DEBENTURE AND WARRANT PURCHASE
AGREEMENT
DATED AS OF APRIL 19, 2002
AMONG
APPIANT TECHNOLOGIES, INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
PAGE
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ARTICLE I Purchase and Sale of Debentures and Warrants. . . . . . . . 3
Section 1.1 Purchase and Sale of Debentures and Warrants. . . . . 3
Section 1.2 Purchase Price and Closing. . . . . . . . . . . . . . 3
Section 1.3 Escrow. . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.4 Warrants. . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.5 Conversion Shares / Warrant Shares. . . . . . . . . . 4
ARTICLE II Representations and Warranties . . . . . . . . . . . . . . 4
Section 2.1 Representations and Warranties of the Company . . . . 4
Section 2.2 Representations and Warranties of the Purchasers. . . 14
ARTICLE III Covenants . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.1 Securities Compliance . . . . . . . . . . . . . . . . 16
Section 3.2 Registration and Listing. . . . . . . . . . . . . . . 16
Section 3.3 Inspection Rights . . . . . . . . . . . . . . . . . . 17
Section 3.4 Compliance with Laws. . . . . . . . . . . . . . . . . 17
Section 3.5 Keeping of Records and Books of Account . . . . . . . 17
Section 3.6 Reporting Requirements. . . . . . . . . . . . . . . . 17
Section 3.7 Amendments. . . . . . . . . . . . . . . . . . . . . . 18
Section 3.8 Other Agreements. . . . . . . . . . . . . . . . . . . 18
Section 3.9 Distributions . . . . . . . . . . . . . . . . . . . . 18
Section 3.10 Subsequent Financings; Right of First Refusal . . . . 18
Section 3.11 Reservation of Shares . . . . . . . . . . . . . . . . 19
Section 3.12 Transfer Agent Instructions . . . . . . . . . . . . . 19
Section 3.13 Disposition of Assets . . . . . . . . . . . . . . . . 20
Section 3.14 Repayment of Other Indebtedness . . . . . . . . . . . 20
Section 3.15 Non-public Information . . . . . . . . . . . . . . . 20
Section 3.16 Board Membership . . . . . . . . . . . . . . . . . . 20
Section 3.17 Stockholder Approval or Nasdaq Waiver . . . . . . . . 20
ARTICLE IV Conditions . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.1 Conditions Precedent to the Obligation of the Company
to Close and to Sell the Debentures and Warrants. . . 21
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Close and toPurchase the
Debentures and Warrants . . . . . . . . . . . . . . . 21
ARTICLE V Certificate Legend. . . . . . . . . . . . . . . . . . . . . 24
Section 5.1 Legend. . . . . . . . . . . . . . . . . . . . . . . . 24
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ARTICLE VI Termination. . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.1 Termination by Mutual Consent.. . . . . . . . . . . . 25
Section 6.2 Effect of Termination . . . . . . . . . . . . . . . . 25
ARTICLE VII Indemnification . . . . . . . . . . . . . . . . . . . . . 25
Section 7.1 General Indemnity . . . . . . . . . . . . . . . . . . 25
Section 7.2 Indemnification Procedure . . . . . . . . . . . . . . 25
ARTICLE VIII Miscellaneous. . . . . . . . . . . . . . . . . . . . . . 26
Section 8.1 Fees and Expenses . . . . . . . . . . . . . . . . . . 26
Section 8.2 Specific Enforcement; Consent to Jurisdiction.. . . . 27
Section 8.3 Entire Agreement; Amendment . . . . . . . . . . . . . 27
Section 8.4 Notices . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.5 Waivers . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.6 Headings. . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.7 Successors and Assigns. . . . . . . . . . . . . . . . 29
Section 8.8 No Third Party Beneficiaries. . . . . . . . . . . . . 29
Section 8.9 Governing Law . . . . . . . . . . . . . . . . . . . . 29
Section 8.10 Survival . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.11 Counterparts . . . . . . . . . . . . . . . . . . . . 29
Section 8.12 Publicity . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.13 Severability . . . . . . . . . . . . . . . . . . . . 29
Section 8.14 Further Assurances . . . . . . . . . . . . . . . . . 30
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DEBENTURE AND WARRANT PURCHASE AGREEMENT
This DEBENTURE AND WARRANT PURCHASE AGREEMENT is dated as of April 19, 2002
(this "Agreement") by and between Appiant Technologies, Inc., a Delaware
---------
corporation (the "Company"), and the entities listed on Exhibit A hereto (each a
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"Purchaser" and collectively, the "Purchasers").
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The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES AND WARRANTS
Section 1.1 Purchase and Sale of Debentures and Warrants. Upon the
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following terms and conditions, the Company shall issue and sell to the
Purchasers, and the Purchasers shall purchase from the Company, secured
convertible debentures in the aggregate principal amount of up to Four Million
Dollars ($4,000,000.00) bearing interest at the rate of eight percent (8%) per
annum, convertible into shares of the Company's common stock, par value $0.01
per share (the "Common Stock"), in substantially the form attached hereto as
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Exhibit B (the "Debentures"), and warrants to purchase shares of Common Stock,
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in substantially the form attached hereto as Exhibit C (the "Warrants"), set
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forth with respect to such Purchaser on Exhibit A hereto. The aggregate
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purchase price may be funded in one or more tranches as agreed upon by the
Company and the Purchasers. The Company and the Purchasers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Section 4(2) of the U.S. Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act"), including Regulation D ("Regulation D"), and/or upon such
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other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.
Section 1.2 Purchase Price and Closing. 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 agree to purchase the Debentures and Warrants for an
aggregate purchase price of up to Four Million Dollars ($4,000,000.00) (the
"Purchase Price"). The closing of the purchase and sale of the Debentures and
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Warrants (each a "Closing") to be acquired by the Purchasers from the Company
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under this Agreement shall take place at the offices of Jenkens & Xxxxxxxxx
Xxxxxx Xxxxxx LLP, The Chrysler Building, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000 (the "Closing") at 10:00 a.m., New York time on (i) the date on which
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the last to be fulfilled or waived of the conditions set forth in Article IV
hereof and applicable to such Closing shall be fulfilled or waived in accordance
herewith or (ii) at such other time and place or on such date as the Purchasers
and the Company may agree upon (each a "Closing Date"). The Closing Date of the
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first tranche of Debentures and Warrants (the "Initial Closing") shall occur on
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or before April 19,2002 or such other date as the Company and the Purchasers
shall mutually agree (the "Initial Closing Date"). The Closing Date of the final
--------------------
tranche of Debentures and Warrants to be purchased hereunder
3
shall occur on or before April 30, 2002 or such other date as the Company
and the Purchasers may mutually agree (the "Final Closing Date").
--------------------
Section 1.3 Escrow. On or before each Closing Date, the Company shall
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deliver to the escrow agent (the "Escrow Agent") identified in the Escrow
-------------
Agreement attached hereto as Exhibit H (the "Escrow Agreement") Debentures and
----------------
Warrants in the amounts set forth opposite each Purchaser's name under the
headings "Amount of Investment" and "Number of Warrants," respectively, on
Exhibit A hereto, registered in such Purchaser's name (or its nominee) and prior
to each Closing Date, each Purchaser shall pay by wire transfer of funds into
escrow the Purchase Price set forth opposite each Purchaser's name on Exhibit A.
In addition, each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
each Closing. The Company acknowledges that the purchase prices of
and for their respective pro
------------------------ ------------------------
rata portions of the Debentures and Warrants were advanced and evidenced,
respectively, by a promissory notes issued by the Company in favor of for
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the principal amount of $150,000 and in favor of in the principal
-----------
amount of $125,000 (the "Bridge Notes").
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Section 1.4 Warrants. At the Closing, the Company shall have issued to
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the Purchasers Warrants to purchase an aggregate of _________ shares of Common
Stock. The Warrants shall be exercisable for five (5) years from the date of
issuance and shall have an exercise price equal to the Warrant Price (as defined
in the Warrants).
Section 1.5 Conversion Shares / Warrant Shares. The Company has
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authorized and has reserved and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders, a number
of its authorized but unissued shares of its Common Stock equal to at least 200%
of the aggregate number of shares of Common Stock to effect the conversion of
the Debentures and any interest accrued and outstanding thereon and exercise of
the Warrants. Any shares of Common Stock issuable upon conversion of the
Debentures and any interest accrued and outstanding thereon and exercise of the
Warrants (and such shares when issued) are herein referred to as the "Conversion
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Shares" and the "Warrant Shares," respectively. The Debentures, the Warrants,
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the Conversion Shares and the Warrant Shares are sometimes collectively referred
to herein as the "Securities".
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ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. In order to
---------------------------------------------
induce the Purchasers to enter into this Agreement and to purchase the
Debentures and the Warrants, the Company hereby makes the following
representations and warranties to the Purchasers:
(a) Organization, Good Standing and Power. The Company is a
-----------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to
4
conduct its business as it is now being conducted. The Company does not have any
Subsidiaries (as defined in Section 2.1(g)) or own securities of any kind in any
other entity except as set forth on Schedule 2.1(g) hereto. The Company and each
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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. For the purposes of this
-----------------------
Agreement, "Material Adverse Effect" means any adverse effect on the business,
operations, properties, prospects or financial condition of the Company or its
Subsidiaries and which is material to such entity or other entities controlling
or controlled by such entity or which is likely to materially hinder the
performance by the Company of its obligations hereunder and under the other
Transaction Documents (as defined in Section 2.1(b) hereof).
(b) Authorization; Enforcement. The Company has the requisite
---------------------------
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Security Agreement, the Debentures, the
Warrants and the Irrevocable Transfer Agent Instructions (as defined in Section
3.12) (collectively, the "Transaction Documents") and to issue and sell the
----------------------
Securities in accordance with the terms hereof and the Debentures and the
Warrants, as applicable. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and 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.
(c) Capitalization. The authorized capital stock of the Company
--------------
and the shares thereof currently issued and outstanding as of April 2, 2002 are
set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the
----------------
Company's Common Stock and any other security of the Company have been duly and
validly authorized. Except as set forth in this Agreement or on Schedule 2.1(c)
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hereto, no shares of Common Stock or any other security of the Company 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. Furthermore,
except as set forth in this Agreement or on Schedule 2.1(c) hereto, there are no
---------------
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company. Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities or
as provided on Schedule 2.1(c) hereto, the Company is not a party to or bound by
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any agreement or understanding granting registration or anti-dilution rights to
any person with respect to any of its equity or debt securities. Except as set
forth on Schedule 2.1(c),
5
the Company is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of the Company. Except as set forth on Schedule 2.1(c) hereto, 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 holder of such securities has a right
of rescission or claim for damages with respect thereto which could have a
Material Adverse Effect. The Company has furnished or made available to the
Purchasers and their counsel true and correct copies of the Company's Articles
of Incorporation as in effect on the date hereof (the "Articles"), and the
Company's Bylaws as in effect on the date hereof (the "Bylaws").
(d) Issuance of Securities. The Debentures and the Warrants to be
----------------------
issued at the Closing have been duly authorized by all necessary corporate
action and, when paid for or issued in accordance with the terms hereof, the
Debentures shall be validly issued and outstanding, free and clear of all liens,
encumbrances and rights of refusal of any kind. When the Conversion Shares and
Warrant Shares are issued and paid for in accordance with the terms of this
Agreement and as set forth in the Debentures and Warrants, such shares will be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of refusal of any kind and the holders shall be entitled
to all rights accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
-------------
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Articles or Bylaws or any Subsidiary's comparable
charter documents, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, (iii) create or impose
a lien, mortgage, security interest, charge or encumbrance of any nature on any
property or asset of the Company or any of its Subsidiaries under any agreement
or any commitment to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound or by which any of
their respective properties or assets are bound, or (iv) result in a violation
of any federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries are bound or affected, except,
in all cases other than violations pursuant to clauses (i) or (iv) above, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect. 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 and will not have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is required under federal, state, foreign or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under the
Transaction Documents or issue and sell the Debentures, the Warrants, the
Conversion Shares and the Warrant Shares in
6
accordance with the terms hereof or thereof (other than any filings which may be
required to be made by the Company with the Commission, The Nasdaq SmallCap
Market prior to or subsequent to the Closing, or state securities administrators
subsequent to the Closing, or any registration statement which may be filed
pursuant hereto).
(f) Commission Documents, Financial Statements. The Common Stock
-------------------------------------------
of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except as
------------
disclosed on Schedule 2.1(f) hereto, the Company has timely filed all reports,
---------------
schedules, forms, statements and other documents required to be filed by it with
the Commission pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "Commission Documents"). The Company has delivered or
--------------------
made available to the Purchasers true and complete copies of the Commission
Documents filed with the Commission since January 14, 2002. The Company has not
provided to the Purchasers any material non-public information or other
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this Agreement. At
the time of each filing, the Form 10-K for the fiscal year ended September 30,
2001 (the "Form 10-K") and the Form 10-Q for the fiscal period ended December
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31, 2001 (the "Form 10-Q"), respectively, complied in all material respects with
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the requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and other federal, state and local laws, rules
and regulations applicable to such documents, and the Form 10-K and the Form
10-Q did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the Commission Documents comply as to form in all material
respects 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 generally accepted accounting principles ("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 set forth each
------------ ----------------
Subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership of the
outstanding stock or other interests of such Subsidiary. For the purposes of
this Agreement, "Subsidiary" shall mean any corporation or other entity of which
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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
7
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence except as set forth on Schedule 2.1(g) hereto.
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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 December 31, 2001, the
-----------------------------
Company has not experienced or suffered any Material Adverse Effect, except as
disclosed on Schedule 2.1(h) hereto.
----------------
(i) No Undisclosed Liabilities. Neither the Company nor any of
----------------------------
its Subsidiaries has 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 December 31, 2001 and disclosed
to the Purchasers and which, individually or in the aggregate, do not or would
not have a Material Adverse Effect on the Company or its Subsidiaries.
(j) No Undisclosed Events or Circumstances. Since December 31,
-----------------------------------------
2001, except as disclosed on Schedule 2.1(j) hereto, no event or circumstance
---------------
has occurred or exists with respect to the Company or its Subsidiaries or their
respective businesses, properties, 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 the
------------ ----------------
date hereof all outstanding secured and unsecured Indebtedness of the Company or
any Subsidiary, or for which the Company or any Subsidiary has commitments. For
the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities
------------
for borrowed money or amounts owed in excess of $100,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) 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 Debentures thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $100,000 due under leases required to be
capitalized in accordance with GAAP. Except as disclosed on Schedule 2.1(k),
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neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has
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good and marketable title to all of its real and personal property, free and
clear of any mortgages, pledges, charges, liens, security interests or other
encumbrances of any nature whatsoever, except for those indicated on Schedule
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2.1(l) hereto or such that, individually or in the aggregate, do not
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8
have a Material Adverse Effect. All said leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim,
----------------
investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary which questions the validity of this Agreement or any
of the other Transaction Documents or any of the transactions contemplated
hereby or thereby or any action taken or to be taken pursuant hereto or thereto.
Except as set forth on Schedule 2.1(m) hereto, there is no action, suit, claim,
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investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened, against or
involving the Company, any Subsidiary or any of their respective properties or
assets, which individually or in the aggregate, would have a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against the
Company or any Subsidiary or any officers or directors of the Company or
Subsidiary in their capacities as such, which individually or in the aggregate,
would have a Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
---------------------
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth on Schedule 2.1(n) hereto or such that,
----------------
individually or in the aggregate, the noncompliance therewith would not have a
Material Adverse Effect. The Company and each of its Subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the
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Company and each of the Subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
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. Except as disclosed on Schedule 2.1(o)
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hereto, 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.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto,
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the Company has not employed any broker or finder or incurred any liability for
any brokerage or investment banking fees, commissions, finders' structuring
fees, financial advisory fees or other similar fees in connection with the
Transaction Documents.
9
(q) Disclosure. To the best of the Company's knowledge, neither
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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) Operation of Business. The Company and each of the
-----------------------
Subsidiaries owns or possesses all patents, trademarks, domain names (whether or
not registered) and any patentable improvements or copyrightable derivative
works thereof, websites and intellectual property rights relating thereto,
service marks, trade names, copyrights, licenses and authorizations, including,
but not limited to, those listed on Schedule 2.1(r) hereto, and all rights with
---------------
respect to the foregoing, which are necessary for the conduct of its business as
now conducted without any conflict with the rights of others.
(s) Environmental Compliance. Except as disclosed on Schedule
------------------------- --------
2.1(s) hereto, 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. Schedule
--------
2.1(s) hereto sets forth all material permits, licenses and other authorizations
------
issued under any Environmental Laws to the Company or its Subsidiaries.
"Environmental Laws" shall mean all applicable laws relating to the protection
---------------------
of the environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth on Schedule 2.1(s) hereto, the Company has all necessary governmental
----------------
approvals required under all Environmental Laws and used in its business or in
the business of any of its Subsidiaries. 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 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.
"Environmental Liabilities" means all liabilities of a person (whether such
--------------------------
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.
10
(t) Books and Records; Internal Accounting Controls. The records
------------------------------------------------
and documents of the Company and its Subsidiaries accurately reflect in all
material respects the information relating to the business of the Company and
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's board of directors, 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 generally accepted
accounting principles 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 are taken
with respect to any differences.
(u) Material Agreements. Except for the Transaction Documents and
-------------------
as set forth on Schedule 2.1(u) hereto, neither the Company nor any Subsidiary
---------------
is a party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission (collectively, "Material Agreements") if the Company or any
-------------------
Subsidiary were registering securities under the Securities Act. The Company
and each of its Subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. No written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement of
the Company or of any Subsidiary limits or shall limit the payment of interest
on the Debentures, or dividends on its Common Stock.
(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, any Subsidiary or any of their respective
customers or suppliers on the one hand, and (b) on the other hand, any officer,
employee, consultant or director of the Company, or any of its Subsidiaries, or
any person owning any capital stock of the Company or any Subsidiary or any
member of the immediate family of such officer, employee, consultant, director
or stockholder or any corporation or other entity controlled by such officer,
employee, consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
(w) Securities Act of 1933. 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 Debentures, the Warrants, the Conversion
Shares and the Warrant Shares hereunder. Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy any of the Securities, or similar securities to, or
solicit offers with respect thereto from, or enter into any 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
Securities under the registration provisions of the Securities Act and
applicable state securities laws. Neither the Company nor any of its
affiliates, nor any person acting on its or their behalf,
11
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of any of the Securities.
(x) Governmental Approvals. Except as set forth on Schedule
----------------------- --------
2.1(x) hereto, and except for the filing of any notice prior or subsequent to
------
the Closing that may be required under applicable state and/or federal
securities laws (which if required, shall be filed on a timely basis), no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Debentures 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.
Except as set forth on Schedule 2.1(y) hereto, neither the Company nor any
----------------
Subsidiary has any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such Subsidiary. Since December 31, 2001,
no officer, consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any Subsidiary.
(z) Absence of Certain Developments. Except as set forth on
----------------------------------
Schedule 2.1(z) hereto, since December 31, 2001, 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;
12
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except in the ordinary course of business or to the
Purchasers or its representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any 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
$100,000;
(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 cause a Material Adverse Effect; or
(xv) entered into an agreement, written or otherwise, to take any
of the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the Debentures
-----------------
and the Warrant Shares will be used by the Company to repay its outstanding bank
Indebtedness and the remainder, if any, shall be used for working capital
purposes subject to the prior written consent of a majority of the principal
amount of the Debentures outstanding at the time consent is required.
Notwithstanding the foregoing, the proceeds from the sale of the Debentures and
the Warrant Shares shall not be used to repay any (i) outstanding Indebtedness
or any loans to officer, director, affiliate or insider of the Company or (ii)
Accounts Payable. For purposes of this Section 2.1(aa), Accounts Payable shall
mean short-term amounts owed to external vendors for goods and/or services
purchased.
13
(bb) Public Utility Holding Company Act and Investment Company Act
-----------------------------------------------------------------
Status. The Company is not a "holding company" or a "public utility company" as
------
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation
-----
has been incurred with respect to any Plan by the Company or any of its
Subsidiaries which is or would cause a Material Adverse Effect. The execution
and delivery of this Agreement and the issue and sale of the Debentures, the
Conversion Shares and the Warrant Shares will not involve any transaction which
is subject to the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975 of the Internal Revenue
Code of 1986, as amended, provided that, if any Purchaser, or any person or
entity that owns a beneficial interest in any Purchaser, is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a "party in interest" (within the meaning of Section 3(14)
of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(cc), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any Subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any Subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(dd) Dilutive Effect. The Company understands and acknowledges
----------------
that the number of Conversion Shares issuable upon conversion of the Debentures
and the Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Debentures in accordance with
this Agreement 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.
(ee) Delisting Notification. The Company has not received a
-----------------------
delisting notification from The Nasdaq SmallCap Market.
Section 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) Organization and Standing of the Purchasers. If the Purchaser
-------------------------------------------
is an entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Each Purchaser has the requisite
-------------------------
power and authority to enter into and perform the Transaction Documents and to
purchase the Debentures and Warrants being sold to it hereunder. The execution,
delivery and performance of the
14
Transaction Documents by each Purchaser and the consummation by it of the
transactions contemplated hereby 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. This Agreement has been duly authorized, executed and delivered
by each Purchaser. The other Transaction Documents constitute, or shall
constitute when executed and delivered, a valid and binding obligations of each
Purchaser enforceable against such Purchaser in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.
(c) Acquisition for Investment. Each Purchaser is purchasing the
----------------------------
Debentures and acquiring 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 any of
the Securities, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of any of the Securities to or through any
person or entity; provided, however, that by making the representations herein
-------- -------
and subject to Section 2.2(e) below, each Purchaser does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of any of the Securities at any time in accordance with federal and
state securities laws applicable to such disposition. Each Purchaser
acknowledges that it (i) has such knowledge and experience in financial and
business matters such that Purchaser is capable of evaluating the merits and
risks of Purchaser's investment in the Company and is (ii) able to bear the
financial risks associated with an investment in the Securities and (iii) 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 as it has
deemed necessary or appropriate to conduct its due diligence investigation.
(d) Rule 144. Each Purchaser understands that the Securities must
---------
be held indefinitely unless such Securities are registered under the Securities
Act or an exemption from registration is available. Each Purchaser acknowledges
that such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
--------
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Each Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(e) General. Each Purchaser understands that the Securities are
-------
being offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Securities. Each Purchaser
understands that no United States federal or state agency or any government or
governmental agency has passed upon or made any recommendation or endorsement of
the Securities.
15
(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
-------------------------
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(h) Accredited Investor. Each Purchaser is a sophisticated
--------------------
investor (as described in Rule 506(b)(2)(ii) of Regulation D) or an accredited
investor (as defined in Rule 501 of Regulation D), and such Purchaser has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Securities. Each Purchaser has
been represented by sophisticated and able legal counsel or its choice. Each
Purchaser acknowledges that an investment in the Securities is speculative and
involves a high degree of risk.
(i) Not an Affiliate. The Purchaser is not an officer, director
------------------
or "affiliate" (as that term is defined in Rule 405 of Regulation C, promulgated
under the Securities Act) of the Company.
ARTICLE III
COVENANTS
The Company covenants with each Purchaser as follows, which covenants are
for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1 Securities Compliance. The Company shall notify the
----------------------
Commission in accordance with their rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchasers, or their respective subsequent holders.
Section 3.2 Registration and Listing. The Company will cause its
------------------------
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein. The Company shall
take all action necessary to continue the
16
listing or trading of its Common Stock on The Nasdaq SmallCap Market or any
successor market. The Company will promptly file the "Listing Application" for,
or in connection with, the issuance and delivery of the Conversion Shares and
the Warrant Shares.
Section 3.3 Inspection Rights. The Company shall permit, during
------------------
normal business hours and upon reasonable request and reasonable notice, a
Purchaser or any employees, agents or representatives thereof, so long as a
Purchaser shall be obligated hereunder to purchase the Debentures or shall
beneficially own the Debentures, or shall own Conversion Shares, Warrant Shares
or the Warrants to purchase Warrant Shares which, in the aggregate, represent
more than two percent (2%) of the total combined voting power of all voting
securities then outstanding, to examine and make reasonable copies of and
extracts from the records and books of account of, and visit and inspect, during
the term of the Debentures and Warrants, 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.
Section 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.
Section 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.
Section 3.6 Reporting Requirements. The Company shall furnish
-----------------------
three (3) copies of the following to the Purchasers in a timely manner so long
as the Purchasers shall be obligated hereunder to purchase the Debentures or
shall beneficially own the Debentures or Warrants, or shall own Conversion
Shares or Warrant Shares which, in the aggregate, represent more than one
percent (1%) of the total combined voting power of all voting securities then
outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q as
soon as available, and in any event within forty-five (45) days after the end of
each of the first three (3) fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K as soon
as available, and in any event within one hundred six (106) days after the end
of each fiscal year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
17
Section 3.7 Amendments. The Company shall not amend or waive any
----------
provision of the Articles or Bylaws of the Company in any way that would
adversely affect the exercise rights, voting rights, prepayment rights or
redemption rights of the holder of the Debentures or the Warrants.
Section 3.8 Other Agreements. The Company shall not enter into
-----------------
any agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
Section 3.9 Distributions. So long as any Debentures remain
-------------
outstanding, the Company agrees that it shall not, without the prior written
consent of a majority of the Purchasers pursuant to Section 8.3, which consent
may be granted or denied in the sole discretion of the Purchasers (i) declare or
pay any dividends (other than a stock dividend or stock split) or make any
distributions to any holder(s) of Common Stock or (ii) purchase or otherwise
acquire for value, directly or indirectly, any Common Stock or other equity
security of the Company.
Section 3.10 Subsequent Financings; Right of First Refusal.
--------------------------------------------------
During the period commencing on the Closing Date and ending sixty (60) days
after the Effectiveness Date (as defined in the Registration Rights Agreement),
the Company covenants and agrees that it will not, without the prior written
consent of the holders of a majority of the principal amount of the Debentures
outstanding at the time consent is required, enter into any subsequent offer or
sale to, or exchange with (or other type of distribution to), any third party,
of Common Stock or any securities convertible, exercisable or exchangeable into
Common Stock, including convertible and non-convertible debt securities
(collectively, the "Financing Securities"), the primary purpose of which would
--------------------
be to obtain financing for the Company (a "Subsequent Financing") where such
--------------------
offer or sale of Financing Securities is for an amount in excess of Two Million
Dollars ($2,000,000); provided, however, that if the Company consummates a
-------- -------
Subsequent Financing prior to the sixtieth (60th) day immediately following the
Effectiveness Date, the Company shall not file a registration statement with the
Commission registering the shares of Common Stock issued or issuable pursuant to
such Subsequent Financing before the Registration Statement (as defined in the
Registration Rights Agreement) has been declared effective by the Commission.
For purposes of this Agreement, a Permitted Financing (as defined hereinafter)
shall not be considered a Subsequent Financing. A "Permitted Financing" shall
mean any transaction of the Company involving (1) shares of Common Stock to be
issued (other than for cash) in connection with a strategic merger and/or
acquisition, consolidation, sale or disposition of assets; (2) the issuance of
securities in exchange for assets; (3) a public firm commitment offering at
market; and (4) shares of Common Stock or the issuance of options to purchase
shares of Common Stock to employees, officers, directors, consultants and
vendors in accordance with the Company's existing employee stock ownership
plans.
(b) For a period of twenty-four (24) months following the
Effectiveness Date (as defined in the Registration Rights Agreement), the
Company covenants and agrees to promptly notify (in no event later than five (5)
days after making or receiving an applicable offer) in writing (a "Rights
------
Notice") Intercoastal Financial Services Corp. ("Intercoastal"), on behalf of
------------
the Purchasers, of any proposed Subsequent Financing. The Rights Notice shall
describe, in reasonable detail, the terms and conditions of the proposed
Subsequent Financing, the proposed closing date of the Subsequent Financing,
18
which shall be within twenty (20) calendar days from the date of the Rights
Notice, including, without limitation, all of the terms and conditions thereof.
The Rights Notice shall provide each Purchaser an option (the "Rights Option")
-------------
during the ten (10) trading days following delivery of the Rights Notice (the
"Option Period") to purchase such amount as the Company and each Purchaser may
--------------
agree to up to such Purchaser's pro rata portion of the Purchase Price of the
securities being offered in such Subsequent Financing on the same, absolute
terms and conditions as contemplated by such Subsequent Financing (the "First
-----
Refusal Rights"). If any Purchaser elects not to exercise its Rights Option,
---------------
Intercoastal shall have the right to place the securities underlying such
Purchaser's Rights Option with any third party. Delivery of any Rights Notice
constitutes a representation and warranty by the Company that there are no other
material terms and conditions, arrangements, agreements or otherwise except for
those disclosed in the Rights Notice, to provide additional compensation to any
party participating in any proposed Subsequent Financing, including, but not
limited to, additional compensation based on changes in the Purchase Price or
any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
Option from any of the Purchasers within the Option Period, the Company shall
have the right to close the Subsequent Financing on the scheduled closing date
with a third party; provided that all of the terms and conditions of the closing
--------
are the same as those provided to the Purchasers in the Rights Notice. If the
closing of the proposed Subsequent Financing does not occur on that date, any
closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this Section 3.10,
including, without limitation, the delivery of a new Rights Notice.
Section 3.11 Reservation of Shares. So long as the Debentures or
---------------------
Warrants remain outstanding, the Company shall take all action necessary to at
all times have authorized, and reserved for the purpose of issuance, 200% of the
maximum number of shares of Common Stock to effect the conversion of the
Debentures and any interest accrued and outstanding thereon and exercise of the
Warrants.
Section 3.12 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 the Purchasers or their
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by the Purchasers to the Company upon
conversion of the Debentures or exercise of the Warrants, in the form of Exhibit
-------
D 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 3.12 will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement. Nothing in this
Section 3.12 shall affect in any way the Purchasers' obligations and agreements
set forth in Section 5.1 to comply with all applicable prospectus delivery
requirements, if any, upon the resale of the Conversion Shares and the Warrant
Shares. If a Purchaser provides the Company with an acceptable opinion of
qualified counsel, in a generally acceptable form, substance and scope, to the
effect that a public sale, assignment or transfer of the Securities may be made
without registration under the Securities Act or the
19
Purchasers provide the Company with acceptable reasonable assurances that the
Securities 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 the Purchasers and without any restrictive legend. The Company
acknowledges that a breach by it of its obligations under this Section 3.12 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 3.12 will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 3.12, 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.
Section 3.13 Disposition of Assets. So long as the Debentures
-----------------------
remain outstanding, neither the Company nor any Subsidiary shall sell, transfer
or otherwise dispose of any of its properties, assets and rights including,
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 principal amount of the
Debentures then outstanding.
Section 3.14 Repayment of Other Indebtedness. So long as the
----------------------------------
Debentures remain outstanding, the Company shall not use the proceeds from the
sale of the Securities by the Company to repay any Indebtedness for borrowed
money owed by the Company to any officer, director, affiliate or insider of the
Company.
Section 3.15 Non-public Information. Neither the Company nor any
----------------------
of its officers or agents shall disclose any material non-public information
about the Company to the Purchasers and neither the Purchasers nor any of their
affiliates, officers or agents will solicit any material non-public information
from the Company.
Section 3.16 Board Membership. So long as the Debentures remain
-----------------
outstanding, Intercoastal shall have the right to appoint one (1) director to
serve on the Company's Board of Directors, and the Company shall take all
actions necessary under its Certificate and Bylaws to permit Intercoastal to
appoint said director to serve on the Company's Board of Directors as soon as
practicable, but in no event later than twenty (20) business days after the
Closing Date. Further, in the event that a vacancy or vacancies occur on the
Board of Directors, Intercoastal shall be entitled to appoint a director to fill
one (1) vacant seat on the Board of Directors .
Section 3.17 Stockholder Approval or Nasdaq Waiver. Prior to the
-------------------------------------
sixtieth (60th) day following the Initial Closing Date, the Company must obtain
either (a) approval by the stockholders of the Maker of the proposal presented
and recommended by the Board of Directors of the Maker to approve the Purchasers
acquiring in excess of 19.99% of the issued and outstanding shares of Common
Stock upon conversion of the Debentures and/or exercise of the Warrants or (b) a
waiver by the Nasdaq SmallCap Market (or any successor entity) of such
20
stockholder approval (a "Nasdaq Waiver"), as required by the applicable rules
-------------
and regulations of the Nasdaq SmallCap Market (or any successor entity)
applicable to approve the issuance of share of Common Stock in excess of 19.99%
of the issued and outstanding shares of Common Stock of the Maker pursuant to
the terms hereof; provided, however, that the Company must request such a Nasdaq
-------- -------
Waiver no later than the fifth (5th) business day following the Initial Closing
Date.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company
-----------------------------------------------------
to Close and to Sell the Debentures and Warrants. The obligation hereunder of
--------------------------------------------------
the Company to close and issue and sell the Debentures and the Warrants to the
Purchasers at the Closing Date is subject to the satisfaction or waiver, at or
before the Closing of the conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties.
-------------------------------------------------------------
The representations and warranties of each the Purchaser shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time, except for representations and warranties that
are expressly made as of a particular date, which shall be true and correct in
all material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
--------------------------------
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchasers at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the
-----------------------------
Debentures and Warrants has been delivered to the Company at the Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents
----------------------------------
have been duly executed and delivered by the Purchasers to the Company.
Section 4.2 Conditions Precedent to the Obligation of the
---------------------------------------------------
Purchasers to Close and to Purchase the Debentures and Warrants. The obligation
-------------------------------------------------------
hereunder of the Purchasers to purchase the Debentures and Warrants and
consummate the transactions contemplated by this Agreement is subject to the
satisfaction or waiver, at or before the Closing Date, of each of the conditions
set forth below. These conditions are for the Purchasers' sole benefit and may
be waived by the Purchasers at any time in their sole discretion.
21
(a) Accuracy of the Company's Representations and Warranties.
-------------------------------------------------------------
Each of the representations and warranties of the Company in this Agreement, the
Registration Rights Agreement, the Security Agreement and the Debentures shall
be true and correct in all material respects as of the Closing Date, except for
representations and warranties that speak as of a particular date, which shall
be true and correct in all material respects as of such date.
(b) Performance by the Company. The Company shall have performed,
--------------------------
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. Trading in the Company's Common Stock
---------------------
shall not have been suspended by the Commission (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 national or international calamity or crisis of such
magnitude in its effect on any financial market which, in each case, in the
reasonable judgment of the Purchasers, makes it impracticable or inadvisable to
purchase the Debentures.
(d) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
------------------------------
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers, directors or
affiliates of the Company or any Subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Opinion of Counsel, Etc. The Purchasers shall have received
--------------------------
an opinion of counsel to the Company, dated the Closing Date, in the form of
Exhibit E hereto and such other certificates and documents as the Purchasers or
---------
their counsel shall reasonably require incident to the Closing.
(g) Warrants and Debentures. The Company shall have delivered the
-----------------------
originally executed Warrants (in such denominations as each Purchaser may
request) to the Purchasers and shall have delivered the originally executed
Debentures (in such denominations as each Purchaser may request) to the
Purchasers being acquired by the Purchasers at the Closing.
22
(h) 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 the Purchasers (the "Resolutions").
-----------
(i) 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 Debentures and the exercise of
the Warrants, a number of shares of Common Stock equal to at least 200% of the
aggregate number of Conversion Shares issuable upon conversion of the Debentures
outstanding on the Closing Date and the number of Warrant Shares issuable upon
exercise of the Warrants assuming the Warrants were granted on the Closing Date
(after giving effect to the Debentures and the Warrants to be issued on the
Closing Date and assuming the Debentures and Warrants were fully convertible or
exercisable on such date regardless of any limitation on the timing or amount of
such conversions or exercises).
(j) Transfer Agent Instructions. The Irrevocable Transfer Agent
-----------------------------
Instructions, in the form of Exhibit D attached hereto, shall have been
----------
delivered to and acknowledged in writing by the Company's transfer agent.
(k) Secretary's Certificate. The Company shall have delivered to
------------------------
the Purchasers a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Articles, (iii) the Bylaws, each as in effect at
the Closing, and (iv) 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.
(l) Officer's Certificate. On the Closing Date, 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.
(m) Security Agreement. As of the Closing Date, the Company shall
------------------
have executed and delivered the security agreement in the form of Exhibit F
---------
attached hereto.
(n) UCC-1 Financing Statements. The Company shall have filed all
---------------------------
UCC-1 financing statements in form and substance satisfactory to the Purchasers
at the appropriate offices to create a valid and perfected security interest in
the Collateral (as defined in the Security Agreement).
(o) Judgment, Lien and UCC Search. A judgment, lien and UCC
---------------------------------
financing statement search shall have been completed by the Purchasers.
(p) Fees and Expenses. As of the Closing Date, all fees and
-------------------
expenses required to be paid by the Company shall have been or authorized to be
paid by the Company as of the Closing Date.
(q) Registration Rights Agreement. As of the Closing Date, the
-------------------------------
Company shall have executed and delivered the Registration Rights Agreement in
the Form of Exhibit G attached hereto.
----------
23
(r) Material Adverse Effect. No Material Adverse Effect shall
-------------------------
have occurred.
ARTICLE V
Certificate Legend
Section 5.1 Legend. Each certificate representing the Debentures,
------
the Conversion Shares, the Warrants and the Warrant Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR APPIANT
TECHNOLOGIES, 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.
The Company agrees to reissue certificates representing any of the
Securities, 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 will not
be effected until: (a) the Company has notified such holder that either (i) in
the opinion of Company counsel, the registration of the Debentures, Conversion
Shares, Warrants or Warrant Shares under the Securities Act is not required in
connection with such proposed transfer; or (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;
and (b) the Company has notified such holder that either: (i) in the opinion of
Company counsel, the 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. The Company will use its best efforts to respond to any
such notice from a holder within five (5) days. In the case of any proposed
transfer under this Section 5, 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, in connection therewith, to qualify to do business in any
state where it is not then qualified or to take any action that would subject it
to tax or to the general service of process in any state where it is not then
subject. The restrictions on transfer contained in 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.
24
ARTICLE VI
Termination
Section 6.1 Termination by Mutual Consent. This Agreement
--------------------------------
may be terminated at any time prior to the Closing Date by the mutual written
consent of the Company and the Purchaser.
Section 6.2 Effect of Termination. In the event of termination by
---------------------
the Company or the Purchasers, written notice thereof shall forthwith be given
to the other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 herein, this Agreement shall become void
and of no further force and effect, except for Sections 8.1 and 8.2, and Article
VII herein. Nothing in this Section 6.2 shall be deemed to release the Company
or any Purchaser from any liability for any breach under this Agreement, or to
impair the rights of the Company and such Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE VII
Indemnification
Section 7.1 General Indemnity. The Company agrees to indemnify
------------------
and hold harmless each Purchaser (and its respective directors, officers,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
each Purchaser regarding from a third party claim resulting from any inaccuracy
in or breach of the representations, warranties or covenants made by the Company
herein. The Purchasers severally but not jointly agree to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable
attorneys' fees, charges and disbursements) incurred by the Company as result of
any inaccuracy in or breach of the representations, warranties or covenants made
by the Purchasers herein; provided, however, that in no event shall the
-------- -------
liability of any Holder hereunder be greater in amount than the dollar amount of
the investment by such Holder in the Securities pursuant to this Agreement.
Section 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 by a third 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
25
and the indemnifying party may exist with respect to 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. 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
Miscellaneous
Section 8.1 Fees and Expenses. Each party shall pay the fees and
-----------------
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, provided,
--------
however, that the Company shall pay on the Closing Date such fees and expenses
-------
set forth on Schedule 2.1(p) hereto, including all reasonable attorneys' fees
---------------
and expenses not to exceed up to $40,000 (plus all disbursements and
out-of-pocket expenses incurred by attorneys) incurred by the Purchasers in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Transaction Documents and the
26
transactions contemplated thereunder. In lieu of the foregoing payment, the
Purchasers may retain such amounts at the Closing or require the Company to pay
such amounts directly to Purchasers' counsel. In addition, the Company shall pay
all reasonable fees and expenses incurred by the Purchasers in connection with
any amendments, modifications or waivers of this Agreement or any of the other
Transaction Documents or incurred in connection with the enforcement of this
Agreement and any of the other Transaction Documents, including, without
limitation, all reasonable attorneys' fees, disbursements and expenses.
Section 8.2 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 injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) The Company and each Purchaser (i) hereby irrevocably submit
to the exclusive 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 waive, and agree
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. The Company and each Purchaser consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 8.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Debentures, this
Agreement, the Registration Rights Agreement or the Warrants, shall be entitled
to reimbursement for reasonable legal fees from the non-prevailing party.
Section 8.3 Entire Agreement; Amendment. This Agreement and the
----------------------------
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
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 a majority of the
principal amount of the Debentures then outstanding, and no provision hereof may
be waived other than by 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 Debentures then outstanding. No consideration shall be offered or paid
27
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
Debentures, as the case may be.
Section 8.4 Notices. Any notice, demand, request, waiver or other
-------
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Appiant Technologies, Inc.
0000 Xxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
with copies (which copies
shall not constitute notice
to the Company) to: Xxxxxxxx & Xxxxxxxx LLP
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement.
----------
with copies to: Xxxxxxxxxxx X. Xxxxxxx, Esq.
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxx.
Xxx Xxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
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.
Section 8.5 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 waiver of any other
provision, condition or requirement hereof, nor shall
28
any delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
Section 8.6 Headings. The article, section and subsection
--------
headings in this Agreement are for convenience only and shall not constitute a
part of this Agreement for any other purpose and shall not be deemed to limit or
affect any of the provisions hereof.
Section 8.7 Successors and Assigns. This Agreement shall be
------------------------
binding upon and inure to the benefit of the parties and their successors and
assigns. After the Closing, the permitted assignment by a party to this
Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement. The Purchasers may assign the Debentures, the Warrants
and its rights under this Agreement and the other Transaction Documents and any
other rights hereto and thereto without the consent of the Company.
Section 8.8 No Third Party Beneficiaries. This Agreement is
-------------------------------
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 8.9 Governing Law. This Agreement shall be governed by
--------------
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions. This Agreement shall not
be interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 8.10 Survival. The representations and warranties of the
--------
Company and the Purchasers contained in Sections 2.1(o) and 2.1(s) should
survive indefinitely and those contained in Article II, with the exception of
Sections 2.1(o) and 2.1(s), shall survive the execution and delivery hereof and
the Closing until the date three (3) years from the Closing Date, and the
agreements and covenants set forth in Articles I, III, V, VII and VIII of this
Agreement shall survive the execution and delivery hereof and the Closing
hereunder.
Section 8.11 Counterparts. This Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart.
Section 8.12 Publicity. The Company agrees that it will not
---------
disclose, and will not include in any public announcement, the names of the
Purchasers without the consent of the Purchasers in accordance with Section 8.3,
which consent shall not be unreasonably withheld or delayed, or unless and until
such disclosure is required by law, rule or applicable regulation, and then only
to the extent of such requirement.
Section 8.13 Severability. The provisions of this Agreement are
------------
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that
29
such provisions would be valid, legal and enforceable to the maximum extent
possible.
Section 8.14 Further Assurances. From and after the date of this
------------------
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the
Debentures, the Warrants, the Security Agreement and the Registration Rights
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
APPIANT TECHNOLOGIES, INC.
By:
--------------------------------------
Name:
Title:
[INVESTOR]
By:
--------------------------------------
Name:
Title:
[INVESTOR]
By:
--------------------------------------
Name:
Title:
[INVESTOR]
By:
--------------------------------------
Name:
Title:
30
