedly proprietary to any of their
former employers, clients or other parties, or their obligations under any
agreements with prior employers, clients or other parties. The Company is not a
party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality and there is no
Action by the Company currently pending or which the Company intends to
initiate. For the purposes of this Agreement, "Knowledge" means (i) the actual
knowledge of such party's partners, officers, directors, principals, affiliates
or agents; and (ii) the knowledge that a prudent business person would have
obtained in the conduct of his or her business after making reasonable inquiry
and exercising reasonable diligence with respect to the particular matter in
question.
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3.8 Employee Intellectual Property Covenants. Each employee,
officer, consultant and contractor of the Company identified on Schedule 3.8 has
entered into and executed a Employee Intellectual Property Covenants in the form
attached to this Agreement as Exhibit B or an employment or consulting agreement
containing substantially similar terms.
3.9 Status of Proprietary Assets.
(a) Ownership. Except as set forth on Schedule
3.9(a), the Company has full title and ownership of, or has license to, all
patents, patent applications, trademarks, service marks, trade names,
copyrights, moral rights, mask works, trade secrets, confidential and
proprietary information, compositions of matter, formulas, designs, proprietary
rights, know-how and processes (all of the foregoing collectively referred to as
the "Proprietary Assets") necessary to enable it to carry on its business as now
conducted and as presently proposed to be conducted, without any conflict with
or infringement of the rights of others. A complete list of all the Company's
Proprietary Assets is set forth on Schedule 3.9(a) to this Agreement. To the
best of the Company's Knowledge, no third party has any ownership right, title,
interest, claim in or lien on any of the Company's Proprietary Assets and the
Company has taken, and in the future the Company will use its best efforts to
take, all steps reasonably necessary to preserve its legal rights in, and the
secrecy of, all its Proprietary Assets, except those for which disclosure is
required for legitimate business or legal reasons.
(b) Licenses; Other Agreements. Except as set forth
on Schedule 3.9(b), the Company has not granted, and, there are not outstanding,
any options, licenses or agreements of any kind relating to any Proprietary
Asset of the Company, nor is the Company bound by or a party to any option,
license or agreement of any kind with respect to any of its Proprietary Assets.
The Company is not obligated to pay any royalties or other payments to third
parties with respect to the marketing, sale, distribution, manufacture, license
or use of any Proprietary Asset or any other property or rights.
(c) No Infringement. To the best of the Company's
Knowledge, the Company has not violated or infringed, and is not currently
violating or infringing, and the Company has not received any communications
alleging that the Company (or any of its employees or consultants) has violated
or infringed or, by conducting its business as proposed, would violate or
infringe, any Proprietary Asset of any other person or entity.
(d) No Breach by Employee. The Company is not aware
that any employee or consultant of the Company is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction that would interfere with the use of his or her best efforts to
carry out his or her duties for the Company or to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. The carrying on of the Company's business by the employees and
contractors of the Company and the conduct of the Company business as presently
proposed, will not, to the best of the Company's Knowledge, conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
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employees or contractors or the Company is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions of any employees of
the Company (or persons the Company currently intends to hire) made prior to
their employment by the Company which have not otherwise become property of the
Company. At no time during the conception of or reduction of any of the
Proprietary Assets to practice was any developer, inventor or other contributor
to such patents operating under any grants from any governmental entity or
agency or private source, performing research sponsored by any governmental
entity or agency or private source or subject to any employment agreement or
invention assignment or nondisclosure agreement or other obligation with any
third party that could adversely affect the Company's rights in such Proprietary
Assets.
3.10 Compliance with Law and Charter Documents. The Company is
not in violation or default of any provisions of its Certificate of
Incorporation or Bylaws, both as amended or restated, and the Company is in
compliance with all applicable statutes, laws, regulations and executive orders
of the United States of America and all states, foreign countries or other
governmental bodies and agencies having jurisdiction over the Company's business
or properties. The Company has not received any notice of any violation of such
statutes, laws, regulations or orders which has not been remedied prior to the
date hereof. The execution, delivery and performance of this Agreement and the
Related Agreements and the consummation of the transactions contemplated hereby
or thereby will not result in any such violation or default, or be in conflict
with or constitute, with or without the passage of time or the giving of notice
or both, either a default under the Company's Certificate of Incorporation or
Bylaws, or any agreement or contract of the Company, or, to the best of the
Company's Knowledge, a violation of any statutes, laws, regulations or orders,
or an event which results in the creation of any lien, charge or encumbrance
upon any asset of the Company.
3.11 Material Agreements.
(a) List of Material Agreements. Attached to this
Agreement as Schedule 3.11 is a complete list of all agreements, contracts,
leases, licenses, instruments and commitments (oral or written) to which the
Company is a party or is bound that, individually or in the aggregate, are
material to the business, properties, financial condition, results of operation,
affairs or prospects of the Company ("Material Agreements"); provided that for
purposes of this Section 3.11 only, no agreement under which the only remaining
obligation of the Company is to make a payment of money in the amount of $5,000
or less will be deemed to be material to its business, properties, financial
condition or results of operations if the failure to make such payment will not
result in the loss by the Company of any rights that are material to the conduct
of its business.
(b) No Breach. The Company has not breached, nor does
the Company have any Knowledge of any claim or threat that the Company has
breached, any term or condition of (i) any Material Agreement set forth in
Schedule 3.11 or (ii) any other agreement, contract, lease, license, instrument
or commitment that, individually or in the aggregate, would have a material
adverse effect on the business, properties, financial condition, results of
operations or affairs or prospects of the Company. Each Material Agreement set
forth in Schedule 3.11 is in full force and effect and, to the Company's
Knowledge, no other party to such Material Agreement is in default thereunder.
The Company is not a party to any agreement that restricts its ability to market
or sell any of its products (whether by territorial restriction or otherwise).
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3.12 Registration Rights. Except as provided in the Investor
Rights Agreement, the Company has not granted or agreed to grant to any person
or entity any rights (including piggyback registration rights) to have any
securities of the Company registered with the United States Securities and
Exchange Commission ("SEC") or any other governmental authority other than those
registration rights granted to (i) the holders of the Series A Convertible
Preferred Stock in Investor Rights Agreements dated November 22, 1999, December
17, 1999 and December 20, 1999, and (ii) Private Capital Source, Ltd. in a
registration rights agreement dated December 1999.
3.13 Charter Documents; Minutes. The Certificate of
Incorporation and the Bylaws of the Company are in the form previously provided
to the Investor. The minute books of the Company provided to the Investor
contain a complete summary of all meetings, consents and actions of the board of
directors and the stockholders of the Company since the time of its
incorporation, accurately reflecting all transactions referred to in such
minutes in all material respects.
3.14 Title to Property and Assets. The Company owns its
properties and assets free and clear of all mortgages, deeds of trust, liens,
encumbrances, security interests and claims except for statutory liens for the
payment of current taxes that are not yet delinquent and liens, encumbrances and
security interests which arise in the ordinary course of business and which do
not affect material properties and assets of the Company. With respect to the
property and assets it leases, the Company is in compliance with such leases
and, to the best of the Company's Knowledge, the Company holds valid leasehold
interests in such assets free of any liens, encumbrances, security interests or
claims of any party other than the lessors of such property and assets.
3.15 Financial Statements. Attached to this Agreement as
Schedule 3.15 is an audited balance sheet of the Company dated December 31, 1999
(the "Balance Sheet Date") and an audited income statement, statement of changes
in stockholder equity and statement of cash flows of the Company for the period
ended December 31,1999 together with a unaudited balance sheet dated June 30,
2000 and related statements of income, changes in stockholder's equity and cash
flows for the six month period ended June 30, 2000 (all such financial
statements being collectively referred to herein as the "Financial Statements").
Such Financial Statements (a) are in accordance with the books and records of
the Company; (b) are true, correct and complete and present fairly the financial
condition of the Company at the date or dates therein indicated and the results
of operations for the period or periods therein specified and (c) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, except, as to the unaudited financial statement, for the
omission of notes thereto and normal year-end audit adjustments. Specifically,
but not by way of limitation, the respective balance sheets of the Financial
Statements disclose all of the Company's material debts, liabilities and
obligations of any nature, whether due or to become due, as of their respective
dates (including, without limitations, absolute liabilities, accrued
liabilities, and contingent liabilities). The Company has good and marketable
title to all assets set forth on the balance sheets of the Financial Statements,
except for such assets as have been spent, sold or transferred in the ordinary
course of business since the Balance Sheet Date.
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3.16 Certain Actions. Except as set forth on Schedule 3.16,
since the Balance Sheet Date, the Company has not: (a) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock; (b) incurred any indebtedness for money
borrowed or incurred any other liabilities individually in excess of $5,000 or
in excess of $10,000 in the aggregate; (c) made any loans or advances to any
person, other than ordinary advances for travel expenses; (d) sold, exchanged or
otherwise disposed of any material assets or rights other than the sale of
inventory in the ordinary course of its business; or (d) entered into any
transactions with any of its officers, directors or employees or any entity
controlled by any of such individuals.
3.17 Activities Since Balance Sheet Date. Except as set forth
on Schedule 3.17, since the Balance Sheet Date, the Company has not:
(a) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture, or other entity;
(b) written up, written down, or written off the book
value of any amount of assets;
(c) declared, paid, or set aside for payment any dividend
or distribution with respect to its capital stock;
(d) redeemed, purchased, or otherwise acquired, or sold,
granted, or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to changes in the terms and conditions of any such rights;
(e) increased the compensation of or paid or accrued any
bonus to any employee or contributed or accrued or contributed to any employee
benefit plan, other than in accordance with policies, practices, or requirements
established and in effect on the Balance Sheet Date;
(f) entered into any employment, compensation, consulting
or collective bargaining agreement with any person or group;
(g) entered into, adopted, or materially amended any
employee benefit plan; or
(h) entered into any other material commitment or
transaction not disclosed elsewhere herein.
In addition to the foregoing, since the Balance Sheet Date,
there has not been:
(i) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
presently conducted and as presently proposed to be conducted);
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(j) any waiver by the Company of a valuable right or of a
material debt owed to it;
(k) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except such a
satisfaction, discharge or payment made in the ordinary course of business that
is not material to the assets, properties, financial condition, operating
results or business of the Company;
(l) any material change or amendment to a material
agreement or arrangement by which the Company or any of its assets or properties
is bound or subject, except for changes or amendments which are expressly
provided for or disclosed in this Agreement; or
(m) to the Company's Knowledge, any other event or
condition of any character which would materially and adversely affect the
assets, properties, financial condition, operating results or business of the
Company.
3.18 Insurance. The Company has in full force and effect fire
and casualty insurance policies as is customary for the type of business engaged
in by the Company, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed. True and complete copies of all such insurance policies
have previously been furnished to the Investor and notice of any termination or
threatened termination of such policies has been made known to the Investor.
3.19 Tax Returns and Payments. Neither the Company, nor any
entity to whose liabilities the Company has succeeded or assumed, has filed or
been included in a consolidated, unitary, or combined tax return with another
person. Except as set forth on Schedule 3.19, the Company represents and
warrants that: (a) the Company has filed all tax returns and reports required to
have been filed by or for it; including but not limited to those with respect to
income, payroll, property, employee withholding, social security, unemployment,
franchise, excise, use, and sales taxes, and has either paid in full all taxes
that have become due as reflected on any such return or report (including any
interest and penalties with respect thereto shown to be due) or has fully
accrued on its books or has established adequate reserves for all taxes payable
but not yet due; (b) all material information set forth in such returns or
reports is accurate and complete; (c) the Company has paid or made adequate
provision for all taxes, additions to tax, penalties, and interest payable by
the Company; (d) to the best of the Company's Knowledge, no unpaid tax
deficiency has been asserted against or with respect to the Company by any
taxing authority, and the Company has not received written notice of any such
assertion; (e) the Company has collected or withheld all amounts required to be
collected or withheld by it for any taxes, and to the extent required by law,
all such amounts have been paid to the appropriate governmental agencies or set
aside in appropriate accounts for future payment when due; (f) the Company is in
compliance with, and its records contain all information and documents necessary
to comply with, all applicable information reporting and tax withholding
requirements; (g) the balance sheets contained in the Company Financial
Statements fully and properly reflect, as of the dates thereof, the liabilities
of the Company for all accrued taxes, additions to tax, penalties, and interest;
(h) for periods ending after the date of the most recent Financial Statements,
the books and records of the Company fully and properly reflect its liability
for all accrued taxes, additions to tax, penalties, and interest; (i) the
Company has not granted, nor is it subject to, any waiver of the period of
limitations for the assessment of tax for any currently open taxable period; (j)
the Company has not made or entered into, and holds no asset subject to, a
consent filed pursuant to Section 341(f) of the Code and the regulations
thereunder or a "safe harbor lease" subject to former Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended before the Tax Reform Act of 1986, and
the regulations thereunder; (k) the Company is not required to include in income
any amount for an adjustment pursuant to Section 481 of the Code or the
regulations thereunder; and (l) the Company is not a party to, or obligated
under, any agreement or other arrangement providing for the payment of any
amount that would be an "excess parachute payment" under Section 280G of the
Code.
10
3.20 Employment Related Matters.
(a) The Company is not bound by or subject to any
contract, commitment or arrangement with any labor union, and to the Company's
Knowledge, no labor union has requested, sought or attempted to represent any
employees, representatives or agents of the Company. There is no strike or other
labor dispute involving the Company pending nor, to the Company's Knowledge,
threatened, nor is the Company aware of any labor organization activity
involving its employees.
(b) The Company is not aware that any officer or
employee intends to terminate his or her employment with the Company, nor does
the Company have any present intention to terminate the employment of any of its
officers or employees. Schedule 3.20(b) identifies all employees and consultants
of the Company and the title, term (if other than at will) and compensation of
each.
(c) After due inquiry, to the Company's Knowledge,
the Company (i) is in full compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, and
wages and hours; (ii) is in full compliance with all of its obligations under
applicable workers compensation laws, rules, and regulations; and (iii) is not
engaged in any unfair labor practice.
(d) To the Company's Knowledge, no current employee,
director or officer has been indicted or convicted of a felony or misdemeanor
(other than traffic violations).
(e) Schedule 3.20(e) identifies all employee benefit
plans or arrangements applicable to the employees of the Company, and all
material fixed or contingent liabilities or obligations of the Company with
respect to any person now or formerly employed by the Company, including pension
or thrift plans, individual or supplemental pension or accrued compensation
arrangements, contributions to hospitalization or other health or life insurance
programs, incentive plans, bonus arrangements, and vacation, sick leave,
disability, and termination arrangements or policies, including workers'
compensation policies. The Company shall furnish or make available to the
Investor true and complete copies of all written documents or information with
respect to employee matters and arrangements, including without limitation all
employee handbooks, rules, policies, plan documents, trust agreements,
employment agreements, summary plan descriptions, and descriptions of any
unwritten plans identified in Schedule 3.20(e). Any employee benefits and
welfare plans or arrangements identified in Schedule 3.20(e) were established
and have been executed, managed, and administered without material exception in
accordance with all applicable requirements of the Internal Revenue Code of
1986, as amended (the "Code"), and the Employee Retirement Income Security Act
of 1974, as amended, and other applicable laws. There is no governmental audit
or examination of any of such plans or arrangements pending, nor, to the
Knowledge of the Company, threatened. There exists no action, suit, or claim
(other than routine claims for benefits) with respect to any of such plans or
arrangements pending, or, to the Knowledge of the Company, threatened, against
any of such plans or arrangements, and the Company knows of no facts which could
give rise to any such action, suit, or claim.
3.21 Interested Party Transactions. To the Company's Knowledge,
(a) Except as set forth in Schedule 3.21 hereto, no
officer, employee or director of the Company or any "affiliate" or "associate"
(as those terms are defined in Rule 405 of the 0000 Xxx) has had, either
directly or indirectly, a material interest in: (i) any person or entity which
purchases from or sells, licenses or furnishes to the Company any goods,
property, technology, intellectual or other property rights or services; or (ii)
any contract or agreement to which the Company is a party or by which it may be
bound or affected.
(b) the Company has no indebtedness to or with an
officer, employee, director, affiliate or associate.
11
3.22 Disclosure. This Agreement and the Schedules and Exhibits
hereto (when read together) do not contain any untrue statement of a material
fact and do not omit to state a material fact necessary to make the statements
therein or herein not misleading. To the Company's Knowledge, the operating
budgets attached hereto as Schedule 3.22, ( the "Operating Budgets"), fairly
present its management's good faith estimates as of the dates of the Operating
Budgets and as of the date of this Agreement. The Investor acknowledges that the
Operating Budgets have not been audited or reviewed and consist primarily of
financial projections which represent management's best good faith assessments
of the market's potential at the time of preparation and that actual results may
differ materially due to risks and uncertainties.
3.23 Real Property Holding Corporation Status. Since its
inception, the Company has not been a "United States real property holding
corporation", as defined in Section 897(c)(2) of the Code, and in Section
1.897-2(b) of the Treasury Regulations issued thereunder (the "Regulations"),
and the Company has filed with the Internal Revenue Service all statements, if
any, with its United States income tax returns which are required under Section
1.897-2(h) of the Regulations.
3.24 Tax Elections. The Company has not elected pursuant to
the Code, to be treated as an "S" corporation or a collapsible corporation
pursuant to Section 341(f) or Section 1362(a) of the Code, nor has it made any
other elections pursuant to the Code (other than elections which relate solely
to matters of accounting, depreciation or amortization) which would have a
material affect on the Company, its financial condition, its business as
presently conducted or presently properties or material assets.
3.25 No Material Undisclosed Liabilities.
(a) There is no liability or obligation of the
Company of any nature, whether absolute, accrued, contingent, or otherwise, in
the amount of $5,000 or more individually, or $10,000 or more in the aggregate,
other than:
(i) the liabilities and obligations that are
fully reflected, accrued or reserved against on the balance sheets of the
Financial Statements, for which the reserves are appropriate and reasonable, or
incurred in the ordinary course of business and consistent with past practices;
(ii) the contractual obligations disclosed
on Schedules 3.11; and
(iii) the litigation and claims described on
Schedule 3.7.
(b) The Company is not signatory to, and is not in
any manner a guarantor, endorser, assumptor or otherwise primarily or
secondarily liable for or responsible for the payment of, any notes payable or
other obligations other than those set forth in the Financial Statements.
3.26 Accounts Receivable. The accounts receivable of the
Company reflected on the Financial Statements represent usual, customary and
reasonable charges for services actually rendered or equipment and supplies sold
and delivered, are valid and enforceable claims for services rendered and/or
goods supplied by the Company and are not subject to any defenses, offsets,
claims or counterclaims of any kind. To the best of the Company's knowledge,
such receivables are current and collectible net of any reserves shown in the
Financial Statements (which reserves are adequate and were calculated consistent
with past practice).
3.27 Product and Services Warranties. Schedule 3.27 hereto
lists (i) product warranty claims made against the Company which, in the
aggregate, exceed $10,000, (ii) the cost of satisfying such claims, and (iii)
the cost of servicing products and making adjustments or providing replacements
with respect to returned products. The Company is not aware of any additional
pending or threatened product warranty claims in excess of the aggregate amount
of $10,000 or any basis upon which product warranty claims could be based. There
are no design or other defects that could give rise to future product warranty
claims. Adequate reserves have been provided for by the Company to cover its
product warranty liability.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTOR. The
Investor hereby represents and warrants to, and agrees with, the Company that:
4.1 Authorization. This Agreement constitutes the Investor's
valid and legally binding obligation, enforceable in accordance with its terms
except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (ii) the effect of rules of law
governing the availability of equitable remedies. The Investor represents that
it has full power and authority to enter into this Agreement and the Related
Agreements.
12
4.2 Purchase for Own Account. The Purchased Shares to be
purchased by the Investor hereunder will be acquired for investment for the
Investor's own account, not as a nominee or agent, and not with a view to the
public resale or distribution thereof within the meaning of the Act, and the
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. The Investor also represents that it has not
been formed for the specific purpose of acquiring the Purchased Shares.
4.3 Disclosure of Information. The Investor has received or
has had full access to all the information it considers necessary or appropriate
to make an informed investment decision with respect to the Purchased Shares to
be purchased by the Investor under this Agreement. The Investor further has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Purchased Shares and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Investor or to which the Investor had access. The
foregoing, however, does not in any way limit or modify the representations and
warranties made by the Company in Section 3.
4.4 Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Regulation D promulgated under the Act.
4.5 Investment Experience. The Investor understands that the
acquisition of the Purchased Shares involves substantial risk. The Investor: (i)
has experience as an investor in securities of companies in the development
stage and acknowledges that it is able to fend for itself, can bear the economic
risk of its acquisition of the Purchased Shares and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of this acquisition of the Purchased Shares and protecting its
own interests in connection with this acquisition and/or (ii) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables the
Investor to be aware of the character, business acumen and financial
circumstances of such persons.
4.6 Restricted Securities. The Investor understands that the
Purchased Shares are characterized as "restricted securities" under the Act
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under the Act and applicable rules and
regulations thereunder such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection, the Investor
represents that it is familiar with Rule 144 of the rules and regulations
promulgated under the Act ("Rule 144"), as presently in effect, and understands
the resale limitations imposed thereby and by the Act. The Investor understands
that the Company is under no obligation to register any of the securities sold
hereunder except as provided in the Investor Rights Agreement. The Investor
understands that no public market now exists for any of the Purchased Shares and
that it is uncertain whether a public market will ever exist for the Purchased
Shares or the Conversion Shares.
4.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Purchased Shares or the
Conversion Shares unless and until:
(a) there is then in effect a registration statement
under the 1933 Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) (i) the Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (ii)
the Investor shall have furnished the Company, at the expense of the Investor or
its transferees, with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the Act.
Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be required
for any transfer of any Purchased Shares or Conversion Shares by the Investor to
(i) an affiliate, officer, director or stockholder of Investor, (ii) a retired
officer of Investor who retires after the date hereof, or (iii) the estate of
any such officer; provided that in each of the foregoing cases the transferee
agrees in writing to be subject to the terms of this Section 4 (other than
Section 4.4) to the same extent as if the transferee were an original Investor
hereunder.
13
4.8 Legends. It is understood that the certificates evidencing
the Purchased Shares and the Conversion Shares will bear the legends set forth
below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
(b) Any legend required by state securities laws,
including a legend substantially in the form of the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE: (1) ARE CONVERTIBLE
INTO SHARES OF COMMON STOCK OF THE COMPANY AT THE OPTION OF THE HOLDER
AT ANY TIME PRIOR TO AUTOMATIC CONVERSION THEREOF; AND (2)
AUTOMATICALLY CONVERT INTO COMMON STOCK OF THE COMPANY IN THE EVENT OF
A PUBLIC OFFERING MEETING CERTAIN REQUIREMENTS OR UPON CERTAIN CONSENTS
OF THE HOLDERS OF THE COMPANY'S PREFERRED STOCK ALL PURSUANT TO AND
UPON THE TERMS AND CONDITIONS SPECIFIED IN THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION. A COPY OF SUCH RESTATED CERTIFICATE OF
INCORPORATION MAY BE OBTAINED, WITHOUT CHARGE, AT THE COMPANY'S
PRINCIPAL OFFICE.
The legend set forth in (a) above shall be removed by the Company from
any certificate evidencing Purchased Shares or Conversion Shares upon delivery
to the Company of an opinion by counsel, reasonably satisfactory to the Company,
that a registration statement under the Act is at that time in effect with
respect to the legended security or that such security can be freely transferred
in a public sale without such a registration statement being in effect and that
such transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Company issued the Purchased Shares or Conversion Shares.
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
the Investor to the Company under this Agreement are subject to the fulfillment
or waiver, on or before each Closing, of each of the following conditions, the
waiver of which shall not be effective against the Investor if the Investor does
not consent to such waiver, which consent may be given by written communication
to the Company or its counsel, provided that, the conditions set forth in
Section 5.21 shall only apply to the Second Closing and the conditions set forth
in Section 5.22 shall only apply to the Third Closing:
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 Due Diligence. The Investor shall have completed, to its
sole satisfaction, its due diligence of the Company.
5.3 Employee Confidentiality Agreements. As provided in
Section 3.8 above, the Company shall have furnished the Investor with copies of
the Employee Intellectual Property Covenants signed by each employee, officer,
consultant or contractor of the Company identified on Schedule 3.8, or a copy of
any such employee's or officer's employment agreement.
5.4 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.5 Restated Certificate of Incorporation. The Certificate
shall have been duly adopted by the Company by all necessary corporate action of
its Board of Directors and stockholders, and shall have been duly filed with and
accepted by the Delaware Secretary of State.
5.6 Compliance Certificate. The Company shall have delivered
to the Investor at the Closing a certificate signed on its behalf by its
President, Chief Executive Officer, or Chief Financial Officer certifying that
the conditions specified in Section 5.1 and Sections 5.3 through 5.5 have been
fulfilled and stating that there shall have been no material adverse change in
the business, affairs, prospects, operations, properties, assets or condition of
the Company.
14
5.7 Securities Exemptions. The offer and sale of the Purchased
Shares to the Investor pursuant to this Agreement shall be exempt from the
registration requirements of the Act and the registration and/or qualification
requirements of all other applicable state securities laws.
5.8 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor and to the counsel for the Investor, and they shall
each have received all such counterpart originals and certified or other copies
of such documents as they may reasonably request. Such documents shall include
(but not be limited to) the following:
(a) Certified Charter Documents. A copy of the
Certificate and Bylaws of the Company (as amended through the date of the
Closing), certified by the Secretary or Assistant Secretary of the Company as
true and correct copies thereof as of the Closing.
(b) Secretary's Incumbency Certificate. A certificate
of the Secretary or an Assistant Secretary or other officer of the Company
certifying the names of the officers of the Company authorized to sign this
Agreement, the certificates for the Purchased Shares and the other documents,
instruments or certificates to be delivered pursuant to this Agreement by the
Company or any of its officers, together with the true signatures of such
officers.
(c) Corporate Actions. A copy of the resolutions of
the Board of Directors and the stockholders of the Company evidencing the
approval of the Certificate, the approval of this Agreement, the Related
Agreements, the issuance of the Purchased Shares and the other matters
contemplated hereby, certified by the Secretary or the Assistant Secretary of
the Company to be true, complete and correct.
(d) Good Standing Certificates. A certificate of good
standing of the Company issued by the Delaware Secretary of State, dated no
earlier than ten (10) days prior to the date of Closing.
5.9 Ownership of Technology. The Investor shall have received
from the Company all documents and other materials requested by the Investor in
writing for the purpose of examining and determining the Company's rights in and
to any technology, product and Proprietary Assets now used, proposed to be used
in, or necessary to, the Company's business as now conducted and proposed to be
conducted, and the status of the Company's ownership rights in and to all such
technology, products and Proprietary Assets shall be reasonably satisfactory to
the Investor.
5.10 Board of Directors. All appropriate action shall be taken
to ensure that the Company's Board of Directors consists of: Xxxxxx Xxxxxxxxx,
Xxxxxxx Xxxxx Xxxxx and Xxxxxxx Xxxx following the Closing.
5.11 Officers' Certificates. The Company shall deliver to the
Investor certificates executed by each of its officers and directors in which
each of them represents that he or she (i) has not made a personal filing or
been an officer or director, partner or member of an entity that has filed an
action seeking protection under the Bankruptcy Code of the United States of
America or analogous law of any jurisdiction not subject to the laws of the
United States of America during the past seven (7) years and (ii) has never been
convicted of any action that is defined as a crime that would adversely affect
the company or its public image or would be required to be disclosed under
Paragraph 401(f) of Regulation S-K under the Act.
5.12 No Material Change. There shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company.
5.13 Opinion of Company Counsel. The Investor shall have
received an opinion from Xxxxxxxx Xxxxxxx Xxxxxxxx Xxxxxx & Israel PC, counsel
for the Company, dated as of the date of the Closing, in form satisfactory to
the Investor and its counsel.
5.14 Investor Rights Agreement. The Company and the Investor
shall have executed and delivered the Investor Rights Agreement in the form
attached to this Agreement as Exhibit C (the "Investor Rights Agreement").
15
5.15 Stockholders' Agreement. The Company, the stockholders of
the Company named therein and the Investor shall have executed and delivered the
Stockholders' Agreement in the form attached as Exhibit D (the "Stockholder's
Agreement").
5.16 Authorization of Capital Stock. The Company shall have
amended its Certificate of Incorporation to authorize the issuance of up to Nine
Million Five Hundred Thousand (9,500,000) shares of blank check preferred stock
and Thirteen Million Five Hundred Thousand (13,500,000) shares of common stock.
5.17 Payment of Expenses. The Company shall have paid the
costs and expenses incurred by the Investor as described in Section 7.10 of this
Agreement.
5.18 Operating Budget. The Company shall provide the Investor
with operating and capital budgets for the calendar years 2000 and 2001 which
are acceptable to the Investor.
5.19 Consents. The Company shall have delivered to the
Investor all necessary third party consents to this transaction, including
without limitation, the consent of the holders of the Company's Series A
Convertible Preferred Stock.
5.20 No Defaults. The Company shall not be in default on any
agreement to which it is a party, including, but not limited to, any agreements,
which it has entered into with the holders of the Series A Convertible Preferred
Stock.
5.21 Conditions to the Second Closing.
(a) No Litigation. No litigation, statute, rule,
regulation, executive order, decree, ruling, injunction, action or proceeding
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby that
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
(b) No Changes In Business. There shall have been no
changes and no developments in the business, properties, operations, financial
conditions, results of operations or publicly announced prospects of the Company
and its subsidiaries, taken as a whole, which have had or will have a material
adverse effect on the business operations, financial condition or prospects of
the Company, since the date hereof, and no information, of which the Investor is
not currently aware, shall come to the attention of the Investor that is
materially adverse to the Company.
(c) Completion of the First Closing. The First
Closing shall have occurred.
(d) Investor's Election. The Investor, in its sole
discretion, has elected to conduct a Second Closing by written notice to the
Company.
5.22 Conditions to the Third Closing.
(a) No Litigation. No litigation, statute, rule,
regulation, executive order, decree, ruling, injunction, action or proceeding
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby that
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
(b) No Changes In Business. There shall have been no
changes and no developments in the business, properties, operations, financial
conditions, results of operations or publicly announced prospects of the Company
and its subsidiaries, taken as a whole, which have had or will have a material
adverse effect on the business operations, financial condition or prospects of
the Company, since the date hereof, and no information, of which the Investor is
not currently aware, shall come to the attention of the Investor that is
materially adverse to the Company.
(c) Completion of the First and Second Closings. The
First and Second Closings shall have occurred.
(d) Investor's Election. The Investor, in its sole
discretion, has elected to conduct a Third Closing by written notice to the
Company.
16
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment or waiver, on or before each Closing, of each of the following
conditions, the waiver of which shall not be effective against the Company if
the Company does not consent to such waiver, which consent may be given by
written communication to the Investor or its counsel, provided that, the
conditions set forth in Section 6.8 shall only apply to the Second Closing and
the conditions set forth in Section 6.9 shall only apply to the Third Closing:
6.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 4 shall be true and correct on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. In connection with the First
Closing, the Investor shall have delivered to the Company (i) Three Hundred
Thousand dollars ($300,000), and (ii) the Promissory Notes marked "Cancelled,"
the cancellation of which (including accrued interest thereof of $133,945) shall
be applied to payment of the purchase price in accordance with the provisions of
Section 2.
6.3 Restated Certificate of Incorporation. The Certificate
shall each have been duly adopted by the Company by all necessary corporate
action of its Board of Directors and stockholders, and shall have been duly
filed with and accepted by the Delaware Secretary of State.
6.4 Securities Exemptions. The offer and sale of the Purchased
Shares to the Investor pursuant to this Agreement shall be exempt from the
registration requirements of the Act and the registration and/or qualification
requirements of all other applicable state securities laws.
6.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel, and the Company
shall have received all such counterpart originals and certified or other copies
of such documents as it may reasonably request.
6.6 Investor Rights Agreement. The Company and the Investor
shall have executed and delivered the Investor Rights Agreement.
6.7 Stockholder's Agreement. The Company, the stockholders of
the Company named therein and the Investor shall have executed and delivered the
Stockholder's Agreement.
6.8 Conditions to the Second Closing.
(a) Payment of Purchase Price. The Investor shall
have delivered to the Company $550,000.
(b) Completion of the First Closing. The First
Closing shall have occurred.
6.9 Conditions to the Third Closing.
(a) Payment of Purchase Price. The Investor shall
have delivered to the Company $550,000.
(b) Completion of the First and Second Closings. The
First and Second Closings shall have occurred.
7. MISCELLANEOUS.
7.1 Survival of Warranties. The representations, warranties
and covenants of the Company and the Investor contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investor, its counsel or the Company,
as the case may be.
7.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
7.3 Governing Law; Venue; Waiver of Jury Trial. This Agreement
and the Related Agreements shall be governed by and construed under the internal
laws of the State of Delaware, without reference to principles of conflict of
laws or choice of laws. The venue for any claim, controversy or dispute which
arises between the parties hereto (with respect to this Agreement or any Related
Agreement) shall be the United States District Court for the District of
Delaware (or state court if federal jurisdiction does not apply) and the parties
hereby consent to the jurisdiction of such courts and waive any objection to
such venue. THE PARTIES TO THIS AGREEMENT HEREBY WAIVE THEIR RIGHT TO A TRIAL BY
JURY WITH RESPECT TO DISPUTES ARISING UNDER THIS AGREEMENT AND THE RELATED
AGREEMENTS AND CONSENT TO A BENCH TRIAL WITH THE APPROPRIATE JUDGE ACTING AS THE
FINDER OF FACT.
17
7.4 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.
7.5 Headings. The headings and captions used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
7.6 Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or if deposited in the U.S. mail by
registered or certified mail, return receipt requested, postage prepaid, as
follows:
If to the Investor: Net Value Holdings, Inc.
0 Xxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx, Esquire
with a copy (which shall not constitute notice hereunder)
to each of:
Klehr, Harrison, Xxxxxx, Branzburg &
Xxxxxx, LLP
000 X. Xxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxx, Esq.
Net Value Holdings, Inc.
0000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxx
If to the Company: XxxxXx.xxx, Inc.
Five Clock Xxxxx Xxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxxx Xxxxxx, Chief Financial
Officer
with a copy (which shall not constitute notice hereunder) to:
Erickson, Schaeffer, Xxxxxxxx, Xxxxxx &
Israel, PC
00 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxx, Esquire
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the mail in the manner set forth above.
7.7 No Finder's Fees. Neither the Investor, the Company, or
any officer, director, or employee of the Investor or the Company (i) employed
any broker or finder, or (ii) incurred any liability whatsoever, for any
brokerage fees, commissions, or finders' fees in connection with the
transactions contemplated hereby. The Investor agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' or broker's fee (and any asserted liability) for which
the Investor or any of its officers, partners, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless the Investor from
any liability for any commission or compensation in the nature of a finder's or
broker's fee (and any asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.8 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Related
Agreements or the Certificate, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
7.9 Costs, Expenses. The Company shall pay, or reimburse the
Investor, for all costs and out-of pocket expenses of the Investor incurred in
connection with (i) the Investor's due diligence performed in connection with
its proposed investment in the Company; and (ii) the negotiation, preparation,
execution and delivery of this Agreement, the Related Agreements, the
Certificate (including without limitation, the fees and expenses of counsel to
the Investor), such fees and expenses not to exceed $20,000.
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7.10 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 Investor.
Any amendment or waiver effected in accordance with this Section 7.10 shall be
binding upon each holder of any Purchased Shares and/or Conversion Shares at the
time outstanding, each future holder of such securities, and the Company.
7.11 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
7.12 Entire Agreement. This Agreement, together with all
exhibits and schedules hereto, constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings duties or obligations between the parties with respect to the
subject matter hereof.
7.13 Further Assurances. From and after the date of this
Agreement, upon the request of the Investor or the Company, the Company and the
Investor shall execute and deliver such instruments, documents or other writings
as may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.
7.14 Mutual Drafting. This Agreement is the result of the
joint efforts of the Company and the Investor, and each provision hereof has
been subject to the mutual consultation, negotiation and agreement of the
parties and there shall be no construction against any party based on any
presumption of the party's involvement in the drafting thereof.
7.15 Indemnification. The Company shall defend, indemnify and
hold the Investor harmless from and against any and all claims, liabilities,
damages, losses and expenses, including reasonable attorney's fees and expenses
and costs of suit (collectively, "Losses"), arising out of any and all
inaccurate representations and warranties and out of any and all breaches of
covenants, warranties, stipulations, agreements and certifications made by or on
behalf of the Company in this Agreement, the Investor Rights Agreement, the
Stockholders Agreement or in any document delivered hereunder or thereunder (for
the purposes hereof, a "Breach"). In addition to, but not to the exclusion of,
any remedies under common law or statutory law, or as provided elsewhere in this
Agreement, the Investor shall have the following remedies:
(a) In the event of a Breach, the Company shall, at
the election of the Investor, designate and issue additional shares of Series B
Stock and Series C Stock to the Investor so that immediately following the
completion of the transactions contemplated by this Agreement, the Investor
shall hold that percentage of the Common Stock of the Company on a fully diluted
basis, accounting for the Breach, as calculated in the following manner:
(i) subtracting the value of the Losses from
$10,000,000;
(ii) adding the Aggregate Purchase Price to
the difference obtained in (i); and
(iii) dividing the Aggregate Purchase Price
by the sum obtained in (ii).
The allocation of the additional shares to
be issued in the event of a Breach shall be made pro rata based on the number of
shares of Series B Stock and the number of shares of Series C Stock held by the
Investor at the time of the Breach.
By way of example, in the case of a Breach
in the amount of $1,000,000 and an Aggregate Purchase Price of $5,200,000, the
Investor should hold 36.62% of the securities of the Company on a fully diluted
basis:
($5,200,000 / ($9,000,000 + $5,200,000) =
36.62%
(b) In the event that the Investor brings legal
action to enforce its rights under this Agreement, the Company shall reimburse
the Investor for all of its costs and expenses, including reasonable attorneys
fees, for bringing such an action should the Investor prevail in the action.
7.16 Use of Proceeds. The Company shall use the proceeds from the sale
of the Purchased Shares for the purposes identified on Schedule 7.16.
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IN WITNESS WHEREOF, the parties hereto have executed this Preferred
Stock Purchase Agreement as of the date first above written.
THE COMPANY:
XXXXXX.XXX, INC.,
a Delaware corporation
By: __________________________
Xxxxxx Xxxxxx
Chief Financial Officer
THE INVESTOR:
NET VALUE HOLDINGS, INC.,
a Delaware corporation
By: ________________________
Xxxxxx X. Xxxxx
Chief Executive Officer
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LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
Schedule 3.2(c) Outstanding Warrants, Options and Reserved Shares
Schedule 3.2(d) Outstanding Security Holders
Schedule 3.7 Litigation
Schedule 3.8 Key Employees
Schedule 3.9(a) Ownership of Proprietary Assets
Schedule 3.9(b) Licenses, Other Agreements relating to Proprietary Assets
Schedule 3.11 List of Material Contracts
Schedule 3.15A Year End Financial Statements
Schedule 3.15B Interim Financial Statements
Schedule 3.16 Certain Actions
Schedule 3.17 Activities Since Balance Sheet Date
Schedule 3.19 Tax Matters
Schedule 3.20(b) Employees and Consultants
Schedule 3.20(e) ERISA Plans
Schedule 3.22 Business Plan
Schedule 3.27 Product and Services Warranties
Schedule 7.16 Use of Proceeds
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EXHIBITS
Exhibit A Restated Certificate of Incorporation
Exhibit B Form of Employee Intellectual Property Covenants
Exhibit C Form of Investor Rights Agreement
Exhibit D Form of Stockholders' Agreement
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