CONVERTIBLE NOTE PURCHASE AGREEMENT
THIS
CONVERTIBLE NOTE PURCHASE AGREEMENT is made as of the 22nd
day of
January 2008 by and between
Red
Moon, Inc., a Delaware corporation (the “Company”)
and
Zoom Technologies, Inc., a Delaware corporation (the
“Purchaser”).
The
parties hereby agree as follows:
1. Purchase
and Sale of Convertible
Promissory Notes.
1.1. Sale
and Issuance of Convertible Promissory Notes.
Subject
to the terms and conditions of this Agreement, the Purchaser agrees to purchase
and the Company agrees to sell and issue to the Purchaser:
(a) at
the
Initial Closing (as defined below) a Convertible Promissory Note in the
aggregate principal amount of $300,000, which note shall be in substantially
the
form of the Convertible Promissory Note attached hereto as Exhibit
A
(the
“Initial
Note”).
The
purchase price of the Initial Note shall be $300,000 (the “Initial
Purchase Price”);
and
(b) on
the
first of each month beginning on May 1, 2008 and continuing until the earlier
of
(i) the date the Purchaser elects to exercise its option pursuant to the Option
Agreement or (ii) the date the Purchaser notifies the Company in writing of
its
election to terminate the Option Agreement, a Convertible Promissory Note in
the
aggregate principal amount of $50,000, which note shall be in substantially
the
form of the Convertible Promissory Note attached hereto as Exhibit
A
(the
“Monthly
Note,”
and
together with the Initial Note, the “Notes”).
The
purchase price of each Monthly Note shall be $50,000 (the “Monthly
Purchase Price”).
1.2. The
Note. At
the sole option of the Purchaser, the Notes may be converted into shares of
Series A Convertible Preferred Stock of the Company at any time prior to the
Maturity Date (as defined in the Notes) of each Note in the manner provided
in
the Notes.
1.3. Closing;
Delivery.
(a) The purchase
and sale of the Initial Note shall take place remotely via the exchange of
documents and signatures, at 10:00 a.m., on January 22, 2008, or at such other
time and place as the Company and the Purchaser mutually agree upon, orally
or
in writing (which time and place are designated as the “Initial
Closing”).
(b) The
purchase and sale of each Monthly Note shall take place remotely via the
exchange of documents and signatures, at 10:00 a.m., on the first day of each
month beginning on May 1, 2008, or at such other time and place as the Company
and the Purchaser mutually agree upon, orally or in writing (which time and
place are designated as the “Monthly
Closing”).
The
term “Closing”
shall
apply to the Initial Closing and each Monthly Closing unless otherwise
specified.
(c) At
the
Initial Closing, the Company shall deliver to the Purchaser the Initial Note,
payable to the order of the Purchaser, in the principal amount of $300,000,
and
the Purchaser shall make payment of the Initial Purchase Price therefor by
a
wire transfer to a bank account designated by the Company.
(d) At
each
Monthly Closing, the Company shall deliver to the Purchaser a Monthly Note,
payable to the order of the Purchaser, in the principal amount of $50,000,
and
the Purchaser shall make payment of the Monthly Purchase Price therefor by
a
wire transfer to a bank account designated by the Company.
1.3 Use
of
Proceeds. In
accordance with the directions of the Company’s Board of Directors, as it shall
be constituted in accordance with the Voting Agreement, the Company will use
the
proceeds from the sale of the Notes for product development and other general
corporate purposes and not for the repayment of debt outstanding as of the
date
of the Initial Closing.
1.4 Defined
Terms Used in this Agreement. In
addition to the terms defined above, the following terms used in this Agreement
shall be construed to have the meanings set forth or referenced
below.
“Affiliate”
means,
with respect to any specified Person, any other Person who, directly or
indirectly, controls, is controlled by, or is under common control with such
Person, including, without limitation, any general partner, managing member,
officer or director of such Person or any venture capital fund now or hereafter
existing that is controlled by one or more general partners or managing members
of, or shares the same management company with, such Person.
“Code”
means
the Internal Revenue Code of 1986, as amended.
“Company
Intellectual Property”
means
all patents, patent applications, trademarks, trademark applications, service
marks, tradenames, copyrights, trade secrets, licenses, domain names, mask
works, information and proprietary rights and processes as are necessary to
the
conduct of the Company’s business as now conducted and as presently proposed to
be conducted.
“Key
Employee”
means
any executive-level employee (including division director and vice
president-level positions) as well as any employee or consultant who either
alone or in concert with others develops, invents, programs or designs any
Company Intellectual Property.
“Knowledge,”
including
the phrase “to
the Company’s knowledge,” shall
mean the actual knowledge after reasonable investigation of the following
officers: Xxxxx Xxxxxxxx.
“Material
Adverse Effect”
means
a
material adverse effect on the business, assets (including intangible assets),
liabilities, financial condition, property, prospects or
results of operations of the Company.
2
“Option
Agreement”
means
the Option Agreement dated as of the date hereof among the Company, the
Purchaser and the stockholders of the Company.
“Person”
means
any individual, corporation, partnership, trust, limited liability company,
association or other entity.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Transaction
Agreements”
means
this Agreement, the Notes, the Voting Agreement, the Option Agreement and any
other agreements, instruments or documents entered into in connection with
this
Agreement.
“Voting
Agreement”
means
the agreement among the Company, the Purchaser and certain other stockholders
of
the Company, dated as of the date hereof.
2. Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Purchaser that, except as set
forth on the Disclosure Schedule attached as Exhibit
B
to this
Agreement, which exceptions shall be deemed to be part of the representations
and warranties made hereunder, the following representations are true and
complete as of the date of the Initial Closing and each Monthly Closing, except
as otherwise indicated. The Disclosure Schedule shall be arranged in sections
corresponding to the numbered and lettered sections and subsections contained
in
this Section
2,
and the
disclosures in any section or subsection of the Disclosure Schedule shall
qualify other sections and subsections in this Section
2
only to
the extent it is readily apparent from a reading of the disclosure that such
disclosure is applicable to such other sections and subsections.
For
purposes of these representations and warranties, the term “the Company” shall
include any subsidiaries of the Company, unless otherwise noted
herein.
2.1. Organization,
Good Standing, Corporate Power and Qualification.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite power and
authority to carry on its business as presently conducted and as proposed to
be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have
a
Material Adverse Effect.
2.2. Capitalization.
The
authorized capital stock of the Company consists, immediately prior to the
Initial Closing, of:
(a) 70,000,000
shares of Common Stock, $.0001 par value per share, of which 45,805,925 shares
are issued and outstanding (the “Common
Stock”);
and
30,000,000 shares of Series A Preferred Stock, $.0001 par value per share,
of
which 29,926,909 shares are issued and outstanding All of the outstanding shares
of Common Stock have been duly authorized, are fully paid and nonassessable
and
were issued in compliance with all applicable federal and state securities
laws.
The Company holds no treasury stock.
3
(b) The
Company does not have any stock option, stock purchase or similar stock plan
for
issuances of its Common Stock to officers, directors, employees and consultants
of the Company.
(c) Section
2.2(c)
of the
Disclosure Schedule sets forth the capitalization of the Company immediately
following the Initial Closing. Except as provided on Section 2.2(c) of the
Disclosure Schedule and except for the conversion privileges of the Notes to
be
issued under this Agreement, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal or
similar rights) or agreements, orally or in writing, to purchase or acquire
from
the Company any capital stock, or any securities convertible into or
exchangeable for capital stock. All outstanding capital stock and all capital
stock underlying outstanding options are subject to (i) a right of first refusal
in favor of the Company upon any proposed transfer (other than transfers for
estate planning purposes); and (ii) a lock-up or market standoff agreement
of
not less than 180 days following the Company’s initial public offering pursuant
to a registration statement filed with the Securities and Exchange Commission
under the Securities Act.
(d) None
of
the Company’s restricted stock purchase agreements or option documents contains
a provision for acceleration of vesting (or lapse of a repurchase right) or
other changes in the vesting provisions or other terms of such agreement or
understanding upon the occurrence of any event or combination of events. The
Company has never adjusted or amended the exercise price of any outstanding
stock options previously awarded, whether through amendment, cancellation,
replacement grant, repricing, or any other means. The Company has no obligation
(contingent or otherwise) to purchase or redeem any of its capital
stock.
(e) The
Company believes in good faith that any “nonqualified deferred compensation
plan” (as such term is defined under Section 409A(d)(1) of the Code and the
guidance thereunder) under which the Company makes, is obligated to
make or promises to make, payments (each, a “409A
Plan”)
complies in all material respects, in both form and operation, with the
requirements of Section 409A of the Code and the guidance thereunder. To the
knowledge of the Company, no payment to be made under any 409A Plan
is, or will be, subject to the penalties of Section 409A(a)(1) of the
Code.
2.3. Subsidiaries.
The
Company does not currently own or control, directly or indirectly, any interest
in any other corporation, partnership, trust, joint venture, limited liability
company, association, or other business entity. The Company is not a participant
in any joint venture, partnership or similar arrangement.
2.4. Authorization.
All
corporate action required to be taken by the Company’s Board of Directors and
stockholders in order to authorize the Company to enter into the Transaction
Agreements, and to issue the Notes at the Closing, has been taken or will be
taken prior to the Closing. All action on the part of the Board of Directors
and
stockholders of the Company necessary for the execution and delivery of the
Transaction Agreements, the performance of all obligations of the Company under
the Transaction Agreements to be performed as of the Closing, and the issuance
and delivery of the Notes has been taken or will be taken prior to the Closing.
The Transaction Agreements, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their respective terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, or other laws of general application relating to or
affecting the enforcement of creditors’ rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive relief,
or
other equitable remedies, or (iii) to the extent the indemnification
provisions contained in the Transaction Agreements may be limited by applicable
federal or state securities laws.
4
2.5. Valid
Issuance of Notes.
The
Notes, when issued, sold and delivered in accordance with the terms and for
the
consideration set forth in this Agreement, will be validly issued, fully paid
and nonassessable and free of restrictions on transfer other than restrictions
on transfer under the Transaction Agreements, applicable state and federal
securities laws and liens or encumbrances created by or imposed by a Purchaser.
Assuming the accuracy of the representations of the Purchasers in Section
3
of this
Agreement and subject to the filings described in Section 2.6
below,
the Notes will be issued in compliance with all applicable federal and state
securities laws.
2.6. Governmental
Consents and Filings.
Assuming
the accuracy of the representations made by the Purchasers in Section
3
of this
Agreement, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state
or
local governmental authority is required on the part of the Company in
connection with the consummation of the transactions contemplated by this
Agreement, except for filings pursuant to Regulation D of the Securities
Act, and applicable state securities laws, which have been made or will be
made
in a timely manner.
2.7. Litigation.
There
is
no claim, action, suit, proceeding, arbitration, complaint, charge or
investigation pending or to the Company’s knowledge, currently threatened (i)
against the Company or any officer, director or Key Employee of the Company;
or
(ii) that questions the validity of the Transaction Agreements or the right
of
the Company to enter into them, or to consummate the transactions contemplated
by the Transaction Agreements; or (iii) to the Company’s knowledge, that would
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. Neither the Company nor, to the Company’s knowledge,
any of its officers, directors or Key Employees is a party or is named as
subject to the provisions of any order, writ, injunction, judgment or decree
of
any court or government agency or instrumentality (in the case of officers,
directors or Key Employees, such as would affect the Company). There is no
action, suit, proceeding or investigation by the Company pending or which the
Company intends to initiate. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or threatened in writing
(or any basis therefor known to the Company) involving the prior employment
of
any of the Company’s employees, their services provided in connection with the
Company’s business, or any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers.
5
2.8. Intellectual
Property.
The
Company owns or possesses or can acquire on commercially reasonable terms
sufficient legal rights to all Company Intellectual Property without any known
conflict with, or infringement of, the rights of others. No
product or service marketed or sold (or proposed to be marketed or sold) by
the
Company violates or will violate any license or infringes or will infringe
any
intellectual property rights of any other party. Other than with respect to
commercially available software products under standard end-user object code
license agreements, there are no outstanding options, licenses, agreements,
claims, encumbrances or shared ownership interests of any kind relating to
the
Company Intellectual Property, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other Person. The Company
has not received any communications alleging that the Company has violated
or,
by conducting its business, would violate any of the patents, trademarks,
service marks, tradenames, copyrights, trade secrets, mask works or other
proprietary rights or processes of any other Person. The Company has obtained
and possesses valid licenses to use all of the software programs present on
the
computers and other software-enabled electronic devices that it owns or leases
or that it has otherwise provided to its employees for their use in connection
with the Company’s business. To the Company’s knowledge, it will not be
necessary to use any inventions of any of its employees or consultants (or
Persons it currently intends to hire) made prior to their employment by the
Company. Each employee and consultant has assigned to the Company all
intellectual property rights he or she owns that are related to the Company’s
business as now conducted and as presently proposed to be conducted. The Company
has not embedded any open source, copyleft or community source code in any
of
its products generally available or in development, including but not limited
to
any libraries or code licensed under any General Public License, Lesser General
Public License or similar license arrangement. For purposes of this Section
2.8,
the
Company shall be deemed to have knowledge of a patent right if the Company
has
actual knowledge of the patent right or would be found to be on notice of such
patent right as determined by reference to United States patent
laws.
2.9. Compliance
with Other Instruments.
The
Company is not in violation or default (i) of any provisions of its Certificate
of Incorporation of By-laws, (ii) of any instrument, judgment, order, writ
or
decree, (iii) under any note, indenture or mortgage, or (iv) under any lease,
agreement, contract or purchase order to which it is a party or by which it
is
bound that is required to be listed on the Disclosure Schedule, or,
of
any provision of federal or state statute, rule or regulation applicable to
the
Company, the violation of which would have a Material Adverse Effect. The
execution, delivery and performance of the Transaction Agreements and the
consummation of the transactions contemplated by the Transaction Agreements
will
not result in any such violation or be in conflict with or constitute, with
or
without the passage of time and giving of notice, either (i) a default under
any
such provision, instrument, judgment, order, writ, decree, contract or agreement
or (ii) an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company or the suspension, revocation,
forfeiture, or nonrenewal of any material permit or license applicable to the
Company.
6
2.10. Agreements;
Actions.
(a) Except
for the Transaction Agreements, there are no agreements, understandings,
instruments, contracts or proposed transactions to which the Company is a
party
or by which it is bound that involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $15,000, (ii) the
license of any patent, copyright, trademark, trade secret or other proprietary
right to or from the Company, (iii) the grant of rights to manufacture,
produce, assemble, license, market, or sell its products to any other Person
that limit the Company’s exclusive right to develop, manufacture, assemble,
distribute, market or sell its products, or (iv) indemnification by the Company
with respect to infringements of proprietary rights.
(b) The
Company has not (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock, (ii) incurred any indebtedness for money borrowed or incurred any
other liabilities individually in excess of $15,000 or in excess of $50,000
in
the aggregate, (iii) made any loans or advances to any Person, other than
ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory
in
the ordinary course of business. For the purposes of subsections (b)
and
(c)
of this
Section
2.10,
all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same Person (including Persons the
Company has reason to believe are affiliated with each other) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts
of
such subsection.
(c) The
Company is not a guarantor or indemnitor of any indebtedness of any other
Person.
(d) Since
November 1, 2007, the Company has not engaged in any discussion with any
representative of any Person regarding (i) a sale or exclusive license of all
or
substantially all of the Company’s assets, or (ii) any merger, consolidation or
other business combination transaction of the Company with or into another
Person.
2.11. Certain
Transactions.
(a) Other
than (i) standard employee benefits generally made available to all employees,
(ii) standard director and officer indemnification agreements approved by the
Board of Directors, and (iii) the purchase Common Stock and the issuance of
options to purchase Common Stock, in each instance, approved in the written
minutes of the Board of Directors (previously provided to the Purchaser or
its
counsel), there are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors, consultants or Key
Employees, or any Affiliate thereof.
(b) The
Company is not indebted, directly or indirectly, to any of its directors,
officers or employees or to their respective spouses or children or to any
Affiliate of any of the foregoing, other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or employee
relocation expenses and for other customary employee benefits made generally
available to all employees. None of the Company’s directors, officers or
employees, or any members of their immediate families, or any Affiliate of
the
foregoing are, directly or indirectly, indebted to the Company or have any
(i)
material commercial, industrial, banking, consulting, legal, accounting,
charitable or familial relationship with any of the Company’s customers,
suppliers, service providers, joint venture partners, licensees and competitors,
(ii) direct or indirect ownership interest in any firm or corporation with
which
the Company is affiliated or with which the Company has a business relationship,
or any firm or corporation which competes with the Company except that
directors, officers or employees or stockholders of the Company may own stock
in
(but not exceeding two percent (2%) of the outstanding capital stock of)
publicly traded companies that may compete with the Company or (iii) financial
interest in any contract with the Company.
7
2.12. Rights
of Registration and Voting Rights.
The
Company is not under any obligation to register under the Securities Act any
of
its currently outstanding securities or any securities issuable upon exercise
or
conversion of its currently outstanding securities. To the Company’s knowledge,
except as contemplated in the Voting Agreement, no stockholder of the Company
has entered into any agreements with respect to the voting of capital shares
of
the Company.
2.13. Absence
of Liens.
The
property and assets that the Company owns are free and clear of all mortgages,
deeds of trust, liens, loans and encumbrances, except for statutory liens for
the payment of current taxes that are not yet delinquent and encumbrances and
liens that arise in the ordinary course of business and do not materially impair
the Company’s ownership or use of such property or assets. With respect to
the property and assets it leases, the Company is in compliance with such leases
and, to its knowledge, holds a valid leasehold interest free of any liens,
claims or encumbrances other than those of the lessors of such property or
assets.
2.14. Financial
Statements.
The
Company has delivered to the Purchaser its unaudited financial statements as
of
and for the period ended December 15, 2007 (collectively, the “Financial
Statements”).
The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, except that the unaudited Financial Statements may not contain all
footnotes required by generally accepted accounting principles. The Financial
Statements fairly present in all material respects the financial condition
and
operating results of the Company as of the dates, and for the periods, indicated
therein, subject in the case of the unaudited Financial Statements to normal
year-end audit adjustments. Except as set forth in the Financial Statements,
the
Company has no material liabilities or obligations, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to December 15, 2007 (ii) obligations under contracts and
commitments incurred in the ordinary course of business and (iii) liabilities
and obligations of a type or nature not required under generally accepted
accounting principles to be reflected in the Financial Statements, which, in
all
such cases, individually and in the aggregate would not have a Material Adverse
Effect. The Company maintains and will continue to maintain a standard system
of
accounting established and administered in accordance with generally accepted
accounting principles.
2.15. Changes.
Since
December 15, 2007 there
has
not been:
(a) any
change in the assets, liabilities, financial condition or operating results
of
the Company from that reflected in the Financial Statements, except changes
in
the ordinary course of business that have not caused, in the aggregate, a
Material Adverse Effect;
8
(b) any
damage, destruction or loss, whether or not covered by insurance, that would
have a Material Adverse Effect;
(c) any
waiver or compromise by the Company of a valuable right or of a material debt
owed to it;
(d) any
satisfaction or discharge of any lien, claim, or encumbrance or payment of
any
obligation by the Company, except in the ordinary course of business and the
satisfaction or discharge of which would not have a Material Adverse
Effect;
(e) any
material change to a material contract or agreement by which the Company or
any
of its assets is bound or subject;
(f) any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder;
(g) any
resignation or termination of employment of any officer or Key Employee of
the
Company;
(h) any
mortgage, pledge, transfer of a security interest in, or lien, created by the
Company, with respect to any of its material properties or assets, except liens
for taxes not yet due or payable and liens that arise in the ordinary course
of
business and do not materially impair the Company’s ownership or use of such
property or assets;
(i) any
loans
or guarantees made by the Company to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of its
business;
(j) any
declaration, setting aside or payment or other distribution in respect of any
of
the Company’s capital stock, or any direct or indirect redemption, purchase, or
other acquisition of any of such stock by the Company;
(k) any
sale,
assignment or transfer of any Company Intellectual Property that could
reasonably be expected to result in a Material Adverse Effect;
(l) receipt
of notice that there has been a loss of, or material order cancellation by,
any
major customer of the Company;
(m) to
the
Company’s knowledge, any other event or condition of any character, other than
events affecting the economy or the Company’s industry generally,
that
could reasonably be expected to result in a Material Adverse Effect;
or
(n) any
arrangement or commitment by the Company to do any of the things described
in
this Section 2.15.
9
2.16. Employee
Matters.
(a) As
of the
date hereof, the Company employs eight full-time employees and no part-time
employees and engages no consultants or independent contractors. Section
2.16
of the
Disclosure Schedule sets forth a detailed description of all compensation,
including salary, bonus, severance obligations and deferred compensation paid
or
payable for each officer, employee, consultant and independent contractor of
the
Company who received compensation in excess of $20,000 for the fiscal year
ended
December 31, 2007 or is anticipated to receive compensation in excess of $20,000
for the fiscal year ending December 31, 2008.
(b) To
the
Company’s knowledge, none of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would materially interfere with such employee’s ability to promote
the interest of the Company or that would conflict with the Company’s business.
Neither the execution or delivery of the Transaction Agreements, nor the
carrying on of the Company’s business by the employees of the Company, nor the
conduct of the Company’s business as now conducted and as presently proposed to
be conducted, will, to the Company’s knowledge, conflict with or result in a
breach of the terms, conditions, or provisions of, or constitute a default
under, any contract, covenant or instrument under which any such employee is
now
obligated.
(c) The
Company is not delinquent in payments to any of its employees, consultants,
or
independent contractors for any wages, salaries, commissions, bonuses, or other
direct compensation for any service performed for it to the date hereof or
amounts required to be reimbursed to such employees, consultants, or independent
contractors. The Company has complied in all material respects with all
applicable state and federal equal employment opportunity laws and with other
laws related to employment, including those related to wages, hours, worker
classification, and collective bargaining. The Company has withheld and paid
to
the appropriate governmental entity or is holding for payment not yet due to
such governmental entity all amounts required to be withheld from employees
of
the Company and is not liable for any arrears of wages, taxes, penalties, or
other sums for failure to comply with any of the foregoing.
(d) To
the
Company’s knowledge, no Key Employee intends to terminate employment with the
Company or is otherwise likely to become unavailable to continue as a Key
Employee, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each employee of the
Company is terminable at the will of the Company. Except as set forth in
Section
2.16
of the
Disclosure Schedule or as required by law, upon termination of the employment
of
any such employees, no severance or other payments will become due. Except
as
set forth in Section
2.16
of the
Disclosure Schedule, the Company has no policy, practice, plan, or program
of
paying severance pay or any form of severance compensation in connection with
the termination of employment services.
(e) The
Company has not made any representations regarding equity incentives to any
officer, employees, director or consultant that are inconsistent with the share
amounts and terms set forth in the minutes of meetings of the Company’s board of
directors.
10
(f) Each
former Key Employee whose employment was terminated by the Company has entered
into an agreement with the Company providing for the full release of any claims
against the Company or any related party arising out of such
employment.
(g) Section
2.16
of
the Disclosure
Schedule sets forth each employee benefit plan maintained, established or
sponsored by the Company, or which the Company participates in or contributes
to, which is subject to the Employee Retirement Income Security Act of 1974,
as
amended (“ERISA”).
The
Company has made all required contributions and has no liability to any such
employee benefit plan, other than liability for health plan continuation
coverage described in Part 6 of Title I(B) of ERISA, and has complied in all
material respects with all applicable laws for any such employee benefit
plan.
(h) The
Company is not bound by or subject to (and none of its assets or properties
is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or
other
labor dispute involving the Company pending, or to the Company’s knowledge,
threatened, which could have a Material Adverse Effect, nor is the Company
aware
of any labor organization activity involving its employees.
2.17. Tax
Returns and Payments.
There
are
no federal, state, county, local or foreign taxes dues and payable by the
Company which have not been timely paid. There are no accrued and unpaid
federal, state, country, local or foreign taxes of the Company which are due,
whether or not assessed or disputed. There have been no examinations or audits
of any tax returns or reports by any applicable federal, state, local or foreign
governmental agency. The Company has duly and timely filed all federal, state,
county, local and foreign tax returns required to have been filed by it and
there are in effect no waivers of applicable statutes of limitations with
respect to taxes for any year.
2.18. Insurance.
The
Company has in full force and effect fire and casualty insurance policies with
extended coverage, sufficient in amount (subject to reasonable deductions)
to
allow it to replace any of its properties that might be damaged or destroyed.
2.19. Confidential
Information and Invention Assignment Agreements.
Each
current and former employee, consultant and officer of the Company has executed
an agreement with the Company regarding confidentiality and proprietary
information substantially in the form or forms delivered to the counsel for
the
Purchasers (the “Confidential
Information Agreements”).
No
current or former Key Employee has excluded works or inventions from his or
her
assignment of inventions pursuant to such Key Employee’s Confidential
Information Agreement. The Company is not aware that any of its Key Employees
is
in violation thereof.
2.20. Permits.
The
Company has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business, the lack of which could reasonably
be
expected to have a Material Adverse Effect. The Company is not in default in
any
material respect under any of such franchises, permits, licenses or other
similar authority.
11
2.21. Corporate
Documents.
The
Certificate of Incorporation and the By-laws are in the form provided to the
Purchasers. The copy of the minute books of the Company provided to the
Purchasers contains minutes of all meetings of the Board of Directors and the
stockholders and all actions by written consent without a meeting by the Board
of Directors and the stockholders since the date of formation and accurately
reflects in all material respects all actions by the directors (and any
committee of directors) and stockholders with respect to all transactions
referred to in such minutes.
2.22 Environmental
and Safety Laws. Except
as
could not reasonably be expected to have a Material Adverse Effect (a) the
Company is and has been in compliance with all Environmental Laws;
(b) there has been no release or threatened release of any pollutant,
contaminant or toxic or hazardous material, substance or waste, or petroleum
or
any fraction thereof, (each a “Hazardous
Substance”)
on,
upon, into or from any site currently or heretofore owned, leased or otherwise
used by the Company; (c) there have been no Hazardous Substances generated
by the Company that have been disposed of or come to rest at any site that
has
been included in any published U.S. federal, state or local “superfund” site
list or any other similar list of hazardous or toxic waste sites published
by
any governmental authority in the United States; and (d) there are no
underground storage tanks located on, no polychlorinated biphenyls
(“PCBs”)
or
PCB-containing equipment used or stored on, and no hazardous waste as defined
by
the Resource Conservation and Recovery Act, as amended, stored on, any site
owned or operated by the Company, except for the storage of hazardous waste
in
compliance with Environmental Laws. The Company has made available to the
Purchasers true and complete copies of all material environmental records,
reports, notifications, certificates of need, permits, pending permit
applications, correspondence, engineering studies, and environmental studies
or
assessments.
For
purposes of this Section
2.22,
“Environmental
Laws”
means
any law, regulation, or other applicable requirement relating to (a) releases
or
threatened release of Hazardous Substance; (b) pollution or protection of
employee health or safety, public health or the environment; or (c) the
manufacture, handling, transport, use, treatment, storage, or disposal of
Hazardous Substances.
2.23 Disclosure.
The
Company has made available to the Purchaser all the information reasonably
available to the Company that the Purchaser has requested for deciding whether
to acquire the Notes, including certain of the Company’s projections describing
its proposed business plan (the “Business
Plan”).
No
representation or warranty of the Company contained in this Agreement, as
qualified by the Disclosure Schedule, and no certificate furnished or to be
furnished to Purchasers at the Closing contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the
statements contained herein or therein not misleading in light of the
circumstances under which they were made. The Business Plan was prepared in
good
faith; however, the Company does not warrant that it will achieve any results
projected in the Business Plan. It is understood that this representation is
qualified by the fact that the Company has not delivered to the Purchasers,
and
has not been requested to deliver, a private placement or similar memorandum
or
any written disclosure of the types of information customarily furnished to
purchasers of securities.
12
3. Representations
and Warranties of the Purchasers. The
Purchaser hereby represents and warrants to the Company that:
3.1 Authorization.
The
Purchaser has full power and authority to enter into the Transaction Agreements.
The Transaction Agreements to which the Purchaser is a party, when executed
and
delivered by the Purchaser, will constitute valid and legally binding
obligations of the Purchaser, enforceable in accordance with their terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and any other laws of general application
affecting enforcement of creditors’ rights generally, and as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, or (b) to the extent the indemnification
provisions contained in the Transaction Agreements may be limited by applicable
federal or state securities laws.
3.2 Purchase
Entirely for Own Account. This
Agreement is made with the Purchaser in reliance upon the Purchaser’s
representation to the Company, which by the Purchaser’s execution of this
Agreement, the Purchaser hereby confirms, that the Notes to be acquired by
the
Purchaser will be acquired for investment for the Purchaser’s own account, not
as a nominee or agent, and not with a view to the resale or distribution of
any
part thereof, and that the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
Person to sell, transfer or grant participations to such Person or to any third
Person, with respect to any of the Notes. The Purchaser has not been formed
for
the specific purpose of acquiring the Notes.
3.3 Disclosure
of Information. The
Purchaser has had an opportunity to discuss the Company’s business, management,
financial affairs and the terms and conditions of the offering of the Notes
with
the Company’s management and has had an opportunity to review the Company’s
facilities. The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section
2
of this
Agreement or the right of the Purchaser to rely thereon.
3.4 Restricted
Securities. The
Purchaser understands that the Notes have not been, and will not be, registered
under the Securities Act, by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of the
Purchaser’s representations as expressed herein. The Purchaser understands that
the Notes are “restricted securities” under applicable U.S. federal and state
securities laws and that, pursuant to these laws, the Purchaser must hold the
Notes indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements is available. The Purchaser
acknowledges that the Company has no obligation to register or qualify the
Notes, or the shares of Series A Preferred Stock into which it may be converted,
for resale except as set forth in the Transaction Agreements. The Purchaser
further acknowledges that if an exemption from registration or qualification
is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Notes,
and
on requirements relating to the Company which are outside of the Purchaser’s
control, and which the Company is under no obligation and
may
not be able to satisfy.
13
3.5 No
Public Market. The
Purchaser understands that no public market now exists for the Notes, and that
the Company has made no assurances that a public market will ever exist for
the
Notes.
3.6 Legends.
The
Purchaser understands that the Notes and any securities issued in respect of
or
exchange for the Notes, may bear one or all of the following
legends:
(a) “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT
SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”
(b) Any
legend set forth in, or required by, the other Transaction
Agreements.
(c) Any
legend required by the securities laws of any state to the extent such laws
are
applicable to the Notes represented by the certificate so legended.
3.7 Accredited
Investor. The
Purchaser is an accredited investor as defined in Rule 501(a) of Regulation
D
promulgated under the Securities Act.
3.8 No
General Solicitation. Neither
the Purchaser, nor any of its officers, directors, employees, agents,
stockholders or partners has either directly or indirectly, including through
a
broker or finder (a) engaged in any general solicitation, or
(b) published any advertisement in connection with the offer and sale of
the Notes.
3.9 Exculpation
Among Purchasers. The
Purchaser acknowledges that it is not relying upon any Person, other than the
Company and its officers and directors, in making its investment or decision
to
invest in the Company.
3.10 Residence.
The
office of the Purchaser in which its principal place of business is identified
in the address or addresses of the Purchaser set forth herein.
4. Conditions
to the Purchaser’s Obligations at Closing. The
obligations of the Purchaser to purchase the Notes at the Initial Closing and
each Monthly Closing are subject to the fulfillment, on or before each such
Closing, of each of the following conditions, unless otherwise
waived:
14
4.1 Representations
and Warranties. The
representations and warranties of the Company contained in Section 2 shall
be
true and correct in all respects as of such Closing.
4.2 Performance.
The
Company shall have performed and complied with all covenants, agreements,
obligations and conditions contained in this Agreement that are required
to be
performed or complied with by the Company on or before such
Closing.
4.3 Compliance
Certificate. The
President of the Company shall deliver to the Purchasers at each such Closing
a
certificate certifying that the conditions specified in Section
4
have
been fulfilled.
4.4 Qualifications.
All
authorizations, approvals or permits, if any, of any governmental authority
or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Notes pursuant to this
Agreement shall be obtained and effective as of each such Closing.
4.5 Board
of Directors. As
of the
Initial Closing, the authorized size of the Board shall be two, and the Board
shall be comprised of Xxxxx Xxxxxxxx and Xxxxx Xxxxxxx.
4.6 Option
Agreement. The
Company shall have executed and delivered the Option Agreement.
4.7 Voting
Agreement. The Company and the other stockholders of the Company named as
parties thereto shall have executed and delivered the Voting
Agreement.
4.8 Secretary’s
Certificate. The
Secretary of the Company shall have delivered to the Purchasers at the Closing
a
certificate certifying (i) the By-laws, (ii) resolutions of the Board of
Directors of the Company approving the Transaction Agreements and the
transactions contemplated under the Transaction Agreements, and (iii)
resolutions of the stockholders of the Company approving the Certificate
of
Incorporation and the Transaction Agreements and the transactions contemplated
under the Transaction Agreements.
4.9 Proceedings
and Documents. All
corporate and other proceedings in connection with the transactions contemplated
at the Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Purchaser, and the Purchaser (or
its
counsel) shall have received all such counterpart original and certified
or
other copies of such documents as reasonably requested. Such documents may
include good standing certificates.
4.10 Preemptive
Rights. The
Company shall have fully satisfied (including with respect to rights of timely
notification) or obtained enforceable waivers in respect of any preemptive
or
similar rights directly or indirectly affecting any of its
securities.
5. Conditions
of the Company’s Obligations at Closing. The
obligations of the Company to sell the Notes to the Purchaser at the Initial
Closing and at each Monthly Closing are subject to the fulfillment, on or
before
each such Closing, of each of the following conditions, unless otherwise
waived:
15
5.1 Representations
and Warranties.
The
representations and warranties of each Purchaser contained in Section 3
shall be
true and correct in all respects as of such Closing.
5.2 Performance.
The
Purchaser shall have performed and complied with all covenants, agreements,
obligations and conditions contained in this Agreement that are required
to be
performed or complied with by it on or before such Closing.
5.3 Qualifications.
All
authorizations, approvals or permits, if any, of any governmental authority
or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Notes pursuant to this
Agreement shall be obtained and effective as of the Closing..
5.4 Option
Agreement. The
Purchaser shall have executed and delivered the Option Agreement.
5.5 Voting
Agreement.
The
Purchase shall have executed and delivered the Voting Agreement.
6. Miscellaneous.
6.1 Survival
of Warranties. Unless
otherwise set forth in this Agreement, the representations and warranties
of the
Company and the Purchasers contained in or made pursuant to this Agreement
shall
survive the execution and delivery of this Agreement and the Closing and
shall
in no way be affected by any investigation or knowledge of the subject matter
thereof made by or on behalf of the Purchasers or the Company.
6.2 Successors
and Assigns. The
terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
6.3 Governing
Law. This
Agreement and any controversy arising out of or relating to this Agreement
shall
be governed by and construed in accordance with the internal laws of the
Commonwealth of Massachusetts, without regard to conflict of law principles
that
would result in the application of any law other than the law of the
Commonwealth of Massachusetts.
6.4 Counterparts;
Facsimile. This
Agreement may be executed and delivered by facsimile signature and in two
or
more counterparts, each of which shall be deemed an original, but all of
which
together shall constitute one and the same instrument.
6.5 Titles
and Subtitles. The
titles and subtitles used in this Agreement are used for convenience only
and
are not to be considered in construing or interpreting this
Agreement.
16
6.6 Notices.
All
notices and other communications given or made pursuant to this Agreement
shall
be in writing and shall be deemed effectively given
upon the
earlier of actual receipt or: (i) personal delivery to the party to be notified;
(ii) when sent, if sent by electronic mail or facsimile during the recipient’s
normal business hours, and if not sent during normal business hours, then
on the
recipient’s next business day; (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid;
or (iv)
one (1) business
day
after
the
business day of
deposit
with a nationally recognized overnight courier, freight prepaid, specifying
next-day delivery, with written verification of receipt. All communications
shall be sent to the respective parties at their addresses as set forth on
the
signature pages or Schedule A (as applicable) hereto, or to the
principal office of the Company and to the attention of the Chief Executive
Officer, in the case of the Company, or to such
email address, facsimile number, or address as subsequently modified by written
notice given in accordance with this Section 6.5. If notice is given to the
Investor, a copy shall also be given to Xxxxx, Xxxxxx-Xxxxx & Xxxxxxxxx,
P.C., Reservoir Place, 0000 Xxxxxxx Xxxx, Xxxxxxx, Xxxxxxxxxxxxx 00000,
Attention: Xxxxxxx X. Xxxxxx.
6.7 No
Finder’s Fees. Each
party represents that it neither is nor will be obligated for any finder’s fee
or commission in connection with this transaction. The Purchaser agrees to
indemnify and to hold harmless the Company from any liability for any commission
or compensation in the nature of a finder’s or broker’s fee arising out of this
transaction (and the costs and expenses of defending against such liability
or asserted liability) for which the Purchaser or any of its officers,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless the Purchaser from any liability for any commission or
compensation in the nature of a finder’s or broker’s fee arising out of
this transaction (and the costs and expenses of defending against such liability
or asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
6.8 Fees
and Expenses. Each
party hereto shall bear its own fees and expenses relating to the Transaction
Agreements.
6.9 Attorneys’
Fees. If
any
action at law or in equity (including arbitration) is necessary to enforce
or
interpret the terms of any of the Transaction Agreements, the prevailing
party
shall be entitled to reasonable attorneys’ fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
6.10 Amendments
and Waivers. Any
term
of this Agreement may be amended, terminated or waived solely with the written
consent of the Company and the Purchaser.
6.11 Severability.
The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
6.12 Delays
or Omissions. No
delay
or omission to exercise any right, power or remedy accruing to any party
under
this Agreement, upon any breach or default of any other party under this
Agreement, shall impair any such right, power or remedy of such non-breaching
or
non-defaulting party nor shall it be construed to be a waiver of any such
breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind
or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only
to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
17
6.13 Entire
Agreement. This
Agreement (including the Exhibits hereto), the Operating Agreement and the
other
Transaction Agreements constitute the full and entire understanding and
agreement between the parties with respect to the subject matter hereof,
and any
other written or oral agreement relating to the subject matter hereof existing
between the parties are expressly canceled.
6.14 Dispute
Resolution. The
parties (a) hereby irrevocably and unconditionally submit to the jurisdiction
of
the federal and state courts located within the geographic boundaries of
the
United States District Court for the District of Massachusetts for the purpose
of any suit, action or other proceeding arising out of or based upon this
Agreement, (b) agree not to commence any suit, action or other proceeding
arising out of or based upon this Agreement except in the federal and state
courts located within the geographic boundaries of
the
United States District Court for the District of Massachusetts, and (c) hereby
waive, and agree not to assert, by way of motion, as a defense, or otherwise,
in
any such suit, action or proceeding, any claim that it is not subject personally
to the jurisdiction of the above-named courts, that its property is exempt
or
immune from attachment or execution, that the suit, action or proceeding
is
brought in an inconvenient forum, that the venue of the suit, action or
proceeding is improper or that this Agreement or the subject matter hereof
may
not be enforced in or by such court.
6.15 No
Commitment for Additional Financing. The
Company acknowledges and agrees that the Purchaser has not made any
representation, undertaking, commitment or agreement to provide or assist
the
Company in obtaining any financing, investment or other assistance, other
than
the purchase of the Notes as set forth herein and subject to the conditions
set
forth herein. In addition, the Company acknowledges and agrees that (i) no
statements, whether written or oral, made by the Purchaser or its
representatives on or after the date of this Agreement shall create an
obligation, commitment or agreement to provide or assist the Company in
obtaining any financing or investment, (ii) the Company shall not rely on
any such statement by the Purchaser or its representatives and (iii) an
obligation, commitment or agreement to provide or assist the Company in
obtaining any financing or investment may only be created by a written
agreement, signed by the Purchaser and the Company, setting forth the terms
and
conditions of such financing or investment and stating that the parties intend
for such writing to be a binding obligation or agreement. The Purchaser shall
have the right, in its sole and absolute discretion, to refuse or decline
to
participate in any other financing of or investment in the Company, and shall
have no obligation to assist or cooperate with the Company in obtaining any
financing, investment or other assistance.
[Remainder
of Page Intentionally Left Blank]
18
IN
WITNESS WHEREOF, the parties have executed this Convertible Note Purchase
Agreement as of the date first written above.
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COMPANY:
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By:
/s/Xxxxx Xxxxxxxx
|
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Name:
Xxxxx Xxxxxxxx
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(print)
|
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Title:
President
|
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Address:
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PURCHASER:
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ZOOM
TECHNOLOGIES, INC.
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/s/Xxxxx Xxxxxxx
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