SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT Dated as of June 13, 2007 among BPO MANAGEMENT SERVICES, INC. and THE PURCHASERS LISTED ON EXHIBIT A
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated
as of June 13, 2007
among
BPO
MANAGEMENT SERVICES, INC.
and
THE
PURCHASERS LISTED ON EXHIBIT A
TABLE
OF CONTENTS
Page
|
ARTICLE
I PURCHASE AND SALE OF PREFERRED STOCK
|
1
|
|
|
1.1
|
Purchase
and Sale of Stock
|
1
|
|
1.2
|
Warrants
|
1
|
|
1.3
|
Conversion
Shares
|
2
|
|
1.4
|
Purchase
Price and Closing
|
2
|
|
ARTICLE
II REPRESENTATIONS AND WARRANTIES
|
3
|
|
|
2.1
|
Representations
and Warranties of the Company
|
3
|
|
2.2
|
Representations
and Warranties of the Purchasers
|
18
|
|
ARTICLE
III COVENANTS
|
20
|
|
|
3.1
|
Securities
Compliance
|
20
|
|
3.2
|
Registration
and Listing
|
20
|
|
3.3
|
Inspection
Rights
|
21
|
|
3.4
|
Compliance
with Laws
|
21
|
|
3.5
|
Keeping
of Records and Books of Account
|
21
|
|
3.6
|
Reporting
Requirements
|
21
|
|
3.7
|
Amendments
|
22
|
|
3.8
|
Other
Agreements
|
22
|
|
3.9
|
Distributions
|
22
|
|
3.10
|
Status
of Dividends
|
22
|
|
3.11
|
Use
of Proceeds
|
23
|
|
3.12
|
Indebtedness
|
24
|
|
3.13
|
Reservation
of Shares
|
24
|
|
3.14
|
Transfer
Agent Instructions
|
24
|
|
3.15
|
Disposition
of Assets
|
25
|
|
3.16
|
Reporting
Status
|
25
|
|
3.17
|
Disclosure
of Transaction
|
25
|
|
3.18
|
Disclosure
of Material Information
|
25
|
|
3.19
|
Pledge
of Securities
|
26
|
|
3.20
|
Form
SB-2 Eligibility
|
26
|
|
3.21
|
Lock-Up
Agreement
|
26
|
|
3.22
|
DTC
Status
|
26
|
|
3.23
|
Variable
Rate Transactions; Additional Registration Statements
|
26
|
|
3.24
|
Financial
Covenants
|
27
|
|
ARTICLE
IV CONDITIONS
|
30
|
|
|
4.1
|
Conditions
Precedent to the Obligation of the Company to Sell the
Shares
|
30
|
|
4.2
|
Conditions
Precedent to the Obligation of the Purchasers to Purchase the
Shares
|
30
|
|
ARTICLE
V STOCK CERTIFICATE LEGEND
|
33
|
|
|
5.1
|
Legend
|
33
|
|
ARTICLE
VI RIGHTS OF FIRST OFFER
|
1
|
|
|
6.1
|
Subsequent
Offerings
|
1
|
|
6.2
|
Exercise
of Rights
|
1
|
|
6.3
|
Issuance
of Equity Securities to Other Persons
|
1
|
|
6.4
|
Termination
and Waiver of Rights of First Offer
|
2
|
|
6.5
|
Excluded
Securities
|
2
|
|
ARTICLE
VII INDEMNIFICATION
|
3
|
|
|
7.1
|
Company
Indemnity
|
3
|
|
7.2
|
Indemnification
Procedure
|
3
|
|
ARTICLE
VIII TRIGGERING EVENTS
|
4
|
|
|
8.1
|
Enforceability
of Certificate of Designation
|
4
|
|
8.2
|
Waiver
of Triggering Event
|
4
|
|
8.3
|
Officers'
Certificate
|
4
|
|
ARTICLE
IX MISCELLANEOUS
|
5
|
|
|
9.1
|
Fees
and Expenses
|
5
|
|
9.2
|
Specific
Enforcement, Consent to Jurisdiction
|
5
|
|
9.3
|
Entire
Agreement; Amendment
|
6
|
|
9.4
|
Notices
|
6
|
|
9.5
|
Waivers
|
7
|
|
9.6
|
Headings
|
7
|
|
9.7
|
Successors
and Assigns
|
7
|
|
9.8
|
No
Third Party Beneficiaries
|
7
|
|
9.9
|
Governing
Law
|
7
|
|
9.10
|
Survival
|
8
|
|
9.11
|
Counterparts
|
8
|
|
9.12
|
Publicity
|
8
|
|
9.13
|
Severability
|
8
|
|
9.14
|
Further
Assurances
|
8
|
|
9.15
|
2007
Management Option Plan
|
8
|
This
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement")
is
dated as of June 13, 2007 by and among BPO Management Services, Inc., a Delaware
corporation (the "Company"),
and
each of the Purchasers of shares of Series D Convertible Preferred Stock of
the
Company whose names are set forth on Exhibit
A
hereto
(individually, a "Purchaser"
and
collectively, the "Purchasers").
The
parties hereto agree as follows:
ARTICLE
I
PURCHASE
AND SALE OF PREFERRED STOCK
1.1 Purchase
and Sale of Stock.
Upon
the following terms and conditions, the Company shall issue and sell to the
Purchasers and each of the Purchasers shall purchase from the Company, the
number of shares of the Company's Series D Convertible Preferred Stock, par
value $0.01 per share and stated value of $9.60 per share (the "Preferred
Shares"),
each
Preferred Share initially convertible into shares of the Company's common stock,
par value $0.01 per share (the "Common
Stock")
at the
Conversion Price (as defined in the Certificate of Designation (as defined
below)), which shall initially be $0.60, subject to adjustment as set forth
therein, in the amounts set forth opposite such Purchaser's name on Exhibit
A
hereto. The designation, rights, preferences and other terms and provisions
of
the Series D Convertible Preferred Stock are set forth in the Certificate of
Designation of the Relative Rights and Preferences of the Series D Convertible
Preferred Stock attached hereto as Exhibit B (the "Certificate
of Designation").
The
Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("Regulation
D")
as
promulgated by the United States Securities and Exchange Commission (the
"Commission")
under
the Securities Act of 1933, as amended (the "Securities
Act")
or
Section 4(2) of the Securities Act.
1.2 Warrants.
Upon
the following terms and conditions and for no additional consideration, each
of
the Purchasers shall be issued (i) Series A Warrants, in substantially the
form
attached hereto as Exhibit
C-1
(the
"Series
A Warrants"),
each
to purchase the number of shares of Common Stock equal to fifty percent (50%)
of
the number of shares of Common Stock into which the Preferred Shares purchased
by each Purchaser pursuant to the terms of this Agreement are convertible,
as
set forth opposite such Purchaser's name on Exhibit
A
hereto,
(ii) Series B Warrants, in substantially the form attached hereto as
Exhibit
C-2
(the
"Series
B Warrants"),
each
to purchase the number of shares of Common Stock equal to one hundred percent
(100%) of the number of shares of Common Stock into which the Preferred Shares
purchased by each Purchaser pursuant to the terms of this Agreement are
convertible, as set forth opposite such Purchaser's name on Exhibit
A
hereto,
(iii) Series J Warrants, in substantially the form attached hereto as
Exhibit
C-3
(the
"Series
J Warrants"),
to
purchase the number of shares of the Company's Series D-2
-1-
Convertible
Preferred Stock (the "J
Warrant Shares"),
each
J Warrant Share with a stated value of $14.40 per share, each share of which
will be convertible into common stock at the conversion price set forth in
the
Series D-2 Certificate of Designation, which shall initially be $0.90, subject
to adjustment as set forth therein, equal to one hundred percent (100%) of
the
number of Preferred Shares purchased by each Purchaser, as set forth opposite
such Purchaser's name on Exhibit
A
hereto,
(iv) Series C Warrants, in substantially the form attached hereto as
Exhibit
C-4
(the
"Series
C Warrants"),
to
purchase the number of shares of Common Stock equal to fifty percent (50%)
of
the number of shares of Common Stock into which the Preferred Shares purchased
by each Purchaser pursuant to the terms of this Agreement are convertible,
as
set forth opposite such Purchaser's name on Exhibit
A
hereto,
and (v) Series D Warrants, in substantially the form attached hereto as
Exhibit
C-5
(the
"Series
D Warrants"
and,
together with the Series A Warrants, the Series B Warrants, the Series J
Warrants and the Series C Warrants, the "Warrants"),
each
to purchase the number of shares of Common Stock equal to one hundred percent
(100%) of the number of shares of Common Stock into which the Preferred Shares
purchased by each Purchaser pursuant to the terms of this Agreement are
convertible, as set forth opposite such Purchaser's name on Exhibit
A
hereto.
Each of the Warrants shall have an exercise price per share equal to the Warrant
Price (as defined in the applicable Warrant) and shall expire as provided
therein.
The
designation, rights, preferences and other terms and provisions of the Series
D-2 Preferred Stock are set forth in the Certificate of Designation of the
Relative Rights and Preferences of the Series D-2 Convertible Preferred Stock
attached hereto as Exhibit
J
(the
"J
Warrant Shares Certificate of Designation").
1.3 Conversion
Shares.
The
Company has authorized and has reserved and covenants to continue to reserve,
free of preemptive rights and other similar contractual rights of stockholders,
a number of shares of Common Stock equal to one hundred twenty percent (120%)
of
the number of shares of Common Stock as shall from time to time be sufficient
to
effect the conversion of all of the Preferred Shares and exercise of the
Warrants then outstanding. Any shares of Common Stock or J Warrant Shares
issuable upon conversion of the Preferred Shares or exercise of the Warrants
(and such shares when issued) are herein referred to as the "Conversion
Shares"
and the
"Warrant
Shares",
respectively. The Preferred Shares, the Conversion Shares and the Warrant Shares
are collectively referred to as the "Shares".
1.4 Purchase
Price and Closing.
Subject
to the terms and conditions hereof, the Company agrees to issue and sell to
the
Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the Preferred
Shares and the Warrants for an aggregate purchase price of up to $14,000,000
(the "Purchase
Price").
The
Preferred Shares and Warrants shall be sold and funded in a single closing
(the
"Closing").
The
Closing shall take place on or about June 13, 2007 (the "Closing
Date"),
but
in no event later than June 30, 2007. The Closing shall take place at the
offices of Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP, 000 X. Xxxx Xxxxxx, 00xx
Xxxxx, Xxx Xxxxxxx, XX 00000 at 10:00 a.m., California time. Subject to the
terms and conditions of this Agreement, at the Closing the Company shall deliver
or cause to be delivered to each Purchaser (x) a certificate for the number
of
Preferred Shares set forth opposite the name of such Purchaser
-2-
on
Exhibit
A
hereto,
(y) its Warrants to purchase such number of shares of Common Stock as is set
forth opposite the name of such Purchaser on Exhibit
A
attached
hereto and (z) any other documents required to be delivered pursuant to Article
IV hereof. At the Closing, each Purchaser shall deliver its Purchase Price
by
wire transfer to an escrow account designated by the Escrow Agent (as defined
below).
The
Purchase Price shall be disbursed pursuant to the terms of the Escrow Agreement
(as defined in Section 2.1(b)).
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES
2.1 Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Purchasers, as of the date hereof
and the Closing Date (except as set forth on the Schedule of Exceptions attached
hereto with each numbered Schedule corresponding to the section number herein),
as follows:
(a) Organization,
Good Standing and Power.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite corporate power
to
own, lease and operate its properties and assets and to conduct its business
as
it is now being conducted. The Company does not have any subsidiaries except
as
set forth on Schedule
2.1(g)
hereto.
The Company and each such subsidiary is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified will not have a Material Adverse Effect (as
defined in Section 2.1(h) hereof) on the Company's financial
condition.
(b) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement in the form attached
hereto as Exhibit
D
(the
"Registration
Rights Agreement"),
the
Lock-Up Agreement (as defined in Section 3.21 hereof) in the form attached
hereto as Exhibit
E,
the
Escrow Agreement by and among the Company, the Purchasers and the escrow agent
named therein (the "Escrow
Agent"),
dated
as of the date hereof, substantially in the form of Exhibit
F
attached
hereto (the "Escrow
Agreement"),
the
Irrevocable Transfer Agent Instructions (as defined in Section 3.14), the
Certificate of Designation, and the Warrants (collectively, the "Transaction
Documents")
and to
issue and sell the Shares and the Warrants in accordance with the terms hereof.
The execution, delivery and performance of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby
and
thereby have been duly and validly authorized by all necessary corporate action,
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required. This Agreement has been duly executed and delivered
by the Company. The other Transaction Documents will have been duly executed
and
delivered by the Company at the Closing. Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
-3-
(c) Capitalization.
The
authorized capital stock of the Company and the shares thereof currently issued
and outstanding as of the date hereof are set forth on Schedule
2.1(c)
hereto.
All of the outstanding shares of the Common Stock and the Preferred Shares
have
been duly and validly authorized. Except as set forth on Schedule
2.1(c)
hereto,
no shares of Common Stock are entitled to preemptive rights or registration
rights and there are no outstanding options, warrants, scrip, rights to
subscribe to, call or commitments of any character whatsoever relating to,
or
securities or rights convertible into, any shares of capital stock of the
Company. There are no contracts, commitments, understandings, or arrangements
by
which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. The Company is not a party to any
agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. The Company is not a party
to,
and it has no knowledge of, any agreement restricting the voting or transfer
of
any shares of the capital stock of the Company. The offer and sale of all
capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to the Closing complied with all applicable Federal and
state securities laws, and no stockholder has a right of rescission or claim
for
damages with respect thereto. The Company has furnished or made available to
the
Purchasers true and correct copies of the Company's Certificate of Incorporation
as in effect on the date hereof (the "Certificate"),
and
the Company's Bylaws as in effect on the date hereof (the "Bylaws").
(d) Issuance
of Shares.
The
Preferred Shares to be issued and the Warrants to be granted at the Closing
have
been duly authorized by all necessary corporate action and the Preferred Shares,
when paid for or issued in accordance with the terms hereof, shall be validly
issued and outstanding, fully paid and nonassessable and entitled to the rights
and preferences set forth in the Certificate of Designation. When the Conversion
Shares and the Warrant Shares are issued in accordance with the terms of the
Certificate of Designation and the Warrants, respectively, such shares will
be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled
to
all rights accorded to a holder of Common Stock.
(e) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designation and the consummation by the Company of the transactions contemplated
herein and therein do not and will not (i) violate any provision of the
Company's Certificate or Bylaws, (ii) conflict with, or constitute a default
(or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is
a
party or by which it or its properties or assets are bound, (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any nature
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of
its
respective properties or assets are bound, or (iv) result in a
violation
-4-
of
any
federal, state, local or foreign statute, rule, regulation, order, judgment
or
decree (including Federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset
of
the Company or any of its subsidiaries are bound or affected, except, in cases
other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, defaults, terminations, amendments, accelerations and violations
as
would not, individually or in the aggregate, have a Material Adverse Effect
(as
defined in Section 2.1(h)). The business of the Company and its subsidiaries
is
not being conducted in violation of any laws, ordinances or regulations of
any
governmental entity, except for possible violations which singularly or in
the
aggregate do not or will not have a Material Adverse Effect (as defined in
Section 2.1(h)). The Company is not required under Federal, state or local
law,
rule or regulation to obtain any consent, authorization or order of, or make
any
filing or registration with, any court or governmental agency in order for
it to
execute, deliver or perform any of its obligations under the Transaction
Documents, or issue and sell the Preferred Shares, the Warrants, the Conversion
Shares and the Warrant Shares in accordance with the terms hereof or thereof
(other than any filings which may be required to be made by the Company with
the
Commission or state securities administrators subsequent to the Closing, any
registration statement which may be filed pursuant hereto or any other
Transaction Document); provided
that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.
(f) Financial
Statements.
The
Company has delivered to the Purchasers true and complete copies of the
Company's audited financial statements for the fiscal year ended December 31,
2006 (the "Audited
Financial Statements Date")
and
unaudited financial statements for the fiscal quarter ended March 31, 2007
(collectively, the "Financial
Statements").
Except as disclosed on Schedule
2.1(f)
hereto,
the Financial Statements complied in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"),
and
the rules and regulations of the Commission promulgated thereunder, and the
Financial Statements do not contain any untrue statement of a material fact
or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except as disclosed on Schedule
2.1(f)
hereto,
as of their respective dates, the Financial Statements were complete and correct
in all material respects and complied with applicable accounting requirements
and the published rules and regulations of the Commission or other applicable
rules and regulations with respect thereto. Such Financial Statements have
been
prepared in accordance with accounting principles generally accepted in the
United States ("GAAP")
applied on a consistent basis during the periods involved (except (i) as may
be
otherwise indicated in such financial statements or the Notes thereto or (ii)
in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in
all
material respects the financial position of the Company and its subsidiaries
as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
(g) Subsidiaries.
Schedule
2.1(g)
hereto
sets forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person's
ownership. For the purposes of this Agreement, "subsidiary"
shall
-5-
mean
any
corporation or other entity of which at least a majority of the securities
or
other ownership interest having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the Company and/or
any
of its other subsidiaries. All of the outstanding shares of capital stock of
each subsidiary have been duly authorized and validly issued, and are fully
paid
and nonassessable. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon
any
subsidiary for the purchase or acquisition of any shares of capital stock of
any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) No
Material Adverse Change.
Since
the Audited Financial Statements Date, the Company has not experienced or
suffered any Material Adverse Effect or any event that is likely, through the
passage of time or otherwise, to result in a Material Adverse Effect. For the
purposes of this Agreement, "Material
Adverse Effect"
means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements
and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents and/or any condition, circumstance, or situation that
would prohibit or otherwise materially interfere with the ability of the Company
to perform any of its obligations under the Transaction Documents in any
material respect.
(i) No
Undisclosed Liabilities.
Since
the Audited Financial Statements Date, neither the Company nor any of its
subsidiaries has incurred any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of
the
Company's or its subsidiaries respective businesses. Since the Audited Financial
Statements Date, none of the Company or any of its subsidiaries has participated
in any transaction which is outside of the ordinary course of its
business.
(j) No
Undisclosed Events or Circumstances.
No
event or circumstance has occurred or exists with respect to the Company or
its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not
been
so publicly announced or disclosed.
(k) Indebtedness.
Schedule
2.1(k)
hereto
sets forth as of April 30, 2007 all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or
any
subsidiary has commitments. Except as set forth on Schedule
2.1(k),
the
Company has no Indebtedness. For the purposes of this Agreement, "Indebtedness"
means
(i) all
-6-
indebtedness
for borrowed money or amounts owed in excess of $50,000 (other than trade
accounts payable incurred in the ordinary course of business), (ii) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services including, without limitation, Capitalized Lease
Obligations (other than trade payables entered into in the ordinary course
of
business), (iii) all reimbursement or payment obligations with respect to
letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (v) all indebtedness created or arising
under any conditional sale or other title retention agreement, or incurred
as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all rental obligations of the
Company and its subsidiaries which, under GAAP, are or will be required to
be
capitalized on the books of the Company and its subsidiaries, in each case
taken
at the amount thereof accounted for as indebtedness in accordance with such
principles (the "Capitalized
Lease Obligations"),
(vii) all indebtedness referred to in clauses (i) through (vi) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by such Person, even though
the
Person which owns such assets or property has not assumed or become liable
for
the payment of such indebtedness, and (vii) all guaranties, endorsements
and other contingent obligations in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business of the kinds referred to in clauses (i) through (vi)
above.
(l) Title
to Assets.
Each of
the Company and the subsidiaries has good and marketable title to all of its
real and personal property whether tangible or intangible (collectively, the
"Assets"),
free
and clear of any mortgages, pledges, charges, liens, security interests, claim,
community property interest, condition, equitable interest or other
encumbrances, license, option, right of first refusal or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income
or
exercise of any other attribute of ownership ("Liens").
All
leases of the Company and each of its subsidiaries are valid and subsisting
and
in full force and effect and neither this Agreement nor the transactions
contemplated hereby will give any party to such leases any right to terminate
or
modify the leases. All Assets are in good working order (subject to normal
wear
and tear) and suitable for the Company's business.
(m) Actions
Pending.
There
is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge
of
the Company, threatened against the Company or any subsidiary which questions
the validity of this Agreement or any of the other Transaction Documents or
the
transactions contemplated hereby or thereby or any action taken or to be taken
pursuant hereto or thereto. Except as set forth on Schedule
2.1(m)
hereto,
there is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge
of
the Company, threatened, against or involving the Company, any subsidiary or
any
of their
-7-
respective
properties or assets. There are no outstanding orders, judgments, injunctions,
awards or decrees of any court, arbitrator or governmental or regulatory body
against the Company or any subsidiary or any officers or directors of the
Company or subsidiary in their capacities as such.
(n) Compliance
with Law.
The
business of the Company and the subsidiaries has been and is presently being
conducted in accordance with all applicable federal, state and local
governmental laws, rules, regulations and ordinances, except for such
noncompliance that, individually or in the aggregate, would not cause a Material
Adverse Effect. The Company and each of its subsidiaries have all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it unless the failure to possess such franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) Taxes.
The
Company and each of the subsidiaries has accurately prepared and filed all
foreign, federal, state income and all other tax returns, reports and
declarations required by law to be paid or filed by it by any jurisdiction
to
which the Company is subject, has paid or made provisions for the payment of
all
taxes shown to be due and all additional assessments, and adequate provisions
have been and are reflected in the financial statements of the Company and
the
subsidiaries for all current taxes and other charges to which the Company or
any
subsidiary is subject and which are not currently due and payable. None of
the
federal income tax returns of the Company or any subsidiary have been audited
by
the Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company
or
any subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency. The Company and its subsidiaries have complied in
all
respects with all applicable legal requirements relating to the payment and
withholding of taxes and, within the time and in the manner prescribed by law,
has withheld from wages, fees and other payments, and paid over to the proper
governments or regulatory authorities, all amounts required.
(p) Certain
Fees.
Except
as set forth on Schedule
2.1(p)
hereto,
no brokers, finders or financial advisory fees or commissions will be payable
by
the Company or any subsidiary or any Purchaser with respect to the transactions
contemplated by this Agreement.
(q) Disclosure.
Neither
this Agreement or the Schedules hereto nor any other documents, certificates
or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material
fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Intellectual
Property; Software.
"Intellectual
Property"
means:
(a) inventions and discoveries (whether or not patentable and whether or not
reduced to practice), improvements thereto, and patents, patent applications,
invention disclosures, and other rights of invention, worldwide, including
without limitation any reissues, divisions, continuations and
-8-
continuations-in-part,
provisionals, reexamined patents or other applications or patents claiming
the
benefit of the filing date of any such application or patent; (b) trademarks,
service marks, trade names, trade dress, logos, domain names, product names
and
slogans, including any common law rights, registrations, and applications for
registration for any of the foregoing, and the goodwill associated with all
of
the foregoing, worldwide; (c) copyrightable works, all rights in copyrights,
including moral rights, copyrights, website content, and other rights of
authorship and exploitation, and any applications, registrations and renewals
in
connection therewith, worldwide; (d) trade secrets and confidential business
and
technical information, including, without limitation, web site user information,
customer and supplier lists and related information, pricing and cost
information, business and marketing plans, advertising statistics, any other
financial, marketing and business data, technical data, specifications,
schematics and know-how; (e) to the extent not covered by subsections (a)
through (d), above, Software and web sites (including all related computer
code
and content); (f) rights to exclude others from appropriating any of such
Intellectual Property, including the rights to xxx for and remedies against
past, present and future infringements of any or all of the foregoing and rights
of priority and protection of interests therein; and (g) any other proprietary,
intellectual property and other rights relating to any or all of the foregoing
anywhere in the world.
(i) Schedule
2.1(r)(i)
hereto
sets forth a true, correct and complete list of all material Intellectual
Property, and any licenses and agreements relating to the Intellectual Property
(other than trade secrets, know-how and goodwill attendant to the Intellectual
Property and other intellectual property rights not reducible to schedule form)
owned, licensed to or used by Company with respect to the conduct of the
business as presently conducted or presently proposed to be conducted.
Schedule
2.1(r)(i)
separately identifies the Intellectual Property owned by Company and the
Intellectual Property licensed to or used by Company.
(ii) Except
as
set forth on Schedule
2.1(r)(ii),
the
Company has not interfered with, infringed upon or misappropriated any
Intellectual Property rights of any third party, and the Company (and management
level employees with direct responsibility for Intellectual Property matters)
has never received any charge, complaint, claim, demand, or notice alleging
any
such interference, infringement, misappropriation, or violation (including
any
claim that the Company must license or refrain from using any Intellectual
Property rights of any third party). To the knowledge of the Company, no third
party has interfered with, infringed upon or misappropriated any Intellectual
Property rights of the Company.
(iii) Except
as
set forth on Schedule
2.1(r)(iii),
(A) the
Company owns all right, title and interest in, or has a valid and binding
license to use, the material Intellectual Property, and, to the extent required
in connection with the way in which Company has conducted, conducts, or
presently proposes to conduct its business, to make, have made, use, sell,
import and export, distribute, publicly perform, publicly display, reproduce
and
prepare derivative works of the Intellectual Property; (B) the rights of Company
to the material Intellectual Property are free and clear of all Liens; (C)
all
registrations with and applications to governmental or regulatory bodies in
respect of the Company-owned Intellectual Property are valid and in full force
and effect and Company has taken all action required to maintain their validity
and effectiveness; (D) there are no restrictions on the direct or indirect
(i)
transfer of any license, or any interest therein, held by the Company in respect
of the material Intellectual
-9-
Property
or (ii) change of control of the Company; (E) the Company has delivered to
Purchasers prior to the execution of this Agreement documentation with respect
to any invention, process, design, computer program or other know-how or trade
secret included in the Intellectual Property, which documentation is accurate
in
all material respects and reasonably sufficient in detail and content to
identify and explain such invention, process, design, computer program or other
know-how or trade secret and to facilitate its use without reliance on the
special knowledge or memory of any person; (F) the Company has taken reasonable
measures to protect the secrecy, confidentiality and value of its trade secrets;
and (G) the Company is not, nor has it received any notice that it is, in
default (or with the giving of notice or lapse of time or both, would be in
default) under any license with respect to the material Intellectual
Property.
(iv) Except
as
identified on Schedule
2.1(r)(iv)
or such
approval or consents the absence of which would not have a Material Adverse
Effect, no approval or consent of any person is needed so that the interest
of
the Company in the Intellectual Property shall continue to be in full force
and
effect following the transactions contemplated by this Agreement, and the
Company is not subject to any restriction, agreement, instrument, order,
judgment or decree which would be violated or breached by the consummation
of
the transactions contemplated by this Agreement.
(v) Except
for the fees identified in Schedule
2.1(r)(v)-1
for the
agreements identified therein, no material licensing fees, royalties or payments
are due or payable by the Company in connection with the Intellectual Property,
other than maintenance fees. Schedule
2.1(r)(v)-2
separately lists and identifies all of Company's material maintenance fee
obligations.
(vi) Schedule
2.1(r)(vi)
separately lists and identifies all (A) computer programs, (B) computer
databases (including, but not limited to, databases used in conjunction with
such computer programs) and (C) documentation, specifications, manuals and
materials associated therewith, owned, licensed or used by the Company,
excluding generally available off-the-shelf microcomputer and work station
software (collectively, the "Software
Rights").
Except as set forth in Schedule
2.1(r)(vi),
all
right, title and interest in and to the Software (as hereinafter defined) is
owned by the Company free and clear of all Liens and no party other than the
Company has any interest in the Software. Each of the representations in
Sections
2.1(r)(ii)
through
(v),
above,
is applicable to the Software Rights.
(vii) The
computer software included in the Software Rights (the "Software")
performs in accordance with the documentation and other written materials
related to the Software and is free from substantial defects in programming
and
operations, is in machine readable form, contains all current revisions of
such
Software, and includes all computer programs, materials, tapes, know-how, object
and source codes, other written materials, know-how and processes related to
the
Software.
(viii) The
Company has kept secret and has not disclosed the source code for the Software
to any person or entity other than certain employees or independent contractors
of the Company who are subject to the terms of a binding confidentiality
agreement with respect thereto. The Company has taken all appropriate measures
to protect the confidentiality and proprietary nature of the Software, including
without limitation, the use of the
-10-
confidentiality
agreements with all of its employees or independent contractors having access
to
the Software source and object code.
(ix) None
of
the proprietary source software of the Company or its subsidiaries includes
or
incorporates any open source software that is licensed under the General Public
License or another open source code license that requires the Company or its
subsidiaries to release any portion of its source code, or to permit free
distribution, reverse engineering or modification of any of its source
code.
(x) To
the
Company's knowledge, no employee of the Company is in default under, and the
consummation of the transactions contemplated by this Agreement will not result
in a default of, any term of any employment contract, agreement or arrangement
relating to the Software or any noncompetition arrangement, or any other
agreement or any restrictive covenant relating to the Software or its
development or exploitation. The Company does not have any obligation to
compensate any person for the development, use, sale or exploitation of the
Software nor has the Company granted to any other person or entity any license,
option or other rights to develop, use, sell or exploit in any manner the
Software whether requiring the payment of royalties or not.
(xi) All
Intellectual Property owned by the Company and for which confidentiality is
appropriate has been maintained in confidence in accordance with protection
procedures believed by the Company to be adequate for protection customarily
used in the industry to protect rights of like importance. All former and
current managers, employees, agents, consultants and independent contractors
who
have authored, co-authored or otherwise contributed to or participated in any
material way in the conception and development of Intellectual Property which
is
used in and material to the Company's business ("IP
Participant"),
have
executed and delivered to the Company a proprietary information agreement,
pursuant to which, among other things, such IP Participant has assigned any
and
all of his or her rights in such Intellectual Property to the Company and has
agreed to keep such Intellectual Property confidential and not to use such
Intellectual Property for any purpose unrelated to his or her work for the
Company. No former or current IP Participant has filed, asserted in writing
or,
to the knowledge of the Company (or management employees of the Company with
direct responsibility for Intellectual Property matters), threatened any claim
against the Company in connection with his or her involvement in Intellectual
Property which is used in and material to the Company's business. To the
knowledge of the Company (or management employees of the Company with direct
responsibility for Intellectual Property matters), no IP Participant has any
patents issued or applications pending for any device, process, design or
invention of any kind now used or needed by the Company which patents or
applications have not been assigned to the Company.
(xii) No
former
or current stockholder, director or officer, employee or independent contractor
of the Company has any right to receive royalty payments or license fees from
the Company.
(xiii) With
respect to privacy and security agreements and contractual commitments (the
"Commitments"),
(A)
the Company is in full compliance with all applicable Commitments; (B) the
transactions contemplated by this Agreement and the Transaction
-11-
Documents
will not violate any Commitments; (C) the Company has not received inquiries
from the Federal Trade Commission or any other federal or state governmental
agencies regarding Commitments; (D) the Company has not received any written
(including email) complaints from any web site user regarding Commitments,
or
compliance with Commitments; (E) the Commitments have not been rejected by
any
applicable certification organization which has reviewed such Commitment or
to
which any such Commitment has been submitted and (F) the Company has not
experienced the cancellation, termination or revocation of any privacy or
security certification issued by any Commitments.
(xiv) The
Company has in its possession or control: (A) correct and complete,
fully-executed copies of all of the licenses and agreements (as amended to
date)
that are required to be identified on Schedules
2.1(r);
and (B)
correct and complete copies of all documents (including without limitation
patents, registration certificates, renewal certificates, applications,
prosecution histories, and all documents submitted to or received from the
relevant patent, copyright, trademark, domain name or other authorities in
the
United States and foreign jurisdictions, as the case may be) relating to each
item of the Intellectual Property identified on Schedules
2.1(r).
The
Company has delivered to Purchasers correct and complete, fully-executed copies
of all of the documents described in this subsection.
(s) Environmental
Compliance.
The
Company and each of its subsidiaries have obtained all material approvals,
authorization, certificates, consents, licenses, orders and permits or other
similar authorizations of all governmental authorities, or from any other
person, that are required under any Environmental Laws. "Environmental
Laws"
shall
mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. The Company
has
all necessary governmental approvals required under all Environmental Laws
and
used in its business or in the business of any of its subsidiaries. The Company
and each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances
as
would not individually or in the aggregate have a Material Adverse Effect,
there
are no past or present events, conditions, circumstances, incidents, actions
or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the Closing Date or
that
may give rise to any environmental liability, or otherwise form the basis of
any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous
substance.
(t) Books
and Records Internal Accounting Controls.
The
books and records of the Company and its subsidiaries accurately reflect in
all
material respects the information
-12-
relating
to the business of the Company and the subsidiaries, the location and collection
of their assets, and the nature of all transactions giving rise to the
obligations or accounts receivable of the Company or any subsidiary. The Company
and each of its subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company, to provide reasonable assurance
that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate actions is taken with respect to any
differences.
(u) Material
Agreements.
Except
for the Transaction Documents (with respect to clause (i) only) or as set forth
on Schedule
2.1(u)
hereto,
(i) the Company and each of its subsidiaries have performed all obligations
required to be performed by them to date under any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, filed or
required to be filed with the Commission (the "Material
Agreements"),
(ii)
neither the Company nor any of its subsidiaries has received any notice of
default under any Material Agreement and (iii) to the Company's knowledge
neither the Company nor any of its subsidiaries is in default under any Material
Agreement and
(iv)
neither this Agreement nor the transactions contemplated hereby will give any
party to the Material Agreements any right to terminate or modify the Material
Agreements.
(v) Transactions
with Affiliates.
Except
as set forth on Schedule
2.1(v)
hereto,
there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(a) the Company or any subsidiary on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder,
or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w) Securities
Act of 1933.
Based
in part upon the representations herein of the Purchasers, the Company has
complied and will comply with all applicable federal and state securities laws
in connection with the offer, issuance and sale of the Shares and the Warrants
hereunder. Neither the Company nor anyone acting on its behalf, directly or
indirectly, has or will sell, offer to sell or solicit offers to buy any of
the
Shares, the Warrants or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any person, or has taken or will take any action so
as to
bring the issuance and sale of any of the Shares and the Warrants under the
registration provisions of the Securities Act and applicable state securities
laws, and neither the Company nor any of its affiliates, nor any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of any of the Shares and the
Warrants.
-13-
(x) Governmental
Approvals.
Except
for the filing of any notice prior or subsequent to the Closing Date that may
be
required under applicable state and/or Federal securities laws (which if
required, shall be filed on a timely basis), including the filing of a Form
D
and a registration statement or statements pursuant to the Registration Rights
Agreement, and the filing of the Certificate of Designation with the Secretary
of State for the State of Delaware, no authorization, consent, approval,
license, exemption of, filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic
or
foreign, is or will be necessary for, or in connection with, the execution
or
delivery of the Preferred Shares and the Warrants, or for the performance by
the
Company of its obligations under the Transaction Documents.
(y) Employees.
Neither
the Company nor any subsidiary has any collective bargaining arrangements or
agreements covering any of its employees or employs any member of a union.
The
Company and its subsidiaries believe that their relations with their employees
are satisfactory. No executive officer of the Company (as defined in Rule 501(f)
of the Securities Act) has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer's employment with the
Company. No executive officer of the Company, to the knowledge of the Company,
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or
any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its subsidiaries to any liability
with respect to any of the foregoing matters.
(z) Absence
of Certain Developments.
Except
as set forth on Schedule
2.1(z)
hereto,
since the Audited Financial Statements Date, neither the Company nor any
subsidiary has:
(i) issued
any stock, bonds or other corporate securities or any rights, options or
warrants with respect thereto;
(ii) borrowed
any amount or incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion of
its
prior fiscal year, as adjusted to reflect the current nature and volume of
the
Company's or such subsidiary's business;
(iii) discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business;
(iv) declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements
so
to purchase or redeem, any shares of its capital stock;
(v) sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, except in the ordinary course of business;
-14-
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchasers or their
representatives;
(vii) suffered
any material losses or waived any rights of material value, whether or not
in
the ordinary course of business, or suffered the loss of any material amount
of
prospective business;
(viii) made
any
changes in employee compensation except in the ordinary course of business
and
consistent with past practices;
(ix) made
capital expenditures or commitments therefor that aggregate in excess of
$50,000;
(x) entered
into any other transaction other than in the ordinary course of business, or
entered into any other material transaction, whether or not in the ordinary
course of business;
(xi) made
charitable contributions or pledges in excess of $10,000;
(xii) suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;
(xiii) experienced
any material problems with labor or management in connection with the terms
and
conditions of their employment;
(xiv) effected
any two or more events of the foregoing kind which in the aggregate would be
material to the Company or its subsidiaries; or
(xv) entered
into an agreement, written or otherwise, to take any of the foregoing
actions.
(aa) Investment
Company Act Status.
The
Company is not, and as a result of and immediately upon the Closing will not
be,
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as
amended.
(bb) ERISA.
No
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan (as defined below) by the Company or any of its subsidiaries
which is or would be materially adverse to the Company and its subsidiaries.
The
execution and delivery of this Agreement and the issuance and sale of the
Preferred Shares will not involve any transaction which is a "prohibited
transaction" under Section 406 of the Employee Retirement Income Security Act
of
1974, as amended ("ERISA")
or in
connection with which an excise tax could be imposed pursuant to Section 4975
of
the Internal Revenue Code of 1986, as amended (the "Code"),
provided that, if any of the Purchasers, or any person or entity that owns
a
beneficial interest in any of the Purchasers, is an "employee pension benefit
plan" (within the meaning of Section 3(2) of ERISA) with respect to which the
Company is a
-15-
"party
in
interest" (within the meaning of Section 3(14) of ERISA), the requirements
of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. No Plan is
subject to Title IV of ERISA or the minimum funding requirements of Code Section
412. As used in this Section 2.1(bb), the term "Plan"
shall
mean an "employee pension benefit plan" (as defined in Section 3(2) of ERISA)
which is or has been established or maintained, or to which contributions are
or
have been made, by the Company or any subsidiary or by any trade or business,
whether or not incorporated, which, together with the Company or any subsidiary,
is treated as a single employer, as described in Code Section 414(b), (c),
(m)
or (o).
(cc) Dilutive
Effect.
The
Company understands and acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Shares in accordance with this Agreement
and the Certificate of Designation and its obligations to issue the Warrant
Shares upon the exercise of the Warrants in accordance with this Agreement
and
the Warrants, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of
other
stockholders of the Company.
(dd) No
Integrated Offering.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offering of the Shares pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the Securities Act which would
prevent the Company from selling the Shares pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Shares to be integrated
with other offerings.
The
Company does not have any registration statement pending before the Commission
or currently under the Commission's review and since July
1,
2006, the Company has not offered or sold any of its equity securities or debt
securities convertible into shares of Common Stock.
(ee) Xxxxxxxx-Xxxxx
Act.
The
Company is in compliance with the applicable provisions of the Xxxxxxxx-Xxxxx
Act of 2002 (the "Xxxxxxxx-Xxxxx
Act"),
and
the rules and regulations promulgated thereunder, that are effective, and
intends to comply with other applicable provisions of the Xxxxxxxx-Xxxxx Act,
and the rules and regulations promulgated thereunder, upon the effectiveness
of
such provisions.
(ff) Transfer
Agent.
The
name, address, telephone number, fax number, contact person and email address
of
the Company's transfer agent is set forth on Schedule
2.1(ff)
hereto.
(gg) Independent
Nature of Purchasers.
The
Company acknowledges that the obligations of each Purchaser under the
Transaction Documents are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under the Transaction
Documents. The Company acknowledges that the decision of each Purchaser to
purchase securities pursuant to this Agreement has been made by such Purchaser
independently of any other purchase and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise)
-16-
or
prospects of the Company or of its Subsidiaries which may have made or given
by
any other Purchaser or by any agent or employee of any other Purchaser, and
no
Purchaser or any of its agents or employees shall have any liability to any
Purchaser (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained herein, or in any Transaction Document, and no action taken
by
any Purchaser pursuant hereto or thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting
in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. The Company acknowledges that each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out
of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for one of the
Purchasers and such counsel does not represent all of the Purchasers but only
such Purchaser and the other Purchasers have retained their own individual
counsel with respect to the transactions contemplated hereby. The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because
it
was required or requested to do so by the Purchasers. The Company acknowledges
that such procedure with respect to the Transaction Documents in no way creates
a presumption that the Purchasers are in any way acting in concert or as a
group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.
(hh) No
General Solicitation; Placement Agent's Fees.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of
the
Shares. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions (other than
for
persons engaged by any Purchaser or its investment advisor) relating to or
arising out of the transactions contemplated hereby. The Company shall pay,
and
hold each Purchaser harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney's fees and out-of-pocket expenses)
arising in connection with any such claim. The Company acknowledges that it
has
engaged X.X. Xxxxxxxxx, Towbin as placement agent (together the "Agent")
in
connection with the sale of the Shares. Other than the Agent, the Company has
not engaged any placement agent or other agent in connection with the sale
of
the Shares.
(ii) Intentionally
Omitted.
(jj) Insurance.
The
Company and each of its subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its subsidiaries are engaged. Neither the Company
nor
any such subsidiary has been refused any insurance coverage sought or applied
for and neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar
insurers
-17-
as
may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
(kk) Foreign
Corrupt Practices.
Neither
the Company, nor any of its subsidiaries, nor any director, officer, agent,
employee or other person acting on behalf of the Company or any of its
subsidiaries has, in the course of its actions for, or on behalf of, the Company
(i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity;
(ii) made any direct or indirect unlawful payment to any foreign or
domestic government official or employee from corporate funds;
(iii) violated or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
(ll) Stockholders'
Equity.
The
Company acknowledges that (a) as a material inducement and consideration for
the
Purchasers to enter into the Transaction Documents and to purchase the Preferred
Shares, the Company has agreed to the Acquisition Failure Redemption (as defined
in Section 3.11(b)) mechanism, and (b) as of the Closing Date, the Company’s
capital is not impaired to the extent that the Company has total stockholders’
equity of no less than $1,000,000.
2.2 Representations
and Warranties of the Purchasers.
Each of
the Purchasers hereby makes the following representations and warranties to
the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Incorporation
and Standing of the Purchasers.
If the
Purchaser is an entity, such Purchaser is a corporation, limited liability
company or partnership duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation.
(b) Authorization
and Power.
Each
Purchaser has the requisite power and authority to enter into and perform this
Agreement and to purchase the Preferred Shares and Warrants being sold to it
hereunder. The execution, delivery and performance of this Agreement and the
Registration Rights Agreement by such Purchaser and the consummation by it
of
the transactions contemplated hereby and thereby have been duly authorized
by
all necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. Each of this Agreement and the
Registration Rights Agreement has been duly authorized, executed and delivered
by such Purchaser and constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Purchaser enforceable against
the Purchaser in accordance with the terms thereof.
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the Registration
Rights Agreement and the consummation by such Purchaser of the transactions
contemplated hereby and thereby or relating hereto do not and will not (i)
result in a violation of such Purchaser's charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both
-18-
would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument or
obligation to which such Purchaser is a party or by which its properties or
assets are bound, or result in a violation of any law, rule, or regulation,
or
any order, judgment or decree of any court or governmental agency applicable
to
such Purchaser or its properties (except for such conflicts, defaults and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect on such Purchaser). Such Purchaser is not required to obtain
any
consent, authorization or order of, or make any filing or registration with,
any
court or governmental agency in order for it to execute, deliver or perform
any
of its obligations under this Agreement or the Registration Rights Agreement
or
to purchase the Preferred Shares or acquire the Warrants in accordance with
the
terms hereof, provided that for purposes of the representation made in this
sentence, such Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Acquisition
for Investment.
Each
Purchaser is acquiring the Preferred Shares and the Warrants solely for its
own
account for the purpose of investment and not with a view to or for sale in
connection with distribution. Each Purchaser does not have a present intention
to sell the Preferred Shares or the Warrants, nor a present arrangement (whether
or not legally binding) or intention to effect any distribution of the Preferred
Shares or the Warrants to or through any person or entity; provided,
however,
that by
making the representations herein and subject to Sections 2.2(h) and (k) below,
such Purchaser does not agree to hold the Shares or the Warrants for any minimum
or other specific term and reserves the right to dispose of the Shares or the
Warrants at any time in accordance with Federal and state securities laws
applicable to such disposition. Each Purchaser acknowledges that it is able
to
bear the financial risks associated with an investment in the Preferred Shares
and the Warrants and that it has been given full access to such records of
the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries and received such information as it has deemed necessary or
appropriate to conduct its due diligence investigation and has sufficient
knowledge and experience in investing in companies similar to the Company in
terms of the Company's stage of development so as to be able to evaluate the
risks and merits of its investment in the Company.
(e) Status
of Purchasers.
Each
Purchaser is an "accredited investor" as defined in Rule 501(a) promulgated
under the Securities Act. Each Purchaser has knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of purchasing the Shares. Such Purchaser is not required to be registered
as a broker-dealer under Section 15 of the Exchange Act and such Purchaser
is
not a broker-dealer.
(f) Opportunities
for Additional Information.
Each
Purchaser acknowledges that such Purchaser has had the opportunity to ask
questions of and receive answers from, or obtain additional information from,
the executive officers of the Company concerning the financial and other affairs
of the Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser,
and
such Purchaser desires to invest in the Company.
(g) No
General Solicitation.
Each
Purchaser acknowledges that the Preferred Shares and the Warrants were not
offered to such Purchaser by means of any form of general or
-19-
public
solicitation or general advertising, or publicly disseminated advertisements
or
sales literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which
such
Purchaser was invited by any of the foregoing means of
communications.
(h) Rule
144.
Such
Purchaser understands that the Shares must be held indefinitely unless such
Shares are registered under the Securities Act or an exemption from registration
is available. Such Purchaser acknowledges that such Purchaser is familiar with
Rule 144 of the rules and regulations of the Commission, as amended, promulgated
pursuant to the Securities Act ("Rule
144"),
and
that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General.
Such
Purchaser understands that the Shares are being offered and sold in reliance
on
a transactional exemption from the registration requirement of Federal and
state
securities laws and the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of
such Purchaser set forth herein in order to determine the applicability of
such
exemptions and the suitability of such Purchaser to acquire the
Shares.
(j) Independent
Investment.
Except
as may be disclosed in any filings with the Commission by the Purchasers under
Section 13 and/or Section 16 of the Exchange Act, no Purchaser has agreed to
act
with any other Purchaser for the purpose of acquiring, holding, voting or
disposing of the Shares purchased hereunder for purposes of Section 13(d) under
the Exchange Act, and each Purchaser is acting independently with respect to
its
investment in the Shares.
(k) Trading
Activities; No
Short Sales.
Each
Purchaser's trading activities with respect to the Shares shall be in compliance
with all applicable federal and state securities laws. No
Purchaser nor any of its affiliates has an open short position in the Common
Stock. . Each Purchaser, whether in their own capacity or through a
representative, agent or affiliate agrees that it will not enter into or effect
any "short sales" (as such term is defined in Rule 3b-3 of the Exchange Act)
of
the Shares or the Warrant Shares or any hedging transaction, including obtaining
borrow, which establishes a net short position with respect to the Shares or
the
Warrant Shares, whether on a U.S. domestic exchange or any foreign exchange.
Additionally, each Purchaser further agrees that it shall not, and that it
will
cause its affiliates not to, engage in any short sales with respect to the
Common Stock.
ARTICLE
III
COVENANTS
The
Company covenants with each of the Purchasers as follows, which covenants are
for the benefit of the Purchasers and their permitted assignees (as defined
herein).
-20-
3.1 Securities
Compliance.
The
Company shall notify the Commission in accordance with their rules and
regulations, of the transactions contemplated by any of the Transaction
Documents, including filing a Form D with respect to the Preferred Shares,
Warrants, Conversion Shares and Warrant Shares as required under Regulation
D,
and shall take all other necessary action and proceedings as may be required
and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Preferred Shares, the Warrants, the Conversion Shares and the
Warrant Shares to the Purchasers or subsequent holders.
3.2 Registration
and Listing.
The
Company shall cause its Common Stock to be registered under Sections 12(b)
or
12(g) of the Exchange Act no later than the effective date of the Registration
Statement (as defined in the Registration Rights Agreement), to comply in all
respects with its reporting and filing obligations under the Exchange Act,
to
comply with all requirements related to any registration statement to be filed
pursuant to this Agreement or the Registration Rights Agreement, and not to
take
any action or file any document (whether or not permitted by the Securities
Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein. Subject to the
terms
of the Transaction Documents, the Company further covenants that it will take
such further action as the Purchasers may reasonably request, all to the extent
required from time to time to enable the Purchasers to sell the Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act. Upon the request
of
the Purchasers, the Company shall deliver to the Purchasers a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
3.3 Inspection
Rights.
The
Company shall permit, during normal business hours and upon reasonable request
and reasonable notice, each Purchaser or any employees, agents or
representatives thereof, so long as such Purchaser shall be obligated hereunder
to purchase the Preferred Shares or shall beneficially own any Preferred Shares,
or shall own Conversion Shares which, in the aggregate, represent more than
2%
of the total combined voting power of all voting securities then outstanding,
for purposes reasonably related to such Purchaser's interests as a stockholder
to examine and make reasonable copies of and extracts from the records and
books
of account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs, finances
and accounts of the Company and any subsidiary with any of its officers,
consultants, directors, and key employees.
3.4 Compliance
with Laws.
The
Company shall comply, and cause each subsidiary to comply, with all applicable
laws, rules, regulations and orders, noncompliance with which could have a
Material Adverse Effect.
3.5 Keeping
of Records and Books of Account.
The
Company shall keep and cause each subsidiary to keep adequate records and books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company
and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
-21-
3.6 Reporting
Requirements.
Following such time that the Company is required to become registered under
the
Exchange Act pursuant to the terms of this Agreement, if the Commission ceases
making the Company's periodic reports available via the Internet without charge,
then the Company shall, promptly after filing with the Commission, furnish
the
following to each Purchaser so long as such Purchaser shall be obligated
hereunder to purchase the Securities or shall beneficially own Shares or Warrant
Shares:
(a) Quarterly
Reports on Form 10-Q or Form 10-QSB filed with the Commission;
(b) Annual
Reports on Form 10-K or Form 10-KSB filed with the Commission; and
(c) Copies
of
all notices, information and proxy statements in connection with any meetings
that are, in each case, provided to holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such
holders of Common Stock.
3.7 Amendments.
Except
as otherwise provided herein, the Company shall not amend or waive any provision
of the Certificate or Bylaws of the Company in any way that would adversely
affect the liquidation preferences, dividends rights, conversion rights, voting
rights or redemption rights of the Preferred Shares; provided,
however,
that
any creation and issuance of another series of Junior Stock (as defined in
the
Certificate of Designation) or any other class or series of equity securities
which by its terms shall rank on parity with the Preferred Shares shall not
be
deemed to materially and adversely affect such rights, preferences or
privileges.
3.8 Other
Agreements.
The
Company shall not enter into any agreement in which the terms of such agreement
would restrict or impair the right or ability to perform of the Company or
any
subsidiary under any Transaction Document.
3.9 Distributions.
So
long
as any Preferred Shares or Warrants remain outstanding, the Company agrees
that
it shall not (i) declare or pay any dividends or make any distributions to
any
holder(s) of Common Stock or Junior Stock (as defined in the Certificate of
Designation and the J Warrant Shares Certificate of Designation) except for
dividends or distributions on account of the Series A
-22-
Preferred
Stock or Series C Preferred Stock, provided, that, neither (x) has any
Triggering Event (as defined in the Certificate of Designation) occurred,
whether or not any Purchasers elect to exercise any rights or redemption
options, nor (y) is the Company in breach of any representation, warranty,
covenant or other term or condition of this Agreement, the Transaction Documents
or any other agreement, document, certificate or other instrument delivered
in
connection with the transactions contemplated thereby or hereby, or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
3.10 Status
of Dividends.
The
Company covenants and agrees that (i) no Federal income tax return or claim
for
refund of Federal income tax or other submission to the Internal Revenue Service
(the "Service")
will
adversely affect the Preferred Shares, any other series of its preferred stock,
or the Common Stock, and no deduction shall operate to jeopardize the
availability to Purchasers of the dividends received deduction provided by
Section 243(a)(1) of the Code or any successor provision, (ii) in no report
to
stockholders or to any governmental body having jurisdiction over the Company
or
otherwise will it treat the Preferred Shares other than as equity capital or
the
dividends paid thereon other than as dividends paid on equity capital unless
required to do so by a governmental body having jurisdiction over the accounts
of the Company or by a change in generally accepted accounting principles
required as a result of action by an authoritative accounting standards setting
body, and (iii) it will take no action which would result in the dividends
paid
by the Company on the Preferred Shares out of the Company's current or
accumulated earnings and profits being ineligible for the dividends received
deduction provided by Section 243(a)(1) of the Code. The preceding sentence
shall not be deemed to prevent the Company from designating the Preferred Stock
as "Convertible Preferred Stock" in its annual and quarterly financial
statements in accordance with its prior practice concerning other series of
preferred stock of the Company. In the event that the Purchasers have reasonable
cause to believe that dividends paid by the Company on the Preferred Shares
out
of the Company's current or accumulated earnings and profits will not be treated
as eligible for the dividends received deduction provided by Section 243(a)(1)
of the Code, or any successor provision, the Company will, at the reasonable
request of the Purchasers of 51% of the outstanding Preferred Shares, join
with
the Purchasers in the submission to the Service of a request for a ruling that
dividends paid on the Shares will be so eligible for Federal income tax
purposes, at the Purchasers expense. In addition, the Company will reasonably
cooperate with the Purchasers (at Purchasers' expense) in any litigation, appeal
or other proceeding challenging or contesting any ruling, technical advice,
finding or determination that earnings and profits are not eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or
any
successor provision to the extent that the position to be taken in any such
litigation, appeal, or other proceeding is not contrary to any provision of
the
Code. Notwithstanding the foregoing, nothing herein contained shall be deemed
to
preclude the Company from claiming a deduction with respect to such dividends
if
(i) the Code shall hereafter be amended, or final Treasury regulations
thereunder are issued or modified, to provide that dividends on the Preferred
Shares or Conversion Shares should not be treated as dividends for Federal
income tax purposes or that a deduction with respect to all or a portion of
the
dividends on the Shares is allowable for Federal income tax purposes, or (ii)
in
the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or
-23-
technical
advice, the Service shall issue a published ruling or advise that dividends
on
the Shares should not be treated as dividends for Federal income tax purposes.
If the Service specifically determines that the Preferred Shares or Conversion
Shares constitute debt, the Company may file protective claims for refund.
3.11 Use
of
Proceeds.
(a)
The
Company will use the net proceeds from the sale of the Shares hereunder solely
for the acquisition of the entities listed on Schedule
3.11
(the
"Scheduled
Acquisitions"),
general working capital and other subsequent acquisitions that have been
approved by a majority of the outstanding Preferred Shares (the "Approved
Acquisitions"
and
together with the Scheduled Acquisitions, the "Acquisitions",
and
each entity to be acquired in the Acquisitions, an "Approved
Acquisition Target"),
and
not to (i) repay any other outstanding pari
passu
or
junior Indebtedness of the Company; (ii) except as permitted pursuant to
Section 3.9 of this Agreement in respect of the Series A Preferred Stock and
the
Series C Preferred Stock, apply to any stockholder or bridge loan; (iii)
redeem or repurchase any of the Company's equity securities including any Common
Stock or securities convertible, exercisable or exchangeable into Common Stock;
(iv) settle any outstanding litigation in excess of $50,000; or
(v) service any other debt or financing obligation of the Company, its
subsidiaries or affiliates; provided, however, that the Permitted Indebtedness
set forth on Schedule
3.12
shall
cease to be permitted upon the occurrence and until the cure of a Triggering
Event pursuant to Article
VIII.
(b) Acquisition
Failure.
The
Company shall use at least $10,000,000 (the “Acquisition
Funds”)
of the
net proceeds from the sale of the Shares to consummate and complete the
Acquisitions. The Company shall have closed the Acquisitions with each of the
Approved Acquisition Targets by not later than August 15, 2007 (the
“Acquisition
Deadline”).
The
Acquisition Deadline may be extended through not later than December 1, 2007
with the written consent of the Purchasers holding greater than 50% of the
Preferred Shares. If fewer than all of the Acquisitions have been consummated
by
the Acquisition Deadline, then an “Acquisition
Failure”
shall
be deemed to have occurred. In the event of an Acquisition Failure, an amount
of
the Purchaser’s Preferred Shares equal to the Acquisition Failure Amount (as
defined below) shall be redeemed in accordance with the terms of the Certificate
of Designation in an “Acquisition
Failure Redemption”
(as
defined in the Certificate of Designation). In the event of an Acquisition
Failure Redemption, a percentage of the number of Warrants initially issued
to
Purchaser hereunder equal to the Acquisition Failure Percentage (as defined
below) shall automatically terminate and shall be returned to the Company by
the
Purchaser within five (5) business days of the Purchaser’s receipt of the
Acquisition Failure Redemption Price (as defined in the Certificate of
Designation). For purposes hereof, the “Acquisition
Failure Percentage”
shall
mean the number of shares of Preferred Stock that are redeemed by the Company
in
a completed Acquisition Failure Redemption (as defined in the Certificate of
Designation), divided by the number of Preferred Shares initially purchased
by
the Purchaser hereunder, and the “Acquisition
Failure Amount”
shall
mean the difference of the initial amount of the Acquisition Funds and the
amount of Acquisition Funds that the Company has paid directly to Approved
Acquisition Targets for those Acquisitions that have been completed, consummated
and closed, if any.
-24-
3.12 Indebtedness.
Except
as permitted on Schedule
3.12
(the
"Permitted
Indebtedness")
and
except as listed on Schedule
2.1(k),
the
Company will not enter into, create, incur, assume, guarantee or suffer to
exist
any Indebtedness.
3.13 Reservation
of Shares.
So long
as any of the Preferred Shares or Warrants remain outstanding, the Company
shall
take all action necessary to at all times have authorized, and reserved for
the
purpose of issuance, no less than one hundred twenty percent (120%) the
aggregate number of shares of Common Stock needed to provide for the issuance
of
the Conversion Shares and the Warrant Shares.
3.14 Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name of
each
Purchaser or its respective nominee(s), for the Conversion Shares and the
Warrant Shares in such amounts as specified from time to time by each Purchaser
to the Company upon conversion of the Preferred Shares or exercise of the
Warrants in the form of Exhibit
G
attached
hereto (the "Irrevocable
Transfer Agent Instructions").
Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred
to
in this Section 3.14 will be given by the Company to its transfer agent and
that
the Shares shall otherwise be freely transferable on the books and records
of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Shares may be made without registration under
the
Securities Act or the Purchaser provides the Company with reasonable assurances
that the Shares can be sold pursuant to Rule 144 without any restriction as
to
the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of
the
Conversion Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Purchaser and without any restrictive legend. The Company
acknowledges that a breach by it of its obligations under this Section 3.14
will
cause irreparable harm to the Purchasers by vitiating the intent and purpose
of
the transaction contemplated hereby. Accordingly, the Company acknowledges
that
the remedy at law for a breach of its obligations under this Section 3.14
will be inadequate and agrees, in the event of a breach or threatened breach
by
the Company of the provisions of this Section 3.14, that the Purchasers shall
be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
3.15 Disposition
of Assets.
So long
as the Preferred Shares remain outstanding, neither the Company nor any
Subsidiary shall sell, transfer or otherwise dispose of any of its properties,
assets and rights including,
-25-
without
limitation, its software and intellectual property, to any person except for
sales to customers in the ordinary course of business or with the prior written
consent of the holders of a majority of the Preferred Shares then
outstanding.
3.16 Reporting
Status. So
long
as a Purchaser beneficially owns any of the Shares, the Company shall timely
file (or obtain proper and timely extensions in respect thereof and file within
the applicable grace period under the Exchange Act) all reports required to
be
filed with the Commission pursuant to the Exchange Act, and the Company shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
3.17 Disclosure
of Transaction.
The
Company shall issue a press release describing the material terms of the
transactions contemplated hereby (the "Press
Release")
as
soon as practicable after the Closing but in no event later than 9:00 A.M.
Eastern Time on the first Trading Day following the Closing Date. The Press
Release shall be subject to prior review and comment by the Purchasers.
"Trading
Day"
means
any day during which the OTC Bulletin Board (or other quotation venue or
principal exchange on which the Common Stock is quoted or traded) shall be
open
for trading.
3.18 Disclosure
of Material Information.
The
Company covenants and agrees that neither it nor any other person acting on
its
behalf has provided or will provide any Purchaser or its agents or counsel
with
any information that the Company believes constitutes material non-public
information (other than with respect to the transactions contemplated by this
Agreement), unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The
Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.
Notwithstanding the requirements in this Section 3.18 in the event of a breach
of the foregoing covenant by the Company, any of its subsidiaries, or any of
its
or their respective officers, directors, employees and agents, in addition
to
any other remedy provided herein or in the Transaction Documents, a Purchaser
shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company, its subsidiaries, or
any
of its or their respective officers, directors, employees or agents. No
Purchaser shall have any liability to the Company, its subsidiaries, or any
of
its or their respective officers, directors, employees, stockholders or agents
for any such disclosure.
3.19 Pledge
of Securities.
The
Company acknowledges and agrees that the Shares may be pledged by a Purchaser
in
connection with a bona fide
margin
agreement or other loan or financing arrangement that is secured by the Common
Stock. The pledge of Common Stock shall not be deemed to be a transfer, sale
or
assignment of the Common Stock hereunder, and no Purchaser effecting a pledge
of
Common Stock shall be required to provide the Company with any notice thereof
or
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otherwise
make any delivery to the Company pursuant to this Agreement or any other
Transaction Document; provided that a Purchaser and its pledgee shall be
required to comply with the provisions of Article
V
hereof
in order to effect a sale, transfer or assignment of Common Stock to such
pledgee. At the Purchasers' expense, the Company hereby agrees to execute and
deliver such documentation as a pledgee of the Common Stock may reasonably
request in connection with a pledge of the Common Stock to such pledgee by
a
Purchaser.
Notwithstanding the above, no Purchaser shall permit any such pledgee, or such
pledgee’s affiliates, to engage in any short sales in respect of any such
pledged shares.
3.20 Form
SB-2 Eligibility.
The
Company currently meets the "registrant eligibility" and transaction
requirements set forth in the general instructions to Form SB-2 applicable
to
"resale" registrations on Form SB-2 and the Company shall file all reports
required to be filed by the Company with the Commission in a timely
manner.
3.21 Lock-Up
Agreement.
The
persons listed on Schedule
3.21
attached
hereto shall be subject to the terms and provisions of a lock-up agreement
in
substantially the form as Exhibit
E
hereto
(the "Lock-Up
Agreement"),
which
shall provide the manner in which such persons will sell, transfer or dispose
of
their shares of Common Stock.
3.22 DTC
Status.
Prior
to the effective date of the Registration Statement, the Company's transfer
agent shall be a participant in and the Common Stock shall be eligible for
transfer pursuant to the Depository Trust Company Automated Securities Transfer
Program.
3.23 Variable
Rate Transactions; Additional Registration Statements.
(a) For
a
period of two (2) years following the Closing Date, the Company shall
be
prohibited from effecting or entering into an agreement to effect any subsequent
financing involving a "Variable
Rate Transaction".
The
term "Variable
Rate Transaction"
shall
mean a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) 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 shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B)
with a conversion, exercise or exchange price that is subject to being reset
at
some future date after the initial issuance of such debt or equity security
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 or
(ii) any
amortizing convertible security which amortizes prior to its maturity date,
where the Company is required to or has the option to (or the investor in such
transaction has the option to require the Company to) make such amortization
payments in shares of Common Stock (whether
-27-
or
not
such payments in stock are subject to certain equity conditions), or (iii)
enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined
price.
(b) For
the
period commencing on the Closing Date and ending on the earlier of (i) the
date
that is ninety (90) days following the effective date of the Registration
Statement (as defined in the Registration Rights Agreement) or (ii) October
31,
2007, the Company shall not file any registration statement under the Securities
Act without the prior written consent of the Purchasers except for the
Registration Statement to be filed in accordance with the Registration Rights
Agreement to the transactions contemplated by this Agreement.
3.24 Dispute
Resolution.
In the
case of a dispute as to the determination of the Company entering into an
agreement to enter into a Variable Rate Transaction, the Company shall submit
the disputed determinations or arithmetic calculations via facsimile within
three (3) Business Days of the securities issuance or other event giving rise
to
such dispute, to the Holder (as defined below). If the Holder and the Company
are unable to agree upon such determination within five (5) Business Days of
such disputed determination being submitted to the Holder, then the Company
shall, within three (3) Business Days submit via facsimile a copy of the
disputed agreement or other documentation which the Holder believes may
constitute a Variable Rate Transaction, to an independent law firm (having
at
least 400 attorneys) selected by the Company and approved by Holder. The
Company, at the Company's expense, shall cause the law firm to perform the
determinations and notify the Company and the Holder of the results no later
than ten (10) Business Days from the time it receives the disputed
determinations. Such law firm’s determination shall be binding upon all parties
absent demonstrable error. The procedures required by this Section 3.24 are
collectively referred to herein as the “Variable
Rate Dispute Resolution Procedures.”
“Holder”
means
the Purchasers and each of their respective successors and assigns.
3.25 Financial
Covenants.
For the
three (3)-year period following the Closing Date (the "Financial
Covenant Period"),
the
Company agrees that the following financial covenants shall apply:
(a) Maximum
Capital Expenditures.
The
Company will not permit its Consolidated Capital Expenditures during any fiscal
quarter to exceed $200,000 plus, for each fiscal quarter ending after June
30,
2007, the Capex Carryover Amount, if any, for the prior fiscal quarter; provided
that the Consolidated Capital Expenditures during any four consecutive fiscal
quarters shall not exceed $1,200,000. The term "Consolidated
Capital Expenditures"
means,
for any period, the sum of, without duplication, (a) all cash expenditures
made,
directly or indirectly, by the Company and its subsidiaries during such period
for equipment, fixed assets, real property or improvements, or for replacements
or substitutions therefor or additions thereto, that have been or should be,
in
accordance with GAAP, reflected as additions to property, plant or equipment
on
a balance sheet of the Company and its subsidiaries plus (b) the aggregate
principal amount of all indebtedness (including Capitalized Lease Obligations)
assumed or incurred in connection with any such expenditures. For purposes
of
this definition, the purchase price of equipment that is purchased
simultaneously with the trade in of existing equipment or
-28-
with
insurance or condemnation proceeds shall be included in Consolidated Capital
Expenditures only to the extent of the gross amount of such purchase price
less
the credit granted by the seller of such equipment for the equipment being
traded in at such time or the amount of such insurance or condemnation proceeds,
as the case may be. The term "Capex
Carryover Amount"
means,
for any fiscal quarter, (i) the amount of Consolidated Capital Expenditures
permitted during such fiscal quarter pursuant to this Section 3.25(a) (after
giving effect to the Capex Carryover Amount, if any, for the previous fiscal
quarter) minus (ii) the Consolidated Capital Expenditures during such fiscal
quarter.
(b) Minimum
EBITDA.
The
Company will not permit its Consolidated EBITDA for any fiscal quarter
calculated for the Test Period ending on the last day of such fiscal quarter;
provided that for the Test Period ending on September 30, 2007, Consolidated
EBITDA shall be (x) Consolidated EBITDA for the three-fiscal-quarter period
ending on September 30, 2007 times (y) 4/3 to be less than (x) $500,000 for
fiscal quarters ending on or before September 30, 2007, (y) $2,000,000
for fiscal quarters ending on or after December 31, 2007, and on or before
September 30, 2008, or (z) $3,000,000 for fiscal quarters ending on or
after December 31, 2008. The term "Test
Period"
shall
mean each period of four consecutive fiscal quarters of the Company and its
subsidiaries then last ended (in each case taken as one accounting period).
The
term "Consolidated
EBITDA"
means,
for the Company and its subsidiaries for any period, an amount equal to (a)
the
sum (without duplication) of (i) Consolidated Net Income for such period plus
(ii) to the extent deducted in determining Consolidated Net Income for such
period, (A) Consolidated Interest Expense; (B) income tax expense; (C)
depreciation and amortization; (D) net losses on Asset Sales for such period;
(E) other non-cash charges for such period (excluding any such non-cash charge
to the extent that it represents an accrual of or reserve for cash expenditures
in any future period) (F) reasonable actual out-of-pocket transaction costs
and
integration expenses related directly to the Acquisitions and Approved
Acquisitions, if any; provided that the total costs and expenses added back
pursuant to this clause (F) for all periods shall not exceed $2,500,000; (G)
litigation costs and expenses and settlement costs incurred on or prior to
the
Closing Date; provided that the total costs and expenses added back pursuant
to
this clause (G) for all periods shall not exceed $4,900,000; (H) Compliance
Costs; provided that the Compliance Costs added back pursuant to this clause
(H)
for all periods shall not exceed $500,000; and (I) owners’ fees associated with
Acquisitions and Approved Acquisitions associated with any part of the period
in
which the Acquisition or Approved Acquisition was not a subsidiary of the
Company minus (b) to the extent included in determining Consolidated Net Income
for such period, (i) net gains on Asset Sales for such period, (ii) other
non-cash items increasing Consolidated Net Income for such period (excluding
any
non-cash gains for such period resulting from the reversal of an accrual or
reduction or elimination of a reserve established in a prior period to the
extent the related non-cash charge was excluded in accordance with clause
(a)(ii)(E) immediately above), in each case determined for such period on a
consolidated basis in accordance with GAAP. The term "Consolidated
Net Income"
means,
for any period, the net income (or loss) of the Company and its subsidiaries,
but excluding therefrom (to the extent otherwise included therein) (i) any
extraordinary gains or losses, (ii) any gains attributable to write-ups of
Assets, (iii) the net income (or loss) of any subsidiary of the Company if
and
to the extent such subsidiary is unable or otherwise prohibited by any
contractual restrictions, charter documents, or law applicable to such
subsidiary to make or pay any dividend or distribution to the holders of its
equity interests,
-29-
except
to
the extent such net income is actually made or paid as a dividend or
distribution to the Company or any subsidiary not subject to such restrictions
and (iv) any income (or loss) of any person (other than acquisition targets
of
the Company) accrued prior to the date (a) such person becomes a subsidiary,
(b)
is merged into or consolidated with the Company or any of its subsidiaries
or
(c) such person's assets are acquired by the Company or any of its subsidiaries,
in each case determined for such period on a consolidated basis in accordance
with GAAP. The term "Consolidated
Interest Expense"
means,
for the Company and its subsidiaries for any period determined on a consolidated
basis in accordance with GAAP, the total interest expense of the Company and
its
subsidiaries for such period, including without limitation the interest
component of any payments in respect of Capitalized Lease Obligations
capitalized or expensed during such period (whether or not actually paid during
such period). The term "Asset
Sale"
means
any direct or indirect sale, issuance, conveyance, transfer, assignment or
other
transfer for value by the Company or any of its subsidiaries to any person
other
than the Company or its subsidiaries of any property or assets of the Company
or
any subsidiary other than in the ordinary course of business. The term
"Compliance
Costs"
means,
for any period, all costs and expenses incurred by the Company directly as
a
result of complying with its obligations under this Agreement and under the
Registration Rights Agreement, including but not limited to (a) the costs of
all
legal and accounting services related to preparing Forms 8-KSB describing the
Acquisitions and Approved Acquisitions, if any, and a Form 8-KSB/A containing
audited financial statements of the Acquisitions and Approved Acquisitions,
if
any, interim financial statements and pro forma financial statement disclosures,
(b) the costs of preparing and filing a registration statement with the
Commission registering the Shares, (iii) the costs of a consultant to determine
purchase price allocations and the accounting value of the Warrants, and (iv)
a
public relations firm to manage publicity for the Acquisitions and Approved
Acquisitions, if any, and the financing related thereto.
3.26 Information
Statement.
The
Company shall prepare and file with the Commission, as promptly as practicable
after the date hereof but in no event later than twenty (20) days after the
date
hereof, an information statement (the "Preliminary
Information Statement"),
substantially in the form that has been previously reviewed and reasonably
approved by the Purchasers and a counsel of their choice, informing the
stockholders of the Company of the receipt of the consents of the requisite
stockholders (the "Stockholder
Approval")
approving resolutions to amend the Certificate of Incorporation, (a) to increase
the authorized number of shares of common stock from 150,000,000 shares to
250,000,000 shares and (b) to amend the rights and preferences of the Series
C
Preferred Stock, in substantially the form attached as Exhibit
K
hereto.
No more than ten (10) days after filing the Preliminary Information Statement,
or, in the event that the Commission comments on the Preliminary Information
Statement, no more than ten (10) days following the amendment to the Preliminary
Information Statement accepted by the Commission without comment, the Company
shall file a definitive information statement with the Commission and transmit
the requisite notice to its stockholders of record, provided, that, in the
event
that comments are received from the Commission, the Company responds to such
comments within ten (10) business days of receipt of such comments from the
Commission. Additionally, at the Closing, the Company shall have provided to
the
Purchasers evidence reasonably satisfactory to the Purchasers that the Company
has obtained from its Board of
-30-
Directors
and the shares of Company stock outstanding as of immediately prior to the
Closing all requisite consents and approvals to increase the authorized common
stock and amend the Certificate of Incorporation.
ARTICLE
IV
CONDITIONS
4.1 Conditions
Precedent to the Obligation of the Company to Sell the Shares.
The
obligation hereunder of the Company to issue and sell the Preferred Shares
and
the Warrants to the Purchasers is subject to the satisfaction or waiver, at
or
before the Closing, of each of the conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any
time
in its sole discretion.
(a) Accuracy
of Each Purchaser's Representations and Warranties.
The
representations and warranties of each Purchaser shall be true and correct
in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in
all
material respects as of such date.
(b) Performance
by the Purchasers.
Each
Purchaser shall have performed, satisfied and complied in all respects with
all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Purchaser at or prior to the
Closing.
(c) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(d) Delivery
of Purchase Price.
The
Purchase Price for the Preferred Shares and Warrants has been delivered to
the
Company at the Closing Date.
(e) Delivery
of Transaction Documents.
The
Transaction Documents shall have been duly executed and delivered by the
Purchasers and, with respect to the Escrow Agreement, the Escrow Agent, to
the
Company.
4.2 Conditions
Precedent to the Obligation of the Purchasers to Purchase the
Shares.
The
obligation hereunder of each Purchaser to acquire and pay for the Preferred
Shares and the Warrants is subject to the satisfaction or waiver, at or before
the Closing, of each of the conditions set forth below. These conditions are
for
each Purchaser's sole benefit and may be waived by such Purchaser at any time
in
its sole discretion.
(a) Accuracy
of the Company's Representations and Warranties.
Each of
the representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all respects as
of
the date when made and as of the
-31-
Closing
Date as though made at that time (except for representations and warranties
that
are expressly made as of a particular date), which shall be true and correct
in
all respects as of such date.
(b) Performance
by the Company.
The
Company shall have performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the
Closing.
(c) No
Suspension, etc.
Trading
in the Common Stock shall not have been suspended by the Commission or the
principal exchange or market on which Common Stock is quoted or traded (except
for any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the Closing), and, at any time
prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg")
shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the
New
York Stock Exchange, nor shall a banking moratorium have been declared either
by
the United States or New York State authorities, 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
judgment of such Purchaser, makes it impracticable or inadvisable to purchase
the Preferred Shares.
(d) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(e) No
Proceedings or Litigation.
No
action, suit or proceeding before any arbitrator or any governmental authority
shall have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Company or any subsidiary, or any of
the
officers, directors or affiliates of the Company or any subsidiary seeking
to
restrain, prevent or change the transactions contemplated by this Agreement,
or
seeking damages in connection with such transactions.
(f) Delivery
of Transaction Documents.
The
Transaction Documents shall have been duly executed and delivered by the Company
and, with respect to the Escrow Agreement, the Escrow Agent, to the
Purchasers.
(g) Series
D Director.
The
Company shall have taken all necessary corporate actions such that immediately
following the Closing, the number of directors constituting the full board
of
directors shall be increased by one (1) member (the "Series
D Director"),
who
shall be selected by the Purchasers and whose appointment to the board of
directors becomes effective as of the Closing, and who shall be nominated by
the
Issuer at each annual stockholders' meeting for election by the stockholders.
Such additional director shall initially be Xxxxxxx Xxxxxxxxx.
(h) Series
D Director Indemnification Agreement.
The
Company shall have entered into an Indemnification Agreement with the Series
D
Director which indemnifies the
-32-
Series
D
Director to the fullest extent of applicable law, in a form reasonably
acceptable to the Purchasers.
(i) Director's
and Officer's Insurance.
The
Company shall obtain standard Director's and Officer's Insurance on commercially
reasonable terms.
(j) Certificate
of Designation of Rights and Preferences.
Prior
to the Closing, the Certificate of Designation in the form of Exhibit
B
attached
hereto and the Series D-2 Certificate of Designation in the form of Exhibit
B-2
shall
have been filed with the Secretary of State of the State of
Delaware.
(k) Opinion
of Counsel, etc.
At the
Closing, the Purchasers shall have received one or more opinions of counsel
to
the Company, dated the date of the Closing, in the form of Exhibit
H
hereto,
and such other certificates and documents as the Purchasers or its counsel
shall
reasonably require incident to the Closing.
(l) Registration
Rights Agreement.
At the
Closing, the Company shall have executed and delivered the Registration Rights
Agreement to each Purchaser.
(m) Certificates.
The
Company shall have executed and delivered to the Purchasers the certificates
(in
such denominations as such Purchaser shall request) for the Preferred Shares
and
the Warrants being acquired by such Purchaser at the Closing (in such
denominations as such Purchaser shall request).
(n) Resolutions.
The
Board of Directors of the Company shall have adopted resolutions consistent
with
Section 2.1(b) hereof in a form reasonably acceptable to such Purchaser (the
"Resolutions").
(o) Reservation
of Shares.
As of
the Closing Date, the Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of
the
Preferred Shares, J Warrant Shares and the exercise of the Warrants, a number
of
shares of Common Stock equal to one hundred twenty percent (120%) of the
aggregate number of Conversion Shares issuable upon conversion of the Preferred
Shares outstanding on the Closing Date and the number of Warrant Shares issuable
upon exercise of the number of Warrants assuming such Warrants were granted
on
the Closing Date.
(p) Transfer
Agent Instructions.
The
Irrevocable Transfer Agent Instructions, in the form of Exhibit
G
attached
hereto, shall have been delivered to and acknowledged in writing by the
Company's transfer agent.
(q) Completion
of Due Diligence.
As of
the Closing Date, Purchasers shall have completed their due diligence review
of
the Company and its subsidiaries to their sole satisfaction.
(r) Lock-Up
Agreement.
As of
the Closing Date, the persons listed on Schedule
3.21
hereto
shall have delivered to the Purchasers a fully executed Lock-Up Agreement in
the
form of Exhibit E
attached
hereto.
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(s) Escrow
Agreement.
At the
Closing, the Company and the Escrow Agent shall have executed and delivered
the
Escrow Agreement to each Purchaser.
(t) Secretary's
Certificate.
The
Company shall have delivered to such Purchaser a secretary's certificate, dated
as of the Closing Date, as to (i) the Resolutions, (ii) the Certificate, (iii)
the Bylaws, (iv) the Certificate of Designation, each as in effect at the
Closing, and (v) the authority and incumbency of the officers of the Company
executing the Transaction Documents and any other documents required to be
executed or delivered in connection therewith.
(u) Officer's
Certificate.
The
Company shall have delivered to the Purchasers a certificate of an executive
officer of the Company, dated as of the Closing Date, confirming the accuracy
of
the Company's representations, warranties and covenants as of the Closing Date
and confirming the compliance by the Company with the conditions precedent
set
forth in this Section 4.2 as of the Closing Date.
(v) Variable-Priced
Securities.
Prior
to the Closing Date, any and all outstanding variable-priced securities of
the
Company shall be redeemed or prepaid or otherwise converted into or exchanged
for fixed-priced securities of the Company.
(w) Evidence
of Consent to Amend Certificate of Incorporation.
The
Company shall have provided to the Purchasers evidence reasonably satisfactory
to the Purchasers that the Company has obtained from its Board of Directors
and
the shares of Company stock outstanding as of immediately prior to the Closing
all requisite consents and approvals to increase the authorized common stock
and
amend the Certificate of Incorporation.
(x) Material
Adverse Effect.
No
Material Adverse Effect shall have occurred at or before the Closing
Date.
ARTICLE
V
STOCK
CERTIFICATE LEGEND
5.1 Legend.
Each
certificate representing the Preferred Shares and the Warrants, and, if
appropriate, securities issued upon conversion thereof, shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE
-34-
SECURITIES
LAWS OR BPO MANAGEMENT SERVICES, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL
THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The
Company agrees to reissue certificates representing any of the Conversion Shares
and the Warrant Shares, without the legend set forth above if at such time,
prior to making any transfer of any such securities, such holder thereof shall
give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request. Such proposed
transfer and removal will not be effected until: (a) either (i) the Company
has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Conversion Shares or the Warrant Shares
under the Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and
has
become effective under the Securities Act, (iii) the Company has received other
evidence reasonably satisfactory to the Company that such registration and
qualification under the Securities Act and state securities laws are not
required, or (iv) the holder provides the Company with reasonable assurances
that such security can be sold pursuant to Rule 144 under the Securities Act;
and (b) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that registration or qualification
under the securities or "blue sky" laws of any state is not required in
connection with such proposed disposition, or (ii) compliance with applicable
state securities or "blue sky" laws has been effected or a valid exemption
exists with respect thereto. The Company will respond to any such notice from
a
holder within five (5) business days. In the case of any proposed transfer
under
this Section 5.1, the Company will use reasonable efforts to comply with any
such applicable state securities or "blue sky" laws, but shall in no event
be
required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or "blue sky" laws of any state for which registration
by
coordination is unavailable to the Company. The restrictions on transfer
contained in this Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section
of this Agreement. Whenever
a
certificate representing the Conversion Shares or Warrant Shares is required
to
be issued to a Purchaser without a legend, in lieu of delivering physical
certificates representing the Conversion Shares or Warrant Shares (provided
that a registration statement under the Securities Act providing for the resale
of the Warrant Shares and Conversion Shares is then in effect and such request
is in connection with a sale),
the
Company shall cause its transfer agent to electronically transmit the Conversion
Shares or Warrant Shares to a Purchaser by crediting the account of such
Purchaser's Prime Broker with the Depository Trust Company ("DTC")
through its Deposit Withdrawal Agent Commission ("DWAC")
system
(to the extent not inconsistent with any provisions of this Agreement) provided
that the Company and the Company's transfer agent are participating in DTC
through the DWAC system.
-35-
ARTICLE
VI
RIGHTS
OF FIRST OFFER
6.1 Subsequent
Offerings.
For a
period of one (1) year following the Closing and subject to applicable
securities laws, each Purchaser shall have a right of first offer to purchase
its pro rata share of all Equity Securities (as defined below) that the Company
may, from time to time, propose to sell and issue after the date of this
Agreement, other than the Equity Securities excluded by Section 6.5 hereof.
Each
Purchaser’s pro rata share is equal to the number of Preferred Shares purchased
by the Purchaser, divided by the total number of Preferred Shares issued
pursuant to this Agreement. "Equity Securities" shall mean (i) any Common Stock,
preferred stock or other security of the Company, (ii) any security convertible
into or exercisable or exchangeable for, with or without consideration, any
Common Stock, preferred stock or other security (including any option to
purchase such a convertible security) of the Company, (iii) any security
carrying any warrant or right to subscribe to or purchase any Common Stock,
preferred stock or other security of the Company or (iv) any such warrant or
right.
6.2 Exercise
of Rights.
If the
Company proposes to issue any Equity Securities, it shall give each Purchaser
written notice of its intention, describing the Equity Securities, the price
and
the terms and conditions upon which the Company proposes to issue the same.
Each
Purchaser shall have twenty (20) business days from the giving of such notice
to
agree to purchase its pro rata share of the Equity Securities for the price
and
upon the terms and conditions specified in the notice by giving written notice
to the Company and stating therein the quantity of Equity Securities to be
purchased. Notwithstanding the foregoing, the right of first offer in this
Section 6.2 shall not be applicable with respect to any Purchaser and any
subsequent securities issuance, if (i) at the time of such subsequent securities
issuance, the Purchaser is not an "accredited investor," as that term is then
defined in Rule 501(a) under the Securities Act, and (ii) such subsequent
securities issuance is otherwise being offered only to accredited
investors.
6.3 Issuance
of Equity Securities to Other Persons.
If not
all of the Purchasers elect to purchase their pro rata share of the Equity
Securities, then the Company shall promptly notify in writing the Purchasers
who
do so elect (each, a "Fully Exercising Purchaser") and shall offer such Fully
Exercising Purchaser the right to acquire such unsubscribed shares on a pro
rata
basis. Each Fully Exercising Purchaser shall have five (5) days after receipt
of
such notice to notify the Company of its election to purchase all or a portion
thereof of the unsubscribed shares that is equal to the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion
and exercise of all convertible or exercisable securities then held, by such
Fully Exercising Purchaser bears to the total number of shares of Common Stock
issued and held, or issuable upon conversion and exercise of all convertible
or
exercisable securities then held, by all such Fully Exercising Purchasers.
The
Company shall have one hundred twenty (120) days thereafter to sell the Equity
Securities in respect of which the Purchaser’s rights were not exercised, at a
price not lower and upon general
-1-
terms
and
conditions not materially more favorable to the purchasers thereof than
specified in the Company’s notice to the Purchasers pursuant to Section 6.2
hereof. If the Company has not sold such Equity Securities within one hundred
twenty (120) days of the notice provided pursuant to Section 6.2, the Company
shall not thereafter issue or sell any Equity Securities, without first offering
such securities to the Purchasers in the manner provided above.
6.4 Termination
and Waiver of Rights of First Offer.
The
rights of first offer established by this Article VI shall not apply to, and
shall terminate upon the consummation of a transaction in which the stockholders
of the Company immediately prior to the transaction own less than 33% of the
voting capital stock (on an as converted to Common Stock basis) of the surviving
corporation following the transaction. Notwithstanding Section 6.3 hereof,
the
rights of first offer established by this Article VI may be amended, or any
provision waived with and only with the written consent of the Company and
the
Purchasers holding not less than 66% of the Preferred Shares, or as permitted
by
Section 9.3.
6.5 Excluded
Securities.
The
rights of first offer established by this Article VI shall have no application
to any of the following Equity Securities:
(a) Common
Stock issued or issuable pursuant to stock dividends, stock splits or similar
transactions, as described in the Company’s Restated Certificate of
Incorporation;
(b) securities
issuable upon conversion of any of the Series A Preferred shares, the Series
B
Preferred shares, the Preferred Shares, the J Warrant Shares or as a dividend
or
distribution on the Series A Preferred shares, the Preferred Shares or the
J
Warrant Shares;
(c) securities
issued upon the conversion of any debenture, warrant, option, or other
convertible security;
(d) Common
Stock, or options to purchase such shares of Common Stock, issued or issuable
to
employees or directors of, or consultants to, the Company directly or pursuant
to a stock option plan or restricted stock plan approved by a majority of the
Board of Directors;
(e) Common
Stock, or options or warrants to purchase Common Stock, issued or issuable
to
financial institutions or lessors in connection with commercial credit
arrangements, equipment financings, commercial property lease transactions
or
similar transactions, provided that such issuance is approved by a majority
of
the Board of Directors;
(f) Common
Stock, or warrants or options to purchase Common Stock, issued in connection
with bona fide acquisitions, mergers or similar transactions, the terms of
which
are approved by a majority of the Board of Directors; and
(g) Common
Stock issued or issuable to an entity as a component of any business
relationship with such entity for the purpose of (i) joint venture, technology
licensing or development activities, (ii) distribution, supply or manufacture
of
the Company’s products or
-2-
services,
or (iii) any other arrangements involving corporate partners that are primarily
for purposes other than raising capital, the terms of which business
relationship with such entity are approved by a majority of the Board of
Directors.
ARTICLE
VII
INDEMNIFICATION
7.1 Company
Indemnity.
The
Company agrees to indemnify and hold harmless the Purchasers (and their
respective directors, officers, managers, partners, members, stockholders,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred
by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company
herein.
7.2 Indemnification
Procedure.
Any
party entitled to indemnification under this Article
VII
(an
"indemnified party") will give written notice to the indemnifying party of
any
matters giving rise to a claim for indemnification; provided, that the failure
of any party entitled to indemnification hereunder to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Article
VII
except
to the extent that the indemnifying party is actually prejudiced by such failure
to give notice. In case any action, proceeding or claim is brought against
an
indemnified party in respect of which indemnification is sought hereunder,
the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between
it
and the indemnifying party may exist with respect of such action, proceeding
or
claim, to assume the defense thereof with counsel reasonably satisfactory to
the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle
or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then
the
indemnified party may, at its option, defend, settle or otherwise compromise
or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out
of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party
and
shall furnish to the indemnifying party all information reasonably available
to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto.
If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not
be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent.
-3-
Notwithstanding
anything in this Article
VII
to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of
any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article
VII
shall be
made by periodic payments of the amount thereof during the course of
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, so long as the indemnified party irrevocably
agrees to refund such moneys if it is ultimately determined by a court of
competent jurisdiction that such party was not entitled to indemnification.
The
indemnity agreements contained herein shall be in addition to (a) any cause
of
action or similar rights of the indemnified party against the indemnifying
party
or others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.
ARTICLE
VIII
TRIGGERING
EVENTS
8.1 Enforceability
of Certificate of Designation.
It is
the intent of the parties that the rights, preferences, privileges and
limitations of the Preferred Shares under the Certificate of Designation shall
inure to the Purchasers (and their assignees hereunder) and holders of the
Preferred Shares as stated in any other certificate of designation for any
other
equity instrument of the Company purchased by the Purchasers, all of which
shall
be deemed incorporated herein by reference. In the event, and to the extent,
that any of the terms or provisions, or any portion thereof, of the Certificate
of Designation or any other certificate of designation for any other equity
instrument of the Company purchased by the Purchasers is held to be
unenforceable or invalid (including all such terms and provisions of any such
certificate of designation that is held to be void or is voided) by any court
of
competent jurisdiction, then the Purchasers and their successors and permitted
assigns shall have under this Agreement the same rights, preferences and
privileges as provided in the Certificate of Designation; provided
that in
the case of any payments due under the Certificate of Designation or any other
certificate of designation for any other equity instrument of the Company
purchased by the Purchasers, as incorporated herein by reference, there shall
be
made appropriate reductions for any payments actually made and not required
to
be rescinded or returned in respect of the shares of the Preferred Shares or
other equity instrument of the Company purchased by the Purchasers, as
applicable. The parties agree that the foregoing right of enforcement under
this
Section 8.1 shall be the sole and exclusive remedy of the Purchasers, their
assignees or the holders with respect to any determination by any court of
competent jurisdiction that any of the terms or provisions of the Certificate
of
Designation or any other certificate of designation for any other equity
instrument of the Company purchased by the Purchasers are unenforceable or
invalid under the law of the Company's domicile state provided that the
Purchasers, their assignees or the holders receive the intended benefits set
forth in the Certificate of Designation.
8.2 Waiver
of Triggering Event.
A vote
of not less than 66% of the outstanding Shares may waive any existing Triggering
Event (as defined in the Certificate of Designation) under this Agreement,
and
its consequences.
-4-
8.3 Officers'
Certificate.
Under
this Agreement, the Company is required to provide an officers' certificate
to
the holders of the Shares promptly upon any such officer obtaining knowledge
of
any Triggering Event (provided that such officers shall provide such
certification at least annually whether or not they know of any Triggering
Event) that has occurred and, if applicable, describe such Triggering Event
and
the status thereof.
ARTICLE
IX
MISCELLANEOUS
9.1 Fees
and Expenses.
Except
as otherwise set forth in this Agreement and the other Transaction Documents,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, delivery and performance
of
this Agreement, provided
that the
Company shall pay all actual attorneys' fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with (i) the preparation, negotiation, execution and delivery of
this
Agreement and the other Transaction Documents and the transactions contemplated
thereunder, which payment shall be made at the Closing and shall not exceed
$90,000 in the aggregate (including $10,000 to pay the legal expenses of XXXX
Capital Group, Inc., and the $10,000 retainer previously advanced by the
Company), (ii) the filing and declaration of effectiveness by the Commission
of
the Registration Statement (as defined in the Registration Rights Agreement)
and
(iii) any amendments, modifications or waivers of this Agreement or any of
the
other Transaction Documents. The Company shall also pay up to $15,000 (less
any
amount previously paid by the Company relating thereto) to Vision Opportunity
Master Fund, Ltd. at the Closing in connection with all due diligence expenses
incurred by Vision Opportunity Capital Management, LLC, and all reasonable
fees
and expenses incurred by the Purchasers in connection with the enforcement
of
this Agreement or any of the other Transaction Documents, including, without
limitation, all reasonable attorneys' fees and expenses.
In
addition, the Company shall pay all reasonable Escrow Agent's fees and expenses.
The fees set forth in this Section 9.1 shall be paid at Closing.
9.2 Specific
Enforcement, Consent to Jurisdiction.
(a) The
Company and the Purchasers acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the other
Transaction Documents were not performed in accordance with their specific
terms
or were otherwise breached. It is accordingly agreed that the parties shall
be
entitled to an injunction or
-5-
injunctions
to prevent or cure breaches of the provisions of this Agreement or the
Registration Rights Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.
(b) Each
of
the Company and the Purchasers (i) hereby irrevocably submits to the
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New
York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is
not
personally subject to the jurisdiction of such court, that the suit, action
or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to
it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 9.2
shall affect or limit any right to serve process in any other manner permitted
by law.
9.3 Entire
Agreement; Amendment.
This
Agreement and the Transaction Documents contain the entire understanding and
agreement of the parties with respect to the matters covered hereby and, except
as specifically set forth herein or in the Transaction Documents, neither the
Company nor any of the Purchasers makes any representations, warranty, covenant
or undertaking with respect to such matters and they supersede all prior
understandings and agreements with respect to said subject matter, all of which
are merged herein. No provision of this Agreement may be waived or amended
other
than by a written instrument signed by the Company and the holders of at least
seventy-five percent (75%) of the Preferred Shares then outstanding, and no
provision hereof may be waived other than by an a written instrument signed
by
the party against whom enforcement of any such amendment or waiver is sought.
No
such amendment shall be effective to the extent that it applies to less than
all
of the holders of the Preferred Shares then outstanding. No consideration shall
be offered or paid to any person to amend or consent to a waiver or modification
of any provision of any of the Transaction Documents unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
9.4 Notices.
Any
notice, demand, request, waiver or other communication required or permitted
to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), e-mail or
facsimile at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to
-6-
such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
|
If
to the Company:
|
BPO
Management Services, Inc.
0000
X. Xxxxxxx, Xxx 000
Xxxxxxx,
XX 00000
Attention:
Chief Executive Officer
Tel.
No.: (000) 000-0000
Fax
No.: (000) 000-0000
E-mail:
xxxxxxx.xxxxx@xxxxx.xxx
|
|
with
copies to (which copy shall not constitute notice):
|
Xxxxx
Xxxx LLP
0000
Xxxx Xxxxxx, Xxxxx 000
Xxxxxx,
XX 00000
Attention:
Xxxxxxx X. Xxxx, Esq.
Tel.
No.: (000) 000-0000
Fax
No.: (000) 000-0000
E-mail:
xxxxxx@xxxxxxxxx.xxx
|
|
and:
|
|
|
Xxxxxxx
& Xxxxxx
00000
XxxXxxxxx Xxxx., Xxxxx 000
Xxxxxx,
XX 00000
Attention:
Xxxx X. Xxxxxxx, Esq.
Tel.
No.: (000) 000-0000
Fax
No.: (000) 000-0000
|
|
|
If
to any Purchaser:
|
At
the address of such Purchaser set forth on Exhibit
A
to
this Agreement, with copies to Purchaser's counsel as set forth on
Exhibit
A
or
as specified in writing by such Purchaser
|
|
with
copies to (which copy shall not constitute notice):
|
Sheppard,
Mullin, Xxxxxxx & Xxxxxxx LLP
000
X. Xxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxxxxx, XX 00000
Attention:
Xxxxx X. Xxxxxx, Esq.
Tel
No.: (000) 000-0000
Fax
No.: (000) 000-0000
E-mail:
xxxxxxx@xxxxxxxxxxxxxx.xxx
|
Any
party
hereto may from time to time change its address for notices by giving at least
ten (10) days' written notice of such changed address to the other party
hereto.
9.5 Waivers.
No
waiver by either party of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver
in
the future or a
-7-
waiver
of
any other provisions, condition or requirement hereof, nor shall any delay
or
omission of any party to exercise any right hereunder in any manner impair
the
exercise of any such right accruing to it thereafter.
9.6 Headings.
The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose
and
shall not be deemed to limit or affect any of the provisions
hereof.
9.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns.
9.8 No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
9.9 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts
of
law principles which would result in the application of the substantive law
of
another jurisdiction. This Agreement shall not be interpreted or construed
with
any presumption against the party causing this Agreement to be
drafted.
9.10 Survival.
The
representations and warranties of the Company and the Purchasers shall survive
the execution and delivery hereof and the Closing until the second anniversary
of the Closing Date, except the agreements and covenants set forth in
Articles
I, III, V, VI, VII, VIII
and
IX
of this
Agreement shall survive the execution and delivery hereof and the Closing
hereunder, provided, that the covenants set forth in Article III of this
Agreement which contain a term shall so survive only until expiration of said
term..
9.11 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties need not sign the same counterpart.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or
on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
-8-
9.12 Publicity.
The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchasers without the consent of the Purchasers
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
9.13 Severability.
The
provisions of this Agreement and the Transaction Documents are severable and,
in
the event that any court of competent jurisdiction shall determine that any
one
or more of the provisions or part of the provisions contained in this Agreement
or the Transaction Documents shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision
of
this Agreement or the Transaction Documents and such provision shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or
part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent
possible.
9.14 Further
Assurances.
From
and after the date of this Agreement, upon the request of any Purchaser or
the
Company, each of the Company and the Purchasers shall execute and deliver such
instrument, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Preferred Shares, the Conversion Shares, the
Warrants, the Warrant Shares, the Certificate of Designation, and the
Registration Rights Agreement.
9.15 2007
Stock Incentive Plan.
The
Purchasers hereby acknowledge and agree that the Company shall have the right
to
establish a stock incentive plan (the "Plan"),
approved by the Board of Directors, including the approval of the Series D
Director, for the benefit of the current and future management of the Company
and its subsidiaries pursuant to which Four Million Six Hundred Thousand
(4,666,667) shares of Common Stock may be issued, provided that options to
purchase up to an aggregate Two Million Three Hundred Thousand (2,333,334)
shares of the Common Stock available for issuance under the Plan shall be
granted (including options to purchase Common Stock) to Xxxxxxx Xxxxx and Xxxxx
Xxxxxxx. The vesting provisions of stock options pursuant to the Plan shall
be
on terms no more favorable than the Company’s normal vesting provisions for
awards of stock options to its key employees generally; provided that two-thirds
of the shares covered by options issued as permitted herein shall not vest
until
expiration of the Financial Covenant Period.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
-9-
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officer as of the date first above
written.
|
BPO
MANAGEMENT SERVICES, INC.
|
|
|
By:
/s/ Xxxxxxx X. Xxxxx
|
|
|
Name:
Xxxxxxx X. Xxxxx
Title:
Chairman and CEO
|
|
|
VISION
OPPORTUNITY MASTER FUND, LTD.
|
|
|
By:
/s/ Xxxx Xxxxxxxx
Name:
Xxxx Xxxxxxxx
Title:
Portfolio Manager
|
|
|
RENAISSANCE
CAPITAL GROWTH & INCOME FUND III, INC.
|
|
|
By:
/s/ Xxxxxxx Xxxxxxxxx
Xxxxxxx
Xxxxxxxxx
President
|
|
|
RENAISSANCE
US GROWTH INVESTMENT TRUST PLC
|
|
|
By:
/s/ Xxxxxxx Xxxxxxxxx
Xxxxxxx
Xxxxxxxxx
President
and Director
|
|
|
US
SPECIAL OPPORTUNITIES TRUST PLC
|
|
|
By:
/s/ Xxxxxxx Xxxxxxxxx
Xxxxxxx
Xxxxxxxxx
US
Portfolio Manager
|
|
[SIGNATURE
PAGE TO SECURITIES PURCHASE AGREEMENT]
|
||
|
PREMIER
XXXX US EMERGING GROWTH FUND LTD.
|
|
|
By:
/s/ Xxxxxxx Xxxxxxxxx
Xxxxxxx
Xxxxxxxxx
President
|
|
|
BRIDGEPOINTE
MASTER FUND LTD.
|
|
|
By:
/s/ Xxxx X. Xxxxxx
Name:
Xxxx X. Xxxxxx
Title:
Director
|
|
|
XXXXXX
CAPITAL INVESTMENTS LLC
|
|
|
By:
/s/ Xxxxxx X. Xxxxxx
Name:
Xxxxxx X. Xxxxxx
Title:
CIO
|
|
|
[SIGNATURE
PAGE TO SECURITIES PURCHASE AGREEMENT]
|
||
EXHIBIT
A to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
|
Legal
Entity Name and Address of Purchaser
|
Number
of Preferred Shares & Warrants
Purchased
|
Dollar
Amount of Investment
|
||
|
VISION
OPPORTUNITY MASTER FUND, LTD.
|
Preferred
Shares: 708,333.4
|
$
6,800,000.00
|
||
|
00
X. 00xx Xxxxxx, 0xx floor
|
Series
A Warrants: 5,666,667
|
|||
|
Xxx
Xxxx, XX 00000
|
Series
B Warrants: 11,333,334
|
|||
|
Tel:
Fax: 000-000-0000
|
Series
J Warrants: 708,333.4
|
|||
|
Attn:
Xxxx Xxxxxxxx and Antti Uusiheimala
|
Series
C Warrants: 5,666,667
|
|||
|
E-mail:
xxxx@xxxxxxx.xxx & xxxxx@xxxxxxx.xxx
|
Series
D Warrants: 11,333,334
|
|||
|
RENAISSANCE
US GROWTH INVESTMENT TRUST PLC ("RUSGIT")
|
Preferred
Shares: 130,208.4
|
$
1,250,000.00
|
||
|
Frost
National Bank
|
Series
A Warrants: 1,041,667
|
|||
|
000
X. Xxxxxxx Xxxxxx
|
Series
B Warrants: 2,083,334
|
|||
|
ATTN:
Xxxxx Xxxxxxxxx T-8
|
Series
J Warrants: 130,208.4
|
|||
|
Xxx
Xxxxxxx, XX 00000
|
Series
C Warrants: 1,041,667
|
|||
|
Contact
for docs: Xxxx Xxxxxxxx
|
Series
D Warrants: 2,083,334
|
|||
|
Tel:
(000) 000-0000/ Fax:
|
||||
|
Email:
xxxxxxxxx@xxxxxxxxxx.xxx
|
||||
|
RENAISSANCE
CAPITAL GROWTH & INCOME FUND III, INC. ("RENN3")
|
Preferred
Shares: 104,166.7
|
$
1,000,000.00
|
||
|
Frost
National Bank
|
Series
A Warrants: 833,334
|
|||
|
000
X. Xxxxxxx Xxxxxx
|
Series
B Warrants: 1,666,667
|
|||
|
ATTN:
Xxxxx Xxxxxxxxx T-8
|
Series
J Warrants: 104,166.7
|
|||
|
Xxx
Xxxxxxx, XX 00000
|
Series
C Warrants: 833,334
|
|||
|
Contact
for docs: Xxxx Xxxxxxxx
|
Series
D Warrants: 1,666,667
|
|||
|
Tel:
(000) 000-0000/ Fax:
|
||||
|
Email:
xxxxxxxxx@xxxxxxxxxx.xxx
|
||||
|
US
SPECIAL OPPORTUNITIES TRUST PLC ("USSO")
|
Preferred
Shares: 130,208.4
|
$
1,250,000.00
|
||
|
Frost
National Bank
|
Series
A Warrants: 1,041,667
|
|||
|
000
X. Xxxxxxx Xxxxxx
|
Series
B Warrants: 2,083,334
|
|||
|
ATTN:
Xxxxx Xxxxxxxxx T-8
|
Series
J Warrants: 130,208.4
|
|||
|
Xxx
Xxxxxxx, XX 00000
|
Series
C Warrants: 1,041,667
|
|||
|
Contact
for docs: Xxxx Xxxxxxxx
|
Series
D Warrants: 2,083,334
|
|||
|
Tel:
(000) 000-0000/ Fax:
|
||||
|
Email:
xxxxxxxxx@xxxxxxxxxx.xxx
|
|
EXHIBIT
A
|
||
|
PREMIER
XXXX US EMERGING GROWTH FUND LTD.
("PREMIER")
|
Preferred
Shares: 52,083.4
|
$
500,000.00
|
||
|
Premier
XXXX US Emerging Growth Fund Ltd.
|
Series
A Warrants: 416,667
|
|||
|
Acct
# PRN01/17-28085
|
Series
B Warrants: 833,334
|
|||
|
c/o
Xxxxxxxx Xxxxxxx
|
Series
J Warrants: 52,083.4
|
|||
|
The
Northern Trust Company
|
Series
C Warrants: 416,667
|
|||
|
000
Xxxxx Xxxxx Xxxxxx, X-0-Xxxxx
|
Series
D Warrants: 833,334
|
|||
|
Xxxxxxx,
XX 00000
|
||||
|
Contact
for docs: Xxxx Xxxxxxxx
|
||||
|
Tel:
(000) 000-0000/ Fax:
|
||||
|
Email:
xxxxxxxxx@xxxxxxxxxx.xxx
|
||||
|
BRIDGEPOINTE
MASTER FUND LTD.
|
Preferred
Shares: 208,333.4
|
$
2,000,000.00
|
||
|
0000
Xxxxxxxxx Xxxxxxx, Xxxxx 000
|
Series
A Warrants: 1,666,667
|
|||
|
Xxxxxxxxxx,
XX 00000
|
Series
B Warrants: 3,333,334
|
|||
|
Contact
for docs: Xxxx Xxxxxxx
|
Series
J Warrants: 208,333.4
|
|||
|
Tel:
000-000-0000 xxx 000 Fax: 000.000.0000
|
Series
C Warrants: 1,666,667
|
|||
|
Email:
xxxxxxxxxxx@xxxxxxxxxxxxxxxxxxxxxx.xxx
|
Series
D Warrants: 3,333,334
|
|||
|
XXXXXX
CAPITAL INVESTMENTS LLC
|
Preferred
Shares: 125,000.1
|
$
1,200,000.00
|
||
|
000
X. Xxxxxxxx Xxx
|
Series
A Warrants: 1,000,001
|
|||
|
Xxxxxxxxx
Xxxxxx, XX 00000
|
Series
B Warrants: 2,000,001
|
|||
|
Contacts
for docs: Xxxxxx Xxxx
|
Series
J Warrants: 125,000.1
|
|||
|
Tel:
000-000-0000/ Fax: 000-000-0000
|
Series
C Warrants: 1,000,001
|
|||
|
Email:
xxxxx@xxxxxxxxxxxxxxxxxxxxx.xxx
|
Series
D Warrants: 2,000,001
|
|
EXHIBIT
A
|
||
EXHIBIT
B to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF CERTIFICATE OF DESIGNATION
|
EXHIBIT
B
|
||
EXHIBIT
B-2 to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF SERIES D-2 CERTIFICATE OF DESIGNATION
|
EXHIBIT
B-2
|
||
EXHIBIT
C-1 to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF SERIES A WARRANT
|
EXHIBIT
C-1
|
||
EXHIBIT
C-2 to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF SERIES B WARRANT
|
EXHIBIT
C-2
|
||
EXHIBIT
C-3 to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF SERIES J WARRANT
|
EXHIBIT
C-3
|
||
EXHIBIT
C-4 to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF SERIES C WARRANT
|
EXHIBIT
C-4
|
||
EXHIBIT
C-5 to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF SERIES D WARRANT
|
EXHIBIT
C-5
|
||
EXHIBIT
D to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF REGISTRATION RIGHTS AGREEMENT
|
EXHIBIT
D
|
||
EXHIBIT
E to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF LOCK-UP AGREEMENT
|
EXHIBIT
E
|
||
EXHIBIT
F to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF ESCROW AGREEMENT
|
EXHIBIT
F
|
||
EXHIBIT
G to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
BPO
MANAGEMENT SERVICES, INC.
as
of
June __, 2007
[Name
and
address of Transfer Agent]
Attn:
_____________
Ladies
and Gentlemen:
Reference
is made to that certain Series D Convertible Preferred Stock Purchase Agreement
(the "Purchase
Agreement"),
dated
as of June __, 2007, by and among BPO Management Services, Inc., a Delaware
corporation (the "Company"),
and
the purchasers named therein (collectively, the "Purchasers")
pursuant to which the Company is issuing to the Purchasers shares of its Series
D Convertible Preferred Stock, par value $0.01 per share, (the "Preferred
Shares")
and
warrants (the "Warrants")
to
purchase shares of the Company's common stock, par value $0.01 per share (the
"Common
Stock").
This
letter shall serve as our irrevocable authorization and direction to you
provided that you are the transfer agent of the Company at such time) to issue
shares of Common Stock upon conversion of the Preferred Shares (the
"Conversion
Shares")
and
exercise of the Warrants (the "Warrant
Shares")
to or
upon the order of a Purchaser from time to time upon (i) surrender to you of
a
properly completed and duly executed Conversion Notice or Exercise Notice,
as
the case may be, in the form attached hereto as Exhibit I and Exhibit II,
respectively, (ii) in the case of the conversion of Preferred Shares, a copy
of
the certificates (with the original certificates delivered to the Company)
representing Preferred Shares being converted or, in the case of Warrants being
exercised, a copy of the Warrants (with the original Warrants delivered to
the
Company) being exercised (or, in each case, an indemnification undertaking
with
respect to such share certificates or the warrants in the case of their loss,
theft or destruction), and (iii) delivery of a treasury order or other
appropriate order duly executed by a duly authorized officer of the Company.
So
long as you have previously received (x) written confirmation from counsel
to
the Company that a registration statement covering resales of the Conversion
Shares or Warrant Shares, as applicable, has been declared effective by the
Securities and Exchange Commission (the "SEC")
under
the Securities Act of 1933, as amended (the "1933
Act"),
and
no subsequent notice by the Company or its counsel of the suspension or
termination of its effectiveness and (y) a copy of such registration statement,
and if the Purchaser represents in writing that the Conversion Shares or the
Warrant Shares, as the case may be, were sold pursuant to the Registration
Statement, then certificates representing the Conversion Shares and the Warrant
Shares, as the case may be, shall not bear any legend restricting transfer
of
the Conversion Shares and the Warrant Shares, as the case may be, thereby and
should not be subject to any stop-transfer restriction. Provided, however,
that
if you have not previously received those items and representations listed
above, then the certificates for the Conversion Shares and the Warrant Shares
shall bear the following legend:
"THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR
BPO
MANAGEMENT SERVICES, INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
and,
provided further, that the Company may from time to time notify you to place
stop-transfer restrictions on the certificates for the Conversion Shares and
the
Warrant Shares in the event a registration statement covering the Conversion
Shares and the Warrant Shares is subject to amendment for events then
current.
A
form of
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares and the Warrant Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
III.
Please
be
advised that the Purchasers are relying upon this letter as an inducement to
enter into the Purchase Agreement and, accordingly, each Purchaser is a third
party beneficiary to these instructions.
Please
execute this letter in the space indicated to acknowledge your agreement to
act
in accordance with these instructions. Should you have any questions concerning
this matter, please contact me at ___________.
Very
truly yours,
BPO
MANAGEMENT SERVICES, INC.
By:
Name:
Title:
ACKNOWLEDGED
AND AGREED:
[TRANSFER
AGENT]
By:
Name:
Title:
Date:
|
EXHIBIT
G
|
||
EXHIBIT
I
BPO
MANAGEMENT SERVICES, INC.
CONVERSION
NOTICE
Reference
is made to the Certificate of Designation of the Relative Rights and Preferences
of the Series D Convertible Preferred Stock of BPO Management Services, Inc.
(the "Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series D Convertible Preferred Stock, par value $0.01 per share
(the "Preferred Shares"), of BPO Management Services, Inc., a Delaware
corporation (the "Company"), indicated below into shares of Common Stock, par
value $0.01 per share (the "Common Stock"), of the Company, by tendering the
stock certificate(s) representing the share(s) of Preferred Shares specified
below as of the date specified below.
Date
of
Conversion: ________________________________________________
Number
of
Preferred Shares to be converted: ______________________________
Stock
certificate no(s). of Preferred Shares to be converted:
___________________
The
Common Stock have been sold pursuant to the Registration Statement (as defined
in the Registration Rights Agreement): YES ____ NO____
Please
confirm the following information:
Conversion
Price:
________________________________________________________________
Number
of
shares of Common Stock to
be
issued: _______________________________________
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: _________________________
Please
issue the Common Stock into which the Preferred Shares are being converted
and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:
Issue
to:
___________________________________________________________
Facsimile
Number: ____________________________________________________
Authorization:
_______________________________________________________
By:
___________________________________________________
Title:
__________________________________________________
Dated:
|
EXHIBIT
G
|
||
EXHIBIT
II
FORM
OF EXERCISE NOTICE
EXERCISE
FORM
BPO
MANAGEMENT SERVICES, INC.
The
undersigned _______________, pursuant to the provisions of the within Warrant,
hereby elects to purchase _____ shares of Common Stock of BPO Management
Services, Inc. covered by the within Warrant.
Dated:
_________________
Signature
___________________________
Address
____________________________
____________________________________
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the date of Exercise: _________________________
ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and
does
irrevocably constitute and appoint _____________, attorney, to transfer the
said
Warrant on the books of the within named corporation.
Dated:
_________________
Signature
___________________________
Address
____________________________
___________________________________
PARTIAL
ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named
corporation.
Dated:
_________________
Signature
__________________________
Address
___________________________
__________________________________
FOR
USE
BY THE ISSUER ONLY:
This
Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock
in
the name of _______________.
|
EXHIBIT
G
|
||
EXHIBIT
III
FORM
OF NOTICE OF EFFECTIVENESS
OF
REGISTRATION STATEMENT
[Name
and
address of Transfer Agent]
Attn:
_____________
Re: BPO
Management Services, Inc.
Ladies
and Gentlemen:
We
are
counsel to BPO Management Services, Inc., a Delaware corporation (the
"Company"),
and
have represented the Company in connection with that certain Series D
Convertible Preferred Stock Purchase Agreement (the "Purchase
Agreement"),
dated
as of June __, 2007, by and among the Company and the purchasers named therein
(collectively, the "Purchasers")
pursuant to which the Company issued to the Purchasers shares of its Series
D
Convertible Preferred Stock, par value $0.01 per share, (the "Preferred
Shares")
and
warrants (the "Warrants")
to
purchase shares of the Company's common stock, par value $0.01 per share (the
"Common
Stock").
Pursuant to the Purchase Agreement, the Company has also entered into a
Registration Rights Agreement with the Purchasers (the "Registration
Rights Agreement"),
dated
as of June __, 2007, pursuant to which the Company agreed, among other things,
to register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of
the
Preferred Shares and exercise of the Warrants, under the Securities Act of
1933,
as amended (the "1933
Act").
In
connection with the Company's obligations under the Registration Rights
Agreement, on ________________, 2007, the Company filed a Registration Statement
on Form SB-2 (File No. 333-________) (the "Registration
Statement")
with
the Securities and Exchange Commission (the "SEC")
relating to the resale of the Registrable Securities which names each of the
present Purchasers as a selling stockholder thereunder.
In
connection with the foregoing, we advise you that a member of the SEC's staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS]
on
[ENTER
DATE OF EFFECTIVENESS]
and we
have no knowledge, after telephonic inquiry of a member of the SEC's staff,
that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC
and
accordingly, the Registrable Securities are available for resale under the
1933
Act pursuant to the Registration Statement.
Very
truly yours,
[COMPANY
COUNSEL]
By:
cc: [LIST
NAMES OF PURCHASERS]
|
EXHIBIT
G
|
||
EXHIBIT
H to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF OPINION OF COUNSEL
1. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry on
its
business as presently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary.
2. The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the
Preferred Stock, the Warrants and the Common Stock issuable upon conversion
of
the Preferred Stock and exercise of the Warrants. The execution, delivery and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
and
validly authorized by all necessary corporate action and no further consent
or
authorization of the Company or its Board of Directors or stockholders is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants
are
not subject to any preemptive rights under the Certificate of Incorporation
or
the Bylaws.
3. The
Preferred Stock and the Warrants have been duly authorized and, when delivered
against payment in full as provided in the Purchase Agreement, will be validly
issued, fully paid and nonassessable. The shares of Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants, have been duly
authorized and reserved for issuance, and, when delivered upon conversion or
against payment in full as provided in the Certificate of Designation and the
Warrants, as applicable, will be validly issued, fully paid and
nonassessable.
4. The
execution, delivery and performance of and compliance with the terms of the
Transaction Documents and the issuance of the Preferred Stock, the Warrants
and
the Common Stock issuable upon conversion of the Preferred Stock and exercise
of
the Warrants do not (i) violate any provision of the Certificate of
Incorporation or Bylaws, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on
any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of
any
federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction or decree (including
|
EXHIBIT
H
|
||
Federal
and state securities laws and regulations) applicable to the Company or by
which
any property or asset of the Company is bound or affected, except, in all cases
other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
5. No
consent, approval or authorization of or designation, declaration or filing
with
any governmental authority on the part of the Company is required under Federal,
state or local law, rule or regulation in connection with the valid execution
and delivery of the Transaction Documents, or the offer, sale or issuance of
the
Preferred Stock, the Warrants or the Common Stock issuable upon conversion
of
the Preferred Stock and exercise of the Warrants other than the Certificate
of
Designation and the Registration Statement.
6. There
is
no action, suit, claim, investigation or proceeding pending or threatened
against the Company which questions the validity of this Agreement or the
transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. There is no action, suit, claim, investigation or proceeding
pending, or to our knowledge, threatened, against or involving the Company
or
any of its properties or assets and which, if adversely determined, is
reasonably likely to result in a Material Adverse Effect. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7. The
offer, issuance and sale of the Preferred Stock and the Warrants and the offer,
issuance and sale of the shares of Common Stock issuable upon conversion of
the
Preferred Stock and exercise of the Warrants pursuant to the Purchase Agreement,
the Certificate of Designation and the Warrants, as applicable, are exempt
from
the registration requirements of the Securities Act.
8. The
Company is not, and as a result of and immediately upon Closing will not be,
an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as
amended.
Very
truly yours,
|
EXHIBIT
H
|
||
EXHIBIT
J to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
FORM
OF J WARRANT SHARES CERTIFICATE OF DESIGNATION
|
EXHIBIT
J
|
||
EXHIBIT
K to the
SERIES
D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
BPO
MANAGEMENT SERVICES, INC.
AMENDED
FORMS OF CERTIFICATE OF INCORPORATION
|
EXHIBIT
K
|
||
