Exhibit 10.1
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
DATED AS OF OCTOBER 31, 2002
AMONG
COMPUTER MOTION, INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
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ARTICLE I Purchase and Sale of Series C Convertible Preferred Stock
and Warrants...............................................................1
Section 1.1 Purchase and Sale of Common Stock and Warrants.........................1
Section 1.2 Purchase Price and Closing.............................................1
Section 1.3 Warrants...............................................................2
Section 1.4 Warrant Shares.........................................................2
Section 1.5 Subsequent Sales of Series C Preferred Shares..........................2
ARTICLE II Representations and Warranties.............................................2
Section 2.1 Representations and Warranties of the Company..........................2
Section 2.2 Representations and Warranties of the Purchasers......................12
ARTICLE III Covenants.................................................................14
Section 3.1 Securities Compliance.................................................14
Section 3.2 Registration and Listing..............................................14
Section 3.3 Inspection Rights.....................................................15
Section 3.4 Compliance with Laws..................................................15
Section 3.5 Keeping of Records and Books of Account...............................15
Section 3.6 Reporting Requirements................................................15
Section 3.7 Other Agreements......................................................16
Section 3.8 Subsequent Financings; Right of First Refusal.........................16
Section 3.9 Reservation of Shares.................................................16
Section 3.10 Non-public Information................................................17
ARTICLE IV Conditions................................................................18
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Series C Preferred Stock and
Warrants..............................................................18
Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Close and to Purchase the Series C Preferred Stock
and Warrants..........................................................19
Section 4.3 Conditions Precedent to the Obligation of St. Cloud Capital to
Close and to Purchase the Series C Preferred Stock and Warrants.......19
ARTICLE V Certificate Legend........................................................21
Section 5.1 Legend................................................................21
ARTICLE VI Termination...............................................................22
Table of Contents
(continued)
PAGE
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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...............22
Section 6.2 Effect of Termination.................................................22
ARTICLE VII Indemnification...........................................................23
Section 7.1 General Indemnity.....................................................23
Section 7.2 Indemnification Procedure.............................................23
ARTICLE VIII Miscellaneous.............................................................24
Section 8.1 Fees and Expenses.....................................................24
Section 8.2 Specific Enforcement; Consent to Jurisdiction.........................24
Section 8.3 Entire Agreement; Amendment...........................................25
Section 8.4 Notices...............................................................25
Section 8.5 Waivers...............................................................26
Section 8.6 Headings..............................................................26
Section 8.7 Successors and Assigns................................................26
Section 8.8 No Third Party Beneficiaries..........................................26
Section 8.9 Governing Law.........................................................26
Section 8.10 Survival..............................................................27
Section 8.11 Counterparts..........................................................27
Section 8.12 Publicity.............................................................27
Section 8.13 Severability..........................................................27
Section 8.14 Further Assurances....................................................27
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement"), dated as of October 31, 2002, by and between Computer Motion,
Inc., a Delaware corporation (the "Company"), and the entities listed on Exhibit
A hereto (each a "Purchaser" and collectively, the "Purchasers"), for the
purchase and sale of shares of the Company's Series C Convertible Preferred
Stock, par value $.001 per share, and warrants to purchase shares of the
Company's Common Stock by the Purchasers.
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
Section 1.1 Purchase and Sale of Securities. Upon the following
terms and conditions, the Company shall issue and sell to the Purchasers, and
the Purchasers, severally but not jointly, shall purchase from the Company, up
to an aggregate of 8,965 shares of the Company's Series C-1 Convertible
Preferred Stock, par value $.001 per share (the "Series C-1 Preferred Shares")
and 1,785 shares of the Company's Series C-2 Convertible Preferred Stock, par
value $.001 per share (the "Series C-2 Preferred Shares" and together with the
Series C-1 Preferred Shares, the "Series C Preferred Shares") and Series C-1
Warrants and Series C-2 Warrants to purchase shares of the Company's Common
Stock, in substantially the form attached hereto as Exhibit B-1 and Exhibit B-2,
respectively (collectively, the "Warrants"), set forth with respect to such
Purchaser on Exhibit A hereto. The "Stated Value" of the Series C Preferred
Shares shall be One Thousand Four Hundred Dollars ($1,400) per share. 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 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. As set forth in the
Certificate of Designations Setting Forth the Preferences, Rights and
Limitations of the Series C Convertible Preferred Stock of the Company (the
"Certificate of Designations"), the rights, preferences and privileges of the
Series C-1 Preferred Shares and the Series C-2 Preferred Shares shall be
identical in all respects except that dividends payable on the Series C-2
Preferred Shares shall be payable only in cash.
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, severally but not jointly, agree to purchase the Series C-1
Preferred Shares and Series C-2 Preferred Shares, as the case may be, and
Warrants set forth opposite their respective names on Exhibit A for an aggregate
purchase price of up to Fifteen Million Dollars ($15,000,000) which shall be
payable in cash or the cancellation of indebtedness as set forth opposite their
respective names on Exhibit A. The closing of the purchase and sale of the
Series C Preferred Shares and Warrants to be
acquired by the Purchasers from the Company 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 (i) on or before October 31, 2002, provided, that all
of the conditions set forth in Article IV hereof and applicable to the Closing
shall have been 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
(the "Closing Date").
Section 1.3 Warrants. At the Closing, the Company shall have
issued to the Purchasers Series C-1 Warrants and Series C-2 Warrants to purchase
up to an aggregate of Four Million Two Hundred Eighty Five Thousand Seven
Hundred Fourteen (4,285,714) shares of Common Stock. The Warrants shall be
exercisable for five (5) years in accordance with their respective terms and
shall have exercise prices equal to the Warrant Price (as defined in each
Warrant).
Section 1.4 Reservation of Shares. The Company has authorized and
has reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a number of its authorized but
unissued shares of Common Stock equal to the aggregate number of shares of
Common Stock necessary to effect the conversion of the Series C Preferred Shares
and the exercise of the Warrants. Any shares of Common Stock issuable upon
conversion of the Series C Preferred Shares (and such shares when issued) are
herein referred to as the "Conversion Shares". Any shares of Common Stock
issuable upon exercise of the Warrants (and such shares when issued) are herein
referred to as the "Warrant Shares". The Conversion Shares and the Warrant
Shares are sometimes collectively referred to as the "Shares". The Series C
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares are
sometimes collectively referred to herein as the "Securities".
Section 1.5 Subsequent Sales of Series C Preferred Shares. The
closing of the sale of the Series C Preferred Shares to St. Cloud Capital in the
aggregate amount of $1,500,000 Stated Value shall be subject to satisfaction of
the condition set forth in Section 4.3 below and shall occur on or before the
Filing Date, as that term is defined in the Registration Rights Agreement.
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
Series C Preferred Shares, 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 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 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 and the Warrants (collectively, the "Transaction
Documents") and to issue and sell the Securities in accordance with the terms
hereof 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, except as set forth in Schedule 2.1(b), 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, 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 June 30, 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 and as set forth on
Schedule 2.1(c) 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 and as set forth 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 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), 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 true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof (the "Certificate"), and the
Company's Bylaws as in effect on the date hereof (the "Bylaws").
(d) Issuance of Securities. The Series C Preferred Shares 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 Series C Preferred Shares shall be validly issued and outstanding,
free and clear of all liens, encumbrances and rights of refusal of any kind.
When the Conversion Shares are issued in accordance with the terms of this
Agreement and the Certificate of Designations and the Warrant Shares are issued
and paid for in accordance with the terms of this Agreement and as set forth in
the 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 Certificate 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) (with respect
to federal and state securities laws) 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 Series C Preferred Shares, the Conversion Shares, the
Warrants and the Warrant Shares in accordance with the terms hereof or thereof
(other than any filings which may be required to be made by the Company with the
Commission, the Nasdaq National 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 June 30, 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 its filing, the Form 10-Q for the fiscal quarter ended June 30, 2002
(the "Form 10-Q") complied in all material respects with 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-Q did not contain any untrue
statement of a material fact or omitted 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 sets 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
at least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence except as set forth on Schedule 2.1(g) hereto. 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 June 30, 2002, the Company
has not experienced or suffered any Material Adverse Effect, except as disclosed
on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule
2.1(i) hereto, 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 June 30, 2002 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 June 30, 2002,
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 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 Notes 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), 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
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
2.1(l) hereto or such that, individually or in the aggregate, do not 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, 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 in the Commission Documents or 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
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)
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,
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.
(q) Disclosure. To the best of the Company's knowledge, neither
this Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) 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, 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, except for such instances as would not
individually or in the aggregate have a Material Adverse Effect. 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.
(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 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 Series C Preferred Shares, the Conversion
Shares, the Warrants 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, 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 Series C Preferred Shares and
the Warrants, or for the performance by the Company of its obligations under the
Transaction Documents.
(y) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees.
Except as set forth in the Commission Documents or 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
June 30, 2002, 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 in the
Commission Documents or on Schedule 2.1(z) hereto, since June 30, 2002, neither
the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities
or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to
any liabilities (absolute or contingent) except current liabilities incurred in
the ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such Subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or
paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash
or other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(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 $25,000;
(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
$25,000;
(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. Except as set forth on Schedule 2.1(aa),
the proceeds from the sale of the Series C Preferred Shares and the Warrant
Shares will be used by the Company for working capital purposes and, except as
set forth on Schedule 2.1(aa), shall not be used to repay any outstanding
Indebtedness or any loans to officers, directors, affiliates or insiders of the
Company.
(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 Series C
Preferred 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 Series C
Preferred Shares 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 Series C
Preferred Shares in accordance with this Agreement and the Certificate of
Designations and its obligations to issue the Warrant Shares upon 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 National Market.
Section 2.2 Representations and Warranties of the Purchasers.
Each of the Purchasers, severally but not jointly, 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 Series C Preferred Shares and Warrants being sold to it hereunder.
The execution, delivery and performance of the 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
Series C Preferred Shares 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.
(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 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 acknowledges that
an investment in the Securities is speculative and involves a high degree of
risk.
(i) Limitations on Short Sales. The Purchasers agree that neither
they, nor any of their respective affiliates (or any other third party acting on
the instructions of the Purchasers or their respective affiliates), have entered
into any Short Sales (as hereinafter defined) following the receipt of any
information or documents related to the sale of the Series C Preferred Shares
contemplated herein. For purposes of this Section 2.2(i), a "Short Sale" by a
Purchaser shall mean a sale of Common Stock by a Purchaser that is marked as a
short sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by such Purchaser.
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.
(a) 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.
(b) Unless waived by a Purchaser by means of providing sixty-one
(61) days notice to the Company, the Company covenants and agrees that the
number of Conversion Shares issuable upon conversion of the Series C Preferred
Shares and the number of Warrant Shares issuable upon any exercise of the
Warrants by a Purchaser shall not exceed the number of such shares that, when
aggregated with all other shares of Common Stock then owned by a Purchaser
beneficially or deemed beneficially owned by a Purchaser, would result in a
Purchaser owning more than 4.99% of all of such Common Stock as would be
outstanding on such date of conversion or such date of exercise of the Warrants,
as determined in accordance with Section 16 of the Exchange Act and the
regulations promulgated thereunder.
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 use its best efforts to continue the listing
or trading of its Common Stock on the Nasdaq National 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. In the event the Registration
Statement (as defined in the Registration Rights Agreement) is not effective or
has been suspended, 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 beneficially own
the Series C Preferred Shares, or shall own 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 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. If the Company ceases to file
its periodic reports with the Commission, or if the Commission ceases making
these periodic reports available via the Internet without charge, then the
Company shall furnish the following to each Purchaser so long as such Purchaser
shall be obligated hereunder to purchase the Series C Preferred Shares or shall
beneficially own any Securities 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-QSB as
soon as available, and in any event within forty-five (45) days after the end of
each of the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as
soon as available, and in any event within ninety (90) 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.
Section 3.7 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 3.8 Subsequent Financings; Right of Exchange. Commencing
on the Closing Date and ending on the date that all of the Series C Preferred
Shares are no longer outstanding, if the Company enters into any offering (a
"New Financing") of its equity securities or of securities convertible into
equity securities ("New Securities"), then the Purchasers in their sole
discretion may exchange the Series C Preferred Shares, at face value plus all
accrued and unpaid dividends thereon, for the New Securities issued or to be
issued in the New Financing. The Company covenants and agrees to promptly notify
in writing the Purchasers of the terms and conditions of any such proposed New
Financing.
Section 3.9 Distributions. So long as any Series C Preferred
Shares or Warrants remain outstanding, the Company agrees that it shall not (i)
declare or pay any dividends or make any distributions to any holder(s) of
Common Stock or (ii) purchase or otherwise acquire for value, directly or
indirectly, any Common Stock or other equity security of the Company.
Section 3.10 Status of Dividends. The Company covenants and
agrees that (i) no Federal income tax return or claim for refund of Federal
income tax or other submission to the Internal Revenue Service (the "Service")
will adversely affect the Series C Preferred Shares, any other series of its
Preferred Stock, or the Common Stock, and any deduction shall not operate to
jeopardize the availability to Purchasers of the dividends received deduction
provided by Section 243(a)(1) of the Code or any successor provision, (ii) in no
report to shareholders or to any governmental body having jurisdiction over the
Company or otherwise will it treat the Series C Preferred Shares other than as
equity capital or the dividends paid thereon other than as dividends paid on
equity capital unless required to do so by a governmental body having
jurisdiction over the accounts of the Company or by a change in generally
accepted accounting principles required as a result of action by an
authoritative accounting standards setting body, and (iii) other than pursuant
to this Agreement or the Certificate of Designations, it will take no action
which would result in the dividends paid by the Company on the Series C
Preferred Shares out of the Company's current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Series C Preferred Stock as
"Convertible Preferred Stock" in its annual and quarterly financial statements
in accordance with its prior practice concerning other series of preferred stock
of the Company. Notwithstanding the foregoing, the Company shall not be required
to restate or modify its tax returns for periods prior to the Closing Date. In
the event that the Purchasers have reasonable cause to believe that dividends
paid by the Company on the Series C Preferred Shares out of the Company's
current or accumulated earnings and profits will not be treated as eligible for
the dividends received deduction provided by Section 243(a)(1) of the Code, or
any successor
provision, the Company will, at the reasonable request of the Purchasers of 51%
of the outstanding Series C Preferred Shares, join with the Purchasers in the
submission to the Service of a request for a ruling that dividends paid on the
Shares will be so eligible for Federal income tax purposes, at the Purchasers
expense. In addition, the Company will reasonably cooperate with the Purchasers
(at Purchasers' expense) in any litigation, appeal or other proceeding
challenging or contesting any ruling, technical advice, finding or determination
that earnings and profits are not eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision to the
extent that the position to be taken in any such litigation, appeal, or other
proceeding is not contrary to any provision of the Code or incurred in
connection with any such submission, litigation, appeal or other proceeding.
Notwithstanding the foregoing, nothing herein contained shall be deemed to
preclude the Company from claiming a deduction with respect to such dividends if
(i) the Code shall hereafter be amended, or final Treasury regulations
thereunder are issued or modified, to provide that dividends on the Series C
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a deduction with respect to all or a portion
of the dividends on the Shares is allowable for Federal income tax purposes, or
(ii) in the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the service shall rule
or advise that dividends on the shares should not be treated as dividends for
Federal income tax purposes. If the Service determines that the Series C
Preferred Shares or Conversion Shares constitute debt, the Company may file
protective claims for refund.
Section 3.11 Reservation of Shares. So long as the Series C
Preferred Shares and the Warrants remain outstanding, the Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, the maximum number of shares of Common Stock to effect the
conversion of the Series C Preferred Shares and the exercise of the Warrants.
Section 3.12 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 3.13 Stockholder Approval. Within twenty (20) days
following the Closing, the Company shall solicit by proxy stockholder approval
to authorize (i) the issuance to the Purchasers of shares of Common Stock which
the Purchasers could acquire upon conversion of the Preferred Shares in
accordance with the terms thereof, which maximum amount is in excess of 20% of
the currently outstanding shares of Common Stock of the Company and (ii) the
purchase by Xxxxxx X. Xxxxxx of up to an aggregate of four million dollars
($4,000,000) Stated Value of Series C Preferred Shares. If stockholder approval
is not obtained within ninety (90) days following the Closing, each Purchaser
shall have the option to redeem one-half (1/2) of its Series C Preferred Shares
originally purchased at a redemption price of one hundred fifteen percent (115%)
of the face value of such Series C Preferred Shares plus accrued and unpaid
dividends and upon payment in full, the Purchasers shall surrender certificates
representing such redeemed Series C Preferred Shares for cancellation.
Section 3.14 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates,
registered in the name of each Purchaser or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Purchaser to the Company upon conversion of the Series C
Preferred Shares or exercise of the Warrants in the form of Exhibit E 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 3.15 will be given by
the Company to its transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 3.15 shall affect in any way each Purchaser's obligations and
agreements set forth in Section 5.1 to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Shares. If a Purchaser
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Shares may be
made without registration under the Securities Act or the Purchaser provides the
Company with reasonable assurances that the Shares can be sold pursuant to Rule
144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.15 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 3.15 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 3.15, 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.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company
to Close and to Sell the Series C Preferred Shares and Warrants. The obligation
hereunder of the Company to close and issue and sell the Series C Preferred
Shares 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 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 Series
C Preferred Shares 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 Series C Preferred Shares and Warrants.
The obligation hereunder of the Purchasers to purchase the Series C Preferred
Shares 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.
(a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company in this Agreement and
the Registration Rights Agreement shall be true and correct in all 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 Series C Preferred Shares.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers, directors or
affiliates of the Company or any Subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Opinion of Counsel, Etc. The Purchasers shall have received
an opinion of counsel to the Company, dated the date of such Closing, in
substantially the form of Exhibit F hereto and such other certificates and
documents as the Purchasers or their counsel shall reasonably require incident
to the Closing.
(g) Certificate of Designations. Prior to the Closing Date, the
Certificate of Designations in the form set forth on Exhibit C attached hereto
shall have been filed with the Secretary of State of Delaware.
(h) Series C Preferred Shares and Warrants. The Company shall
have delivered to the Purchasers the originally executed certificates
representing the Series C Preferred Shares (in such denominations as each
Purchaser may request) and originally executed Warrants (in such denominations
as each Purchaser may request) being acquired by the Purchasers at the Closing.
(i) 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").
(j) 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 Series C Preferred Shares and the
exercise of the Warrants, a number of shares of Common Stock equal to at least
100% of the aggregate number of Conversion Shares issuable upon conversion of
the Series C Preferred Shares and the number of Warrant Shares issuable upon
exercise of the number of Warrants assuming all such Preferred Shares and
Warrants were fully convertible or exercisable on such date regardless of any
limitation on the timing or amount of such conversions or exercises.
(k) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(l) 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 Certificate, (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.
(m) 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 each 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.
(n) Fees and Expenses. As of each 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.
(o) Registration Rights Agreement. As of the Closing Date, the
parties shall have entered into the Registration Rights Agreement in the Form of
Exhibit D attached hereto.
(p) Material Adverse Effect. No Material Adverse Effect shall
have occurred.
(q) Xxxxxx X. Xxxxxx Purchase. Subject only to the receipt of
stockholder approval described in Section 3.13 above, Xxxxxx X. Xxxxxx, Chief
Executive Officer of the Company (or his affiliates or designees), shall have
agreed to purchase at least two million dollars ($2,000,000) Stated Value of
Series C Preferred Shares, one million dollars ($1,000,000) of which may be paid
by the cancellation of outstanding indebtedness of one million dollars
($1,000,000) that is currently due and payable from the Company to Xx. Xxxxxx.
Section 4.3 Condition Precedent to the Obligation of St. Cloud
Capital to Close and to Purchase the Series C Preferred Shares and Warrants. The
obligation hereunder of St. Cloud Capital to purchase the Series C Preferred
Shares and Warrants and consummate the transactions contemplated by this
Agreement is subject to its receipt from the United States Small Business
Administration of $1,500,000, the proceeds of which shall be used to acquire and
pay for its portion of the Series C Preferred Shares and Warrants.
ARTICLE V
CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Series C
Preferred Shares, 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 COMPUTER
MOTION, 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 Series C Preferred
Shares, the 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.
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 Purchasers.
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 as a result of 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.
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 in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect 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 such fees and expenses set forth on Schedule
2.1(p) hereto, including all reasonable attorneys' fees and expenses (exclusive
of disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Transaction Documents and the transactions contemplated
thereunder up to $50,000. 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 Series C Preferred
Shares, 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 ninety percent
(90%) of the then-outstanding Series C Preferred Shares (excluding the Series C
Preferred Shares beneficially owned by Xxxxxx X. Xxxxxx), 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 Series C Preferred Shares then outstanding. No consideration
shall be offered or paid to any person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration is also offered to all of the parties to the Transaction
Documents or holders of Series C Preferred Shares, 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: Computer Motion, Inc.
000-X Xxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx
Telecopier: (000) 000-0000
Telephone: (000) 000-0000 [x.113]
with copies (which copies
shall not constitute notice
to the Company) to: Stradling, Yocca, Xxxxxxx & Xxxxx
000 Xxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
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 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 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 Series C Preferred Shares, 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 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 Warrants
and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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.
COMPUTER MOTION, INC.
By:
---------------------------------
Name:
Title:
[NAME OF PURCHASER]
By:
---------------------------------
Name:
Title:
EXHIBIT A TO THE
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR COMPUTER MOTION, INC.
LIST OF INVESTORS
EXHIBIT B-1 TO THE
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR COMPUTER MOTION, INC.
FORM OF SERIES C-1 WARRANT
EXHIBIT B-2 TO THE
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR COMPUTER MOTION, INC.
FORM OF SERIES C-2 WARRANT
EXHIBIT C TO THE
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR COMPUTER MOTION, INC.
FORM OF CERTIFICATE OF DESIGNATION
EXHIBIT D TO THE
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR COMPUTER MOTION, INC.
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E TO THE
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
COMPUTER MOTION, INC.
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
COMPUTER MOTION, INC.
as of October __, 2002
[Name and address of Transfer Agent]
Attn: _____________
LADIES AND GENTLEMEN:
Reference is made to that certain Series C Convertible Preferred Stock
Purchase Agreement, dated as of October __, 2002, by and among Computer Motion,
Inc., a Delaware corporation (the "COMPANY"), and the purchasers named therein
(collectively, the "PURCHASERS") pursuant to which the Company is issuing to the
Purchasers shares of its Series C Convertible Preferred Stock, par value $.001
per share, (the "PREFERRED SHARES") and warrants (the "WARRANTS") to purchase
shares of the Company's common stock, par value $.001 per share (the "COMMON
STOCK") Warrants in connection with the sale and issuance of Preferred Shares
and Warrants to the Purchasers. This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent of
the Company at such time) to issue shares of Common Stock upon conversion of the
Preferred Shares (the "CONVERSION SHARES") and exercise of the Warrants (the
"WARRANT SHARES") to or upon the order of a Purchaser from time to time upon (i)
surrender to you of a properly completed and duly executed Conversion Notice or
Exercise Notice, as the case may be, in the form attached hereto as Exhibit I
and Exhibit II, respectively, (ii) in the case of the conversion of Preferred
Shares, a copy of the certificates (with the original certificates delivered to
the Company) representing Preferred Shares being converted or, in the case of
Warrants being exercised, a copy of the Warrants (with the original Warrants
delivered to the Company) being exercised (or, in each case, an indemnification
undertaking with respect to such share certificates or the warrants in the case
of their loss, theft or destruction), and (iii) delivery of a treasury order or
other appropriate order duly executed by a duly authorized officer of the
Company. So long as you have previously received (x) written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares or Warrant Shares, as applicable, has been declared effective
by the Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT"), and no subsequent notice by the Company or
its counsel of the suspension or termination of its effectiveness and (y) a copy
of such registration statement, and if the Purchaser represents in writing that
the Conversion Shares or the Warrant Shares, as the case may be, were sold
pursuant to the Registration Statement, then certificates representing the
Conversion Shares and the Warrant Shares, as the case may be, shall not bear any
legend restricting transfer of the Conversion Shares and the Warrant Shares, as
the case may be, thereby and should not be subject to any stop-transfer
restriction. Provided, however, that if you have not previously received (i)
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares or Warrant Shares, as applicable, has
been declared effective by the SEC under the 1933 Act, and (ii) a copy of such
registration statement, then the certificates for the Conversion Shares and the
Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR
COMPUTER MOTION, INC. SHALL HAVE RECEIVED AN OPINION OF ITS
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please be advised that the Purchasers are relying upon this letter as an
inducement to enter into the Securities Purchase Agreement and, accordingly,
each Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
COMPUTER MOTION, INC.
By:
--------------------------------------
Name:
-------------------------------
Title:
------------------------------
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
Date:
------------
EXHIBIT I
COMPUTER MOTION, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series C Preferred Stock of Computer Motion, Inc. (the
"Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series C Preferred Stock, par value $.001 per share (the "Preferred
Shares"), of Computer Motion, Inc., a Delaware corporation (the "Company"),
indicated below into shares of Common Stock, par value $.001 per share (the
"Common Stock"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Preferred Shares specified below as of the date
specified below.
Date of Conversion:
----------------------------------------------------
Number of Preferred Shares to be converted:
-------------
Stock certificate no(s). of Preferred Shares to be converted:
-----------
The Common Stock have been sold pursuant to the Registration Statement
(as defined in the Registration Rights Agreement): YES NO
----- ------
Please confirm the following information:
Conversion Price:
-------------------------
Number of shares of Common Stock to be issued:
-------------------------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
-------------------------
-------------------------
Facsimile Number:
-------------------------
Authorization:
-------------------------
By:
--------------------------
Title:
-----------------------
Dated:
PRICES ATTACHED
EXHIBIT II
COMPUTER MOTION, INC.
FORM OF EXERCISE NOTICE
EXERCISE FORM
COMPUTER MOTION, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Computer
Motion, Inc. covered by the within Warrant.
Dated: Signature
----------------- ----------------------------------
Address
------------------------------
------------------------------
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: Signature
----------------- ----------------------------------
Address
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------------------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: Signature
----------------- ----------------------------------
Address
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------------------------------
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Company's transfer agent]
Re: COMPUTER MOTION, INC.
Ladies and Gentlemen:
We are counsel to Computer Motion, Inc., a Delaware corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Debenture and Warrant Purchase Agreement (the "PURCHASE AGREEMENT"), dated as of
August __, 2002, by and among the Company and the purchasers named therein
(collectively, the "PURCHASERS") pursuant to which the Company issued to the
Purchasers Debentures (the "DEBENTURES") and warrants (the "WARRANTS") to
purchase shares of the Company's common stock, par value $.001 per share (the
"COMMON STOCK"). Pursuant to the Purchase Agreement, the Company has also
entered into a Registration Rights Agreement with the Purchasers (the
"REGISTRATION RIGHTS AGREEMENT"), dated as of August __, 2002, pursuant to which
the Company agreed, among other things, to register the Registrable Securities
(as defined in the Registration Rights Agreement), including the shares of
Common Stock issuable upon exercise of the Warrants, under the Securities Act of
1933, as amended (the "1933 ACT"). In connection with the Company's obligations
under the Registration Rights Agreement, on ________________, 2002, the Company
filed a Registration Statement on Form S-3 (File No. 333-________) (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the resale of the Registrable Securities which names the
Purchasers as selling stockholders thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
--------------------------
cc: [LIST NAME OF PURCHASERS]
EXHIBIT F TO THE
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR COMPUTER MOTION, INC.
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry on its
business as presently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the failure to so qualify would have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the Series
C Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares.
The execution, delivery and performance of each of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated thereby
have been duly and validly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Series C Preferred Shares and the Warrants have been duly
executed, issued and delivered by the Company and each of the Transaction
Documents constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its respective terms. The
Series C Preferred Shares, the Conversion Shares and the Warrant Shares are not
subject to any preemptive rights under the Certificate of Incorporation or the
Bylaws.
3. The Series C Preferred Shares have been duly authorized and, when delivered
against payment in full as provided in the Purchase Agreement, will be validly
issued, fully paid and nonassessable. The Conversion Shares, have been duly
authorized and reserved for issuance, and, when delivered upon exercise as
provided in the Certificate of Designations, will be validly issued, fully paid
and nonassessable. The Warrant Shares, have been duly authorized and reserved
for issuance, and, when delivered upon exercise or against payment in full as
provided in the Warrants, will be validly issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with the terms of
the Transaction Documents and the issuance of the Series C Preferred Shares, the
Conversion Shares, the Warrants and the Warrant Shares do not (a) violate any
provision of the Certificate of Incorporation or Bylaws, (b) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party and which is known to us, (c) create
or impose a lien, charge or encumbrance on any property of the Company under any
agreement or any commitment known to us to which the Company is a party or by
which the Company is bound or by which any of its respective properties or
assets are bound, or (d) result in a violation of any Federal, state, local or
foreign statute, rule, regulation, order, judgment, injunction or decree
(including Federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, except, in all cases
other than violations pursuant to clauses (a) and (d) above, for such conflicts,
default, terminations, amendments, acceleration, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution, delivery and performance of the Transaction Documents, or the
offer, sale or issuance of the Series C Preferred Shares, the Conversion Shares,
the Warrants or the Warrant Shares other than filings as may be required by
applicable Federal and state securities laws and regulations and the Nasdaq
rules and regulations.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Agreement or the transactions contemplated thereby or any action
taken or to be taken pursuant thereto. There is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Series C Preferred Shares and the
Warrants, the offer and issuance of the Conversion Shares pursuant to the
Agreement and the offer, issuance and sale of the Warrant Shares pursuant to the
Agreement and the Warrants, as applicable, are exempt from the registration
requirements of the Securities Act of 1933, as amended.
8. The Company is not, and as a result of and immediately upon Closing will not
be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
