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EXHIBIT 10.1
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SECURITIES PURCHASE AGREEMENT
among
eSOFT, INC.
and
THE PURCHASERS LISTED ON SCHEDULE I
Dated as of June 10, 1999
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TABLE OF CONTENTS
PAGE
ARTICLE I. PURCHASE AND SALE......................................................................................1
1.1 Purchase and Sale.......................................................................................1
1.2 Closings................................................................................................2
ARTICLE II. REPRESENTATIONS AND WARRANTIES........................................................................5
2.1 Representations, Warranties and Agreements of the Company...............................................5
2.2 Representations and Warranties of the Purchasers.......................................................15
ARTICLE III. OTHER AGREEMENTS....................................................................................17
3.1 Transfer Restrictions; Legend..........................................................................17
3.2 Stop Transfer Instruction..............................................................................18
3.3 Furnishing of Information..............................................................................18
3.4 Blue Sky Laws..........................................................................................19
3.5 Integration............................................................................................19
3.6 Listing and Reservation of Debenture Shares and Warrant Shares.........................................19
3.7 Notice of Breaches and Violations; Purchaser Default...................................................21
3.8 Form D.................................................................................................21
3.9 Future Financings......................................................................................22
3.10 Use of Proceeds........................................................................................23
3.11 Transactions with Affiliates...........................................................................23
3.12 Transfer Agent Instructions............................................................................23
3.13 Press Release; Filing of Form 8-K......................................................................24
3.14 Information............................................................................................24
3.15 Ordinary Course Brokerage and Trading..................................................................24
3.16 Best Efforts...........................................................................................24
3.17 Corporate Existence....................................................................................24
3.18 No Violation of Applicable Law.........................................................................25
3.19 Trading Restrictions...................................................................................25
ARTICLE IV. CONDITIONS...........................................................................................25
4.1 First Closing..........................................................................................25
4.2 Second Closing.........................................................................................28
4.3 Third Closing..........................................................................................32
ARTICLE V. INDEMNIFICATION.......................................................................................35
5.1 Indemnification........................................................................................36
ARTICLE VI. MISCELLANEOUS........................................................................................36
6.1 Entire Agreement.......................................................................................36
6.2 Notices................................................................................................36
6.3 Amendments; Waivers....................................................................................38
6.4 Titles and Headings....................................................................................38
6.5 References.............................................................................................38
6.6 Successors and Assigns.................................................................................38
6.7 No Third-Party Beneficiaries...........................................................................39
6.8 Governing Law..........................................................................................39
6.9 Survival...............................................................................................39
6.10 Counterparts...........................................................................................39
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6.11 Publicity..............................................................................................39
6.12 Severability...........................................................................................40
6.13 Remedies...............................................................................................40
6.14 Independent Nature of Purchasers' Obligations and Rights...............................................40
6.15 Payment Set Aside......................................................................................41
6.16 Further Assurances.....................................................................................41
6.17 Fees and Expenses......................................................................................41
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as of
June 10, 1999 among eSOFT, Inc., a Delaware corporation (the "Company"), and
the various purchasers identified and listed on Schedule I hereto (each
referred to herein as a "Purchaser", and collectively as the "Purchasers.").
WHEREAS, the Company and the Purchasers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 under Regulation D as promulgated by the United States
Securities and Exchange Commission (the "Commission") under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act");
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, an aggregate of up to $8,000,000
principal amount of the Company's 5% convertible debentures (the "Debentures",
each of which is a "Debenture"), substantially in the form of Exhibit A annexed
hereto, and a stock purchase warrant or warrants (each, a "Warrant"),
substantially in the form of Exhibit B annexed hereto, to purchase shares of
the Company's common stock, par value $0.01 per share (the "Common Stock");
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form of Exhibit C attached hereto (the
"Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act and the rules and
regulations promulgated thereunder, and applicable state securities laws; and
WHEREAS, at each of the Second Closing and the Third Closing (as
defined in Sections 1.2(b) and 1.2(c)), the parties hereto shall execute and
deliver a Registration Rights Agreement substantially in the form of Exhibit C
attached hereto pursuant to which the Company shall agree to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements hereinafter, the Company and the Purchasers hereby agree as
follows:
ARTICLE I.
PURCHASE AND SALE
1.1 Purchase and Sale.
a. Purchase and Sale on First Closing Date. On the First Closing Date
(as defined below), subject to the terms and conditions set forth herein, the
Company shall issue and sell to each Purchaser and each Purchaser, severally
and not jointly, shall purchase from the
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Company (i) the principal amount of Debentures as set forth on Schedule I and
(ii) a Warrant or Warrants exercisable for the amount of Common Stock as set
forth on Schedule I for such Purchaser. The aggregate principal amount of
Debentures purchased by the Purchasers shall be $3,000,000 and the aggregate
number of shares of Common Stock for which the Warrant or Warrants will be
exercisable shall be 766,773 shares of Common Stock.
b. Purchase and Sale on Second Closing Date. On the Second Closing
Date (as defined below), subject to the terms and conditions set forth herein,
the Company shall issue and sell to the Purchasers (i) an additional $2,000,000
principal amount of the Debentures and (ii) an additional Warrant exercisable
for an aggregate amount of 511,182 shares of Common Stock.
c. Purchase and Sale on Third Closing Date. On the Third Closing Date
(as defined below), subject to the terms and conditions set forth herein, the
Company shall issue and sell to the Purchasers (i) an additional $3,000,000
principal amount of Debentures and (ii) an additional Warrant for shares of
Common Stock.
1.2 Closings.
a. The First Closing. The closing of the purchase and sale of the
initial $3,000,000 aggregate principal amount of Debentures and Warrants for an
aggregate of 766,773 shares of Common Stock (the "First Closing") shall take
place at the offices of Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P., 000 Xxxxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or by transmission by facsimile and/or
overnight courier, immediately following the execution hereof or such later
date or different location as the parties shall agree, but not prior to the
date that the conditions set forth in Section 4.1 have been satisfied or waived
by the appropriate party (the "First Closing Date"). At the First Closing:
(i) Each Purchaser shall deliver, as directed by the Company, its
portion of the purchase price as set forth next to its name on Schedule I in
United States dollars in immediately available funds to an account or accounts
designated in writing by the Company;
(ii) The Company shall deliver a Debenture, substantially in the
form of Exhibit A hereto, representing the principal amount purchased by each
Purchaser as set forth next to such Purchaser's name on Schedule I and with a
Conversion Price (as defined therein) equal to $3.9125, registered in the name
of such Purchaser;
(iii) The Company shall deliver a Warrant(s), substantially in the
form of Exhibit B hereto and with the Exercise Price (as defined therein) equal
to $4.499375, representing the Warrant(s) being purchased by each Purchaser as
set forth next to such Purchaser's name on the Schedule I, registered in the
name of such Purchaser; and
(iv) The parties shall execute and deliver each of the documents
referred to in Section 4.1.
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b. Second Closing. Subject to the terms and conditions set forth in
Section 4.2 and elsewhere in this Agreement, the closing and sale of an
additional $2,000,000 aggregate principal amount of Debentures and Warrants for
an aggregate of 511,182 shares of Common Stock (the "Second Closing") shall
take place on a date mutually acceptable to the parties in the same manner as
the First Closing but in no event later than ten (10) business days after the
release of the Company's earnings for the fiscal quarter ended September 30,
1999 (the "Second Closing Date"); provided, that in no case shall the Second
Closing take place unless and until the conditions listed in Section 4.2 have
been satisfied or waived by the appropriate party; provided, further, that if a
Change of Control shall have occurred, the Company shall not be obligated to
sell more than $1,000,000 aggregate principal amount of Debentures and Warrants
at the Second Closing. At the Second Closing:
(i) Each Purchaser shall deliver, as directed by the Company, its
portion of the purchase price as set forth next to its name on a schedule
similar to Schedule I (the "Second Closing Schedule"), to be delivered to the
Company by the Purchasers two (2) days before the Second Closing Date, in
United States dollars in immediately available funds to an account or accounts
designated in writing by the Company;
(ii) The Company shall deliver a Debenture, substantially in the
form of Exhibit A hereto, except that Section 4.2(b) thereof shall be omitted,
with a Conversion Price (as defined therein) equal to $3.9125, representing the
principal amount purchased by each Purchaser as set forth next to such
Purchaser's name on the Second Closing Schedule, registered in the name of such
Purchaser;
(iii) The Company shall deliver a Warrant(s), substantially in the
form of Exhibit B hereto and with the Exercise Price (as defined therein) equal
to $4.499375, representing the Warrant(s) being purchased by each Purchaser as
set forth next to such Purchaser's name on the Second Closing Schedule,
registered in the name of such Purchaser; and
(iv) The parties shall execute and deliver each of the documents
referred to in Section 4.2.
c. Third Closing. Subject to the terms and conditions set forth in
Section 4.3 and elsewhere in this Agreement, the Purchasers shall have the
right (the "Purchasers' Call Option") at any time within a two (2) year period
commencing on the First Closing Date to deliver a written notice to the Company
(a "Purchasers' Call Option Notice") requiring the Company to issue and sell on
the same terms and conditions as at the First Closing, except that the
Conversion Price shall be equal to the lesser of (x) $5.50 per share of Common
Stock and (y) the five (5) day average closing bid price of the Common Stock
(as reported by Bloomberg Information Services, Inc., or any successor
reporting service) for the five (5) Trading Days (as defined below) immediately
preceding the Second Closing Date, but in any event no lower than the
Conversion Price at the First Closing, (1) an additional principal amount of
Debentures of up to $3,000,000 and (2) an additional Warrant with an Exercise
Price equal to 115% of the Conversion Price at the Third Closing. The closing
of the purchase and sale of the additional Debentures and Warrant(s) (the
"Third Closing") under the Purchasers' Call Option Notice shall
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take place in the same manner as the First Closing, within five (5) business
days of the date after delivery of the Purchasers' Call Option Notice (the
"Third Closing Date"); provided, that in no case shall the Third Closing take
place unless and until the conditions listed in Section 4.3 have been satisfied
or waived by the appropriate party, and provided, further that, if the Company
has filed a registration statement under the Securities Act relating to an
Underwritten Offering (as defined in the Registration Rights Agreement) and if
the Company, after consultation with the managing underwriter(s) or
underwriter(s), should reasonably determine that the Third Closing would
materially adversely affect the offering contemplated in such registration
statement, then the Third Closing shall be delayed until sixty (60) days after
the closing of such offering or until after the cancellation of such offering.
If a Change of Control shall have occurred prior to the Second Closing, then
the Company shall not be obligated to sell more than one-half ($1,500,000
aggregate principal amount of Debentures) of the amount of Debentures and
Warrants described above; provided, that if the Change of Control occurs after
the Second Closing, the Company shall be required to sell the full amount
($3,000,000 aggregate principal amount of Debentures) of Debentures and
Warrants described above. At the Third Closing:
(i) Each Purchaser shall deliver, as directed by the Company, its
portion of the purchase price as set forth next to its name on a schedule
similar to Schedule I (the "Third Closing Schedule"), to be attached to the
Purchasers' Call Option Notice, in United States dollars in immediately
available funds to an account or accounts designated in writing by the Company;
(ii) The Company shall deliver a Debenture, substantially in the
form of Exhibit A hereto, except that Section 4.2(b) thereof shall be omitted,
with a Conversion Price equal to the lesser of (A) $5.50 per share of Common
Stock and (B) the five (5) day average closing bid price of the Common Stock
(as reported by Bloomberg Information Services, Inc., or any successor
reporting service) for the five (5) Trading Days immediately preceding the
Second Closing Date (provided, that in no event shall such Conversion Price be
lower than the Conversion Price at the First Closing), representing the
principal amount purchased by each Purchaser as set forth next to such
Purchaser's name on the Third Closing Schedule, registered in the name of such
Purchaser;
(iii) The Company shall deliver a Warrant(s), substantially in the
form of Exhibit B hereto and with an Exercise Price equal to 115% of the
Conversion Price at the Third Closing, representing the Warrant(s) being
purchased by each Purchaser as set forth next to such Purchaser's name on the
Third Closing Schedule, registered in the name of such Purchaser; and
(iv) The parties shall execute and deliver each of the documents
referred to in Section 4.3.
d. Purchasers' Damages. In addition to any other rights available to
the Purchasers, if the Company fails to deliver to each Purchaser the
Debentures and the Warrants required to be delivered at the Second Closing or
the Third Closing, the Company shall pay each Purchaser, upon any Purchaser's
demand, an amount calculated according to the formula below
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as liquidated damages by cash or wire transfer in immediately available funds
to the account of such Purchaser, or as otherwise directed by such Purchaser:
[(MP-CP) x CSD] + [(MP-EP) x CSW]
where MP is the Per Share Market Price (as defined in the Registration Rights
Agreement) on the applicable Closing Date;
where CSD is the number shares of Common Stock into which the Debentures that
should have been delivered at the applicable Closing could have been converted;
where CSW is the number of shares of Common Stock for which the Warrants that
should have been delivered at the applicable Closing could have been exercised;
where CP is the Conversion Price (as defined in the Debentures) of the
Debentures; and
where EP is the Exercise Price (as defined in the Warrants) of the Warrants.
In the event of any payment of liquidated damages pursuant to this Section
1.2(d), CP of the Debentures and EP of the Warrants to be issued at the related
Closing shall be increased to MP.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. Except
as set forth or disclosed in (i) the Company's annual report on Form 10-KSB for
the year ended December 31, 1998, (ii) the Company's annual report on Form
10-KSB/A for the year ended December 31, 1998, (iii) the Company's quarterly
report on Form 10-QSB for the three month period ended Xxxxx 00, 0000, (xxx)
the Company's registration statement on Form S-4 (file no. 333-74675), as
amended (collectively, the "SEC Documents") or (iv) a Schedule of Exceptions
delivered by the Company to the Purchasers, the Company hereby represents and
warrants to each of the Purchasers as follows:
a. Organization and Qualification. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, with the requisite corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Except as set forth on Schedule 2.1(a), the Company has no
subsidiaries (collectively, the "Subsidiaries"). Each of the Subsidiaries
(which for purposes of this Agreement means any Person (as defined below) in
which the Company, directly or indirectly, owns the majority of such entity's
capital stock or holds an equivalent equity or similar interest) is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization (as applicable),
with the requisite corporate power and authority to own and use its properties
and assets and to carry on its business as currently conducted. Each of the
Company and its Subsidiaries is duly qualified as a
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foreign corporation to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
(i) adversely affect the legality, validity or enforceability of this Agreement
or any of the Transaction Documents (as defined in Section 2.1(b)) or any of
the transactions contemplated hereby or thereby, (ii) have or result in a
material adverse effect on the business, results of operations, assets,
prospects, or financial condition of the Company and its Subsidiaries, taken as
a whole or (iii) impair the Company's ability to perform fully on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or
(iii), being a "Material Adverse Effect"). The Company has furnished to each of
the Purchasers true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the "Certificate
of Incorporation"), and the Company's Bylaws, as in effect on the date hereof
(the "Bylaws"), and true, complete and accurate copies of all documents
evidencing all classes of securities convertible into or exchangeable or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto.
b. Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement, the Debentures, the Warrants and the
Registration Rights Agreement (collectively, the "Transaction Documents"), and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of this Agreement and each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action and no
further action is required by the Company, its Board of Directors or its
stockholders in connection therewith. The Company has full corporate power and
authority to issue, sell and deliver the Debentures, the Debenture Shares, the
Warrants and the Warrant Shares pursuant to this Agreement and the Transaction
Documents. This Agreement and each of the Transaction Documents have been duly
executed by the Company and when delivered in accordance with the terms hereof
or thereof will constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application, and except that rights to
indemnification and contribution may be limited by applicable law or public
policy relating thereto.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company is as set forth in Schedule 2.1(c). All of such
outstanding shares of capital stock have been, or upon issuance will be, duly
authorized and validly issued, fully paid and nonassessable and were issued in
accordance with the registration or qualification provisions of the Securities
Act, or pursuant to valid exemptions therefrom. Except as disclosed in Schedule
2.1(c), (i) no shares of the Company's capital stock are subject to preemptive
rights or any other similar rights or any liens, claims or encumbrances
suffered or permitted by the Company, nor is any holder of the Common Stock
entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any Transaction Document, (ii)
there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character
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whatsoever relating to, or securities or rights convertible into or
exchangeable or exercisable for, or giving any Person any right to subscribe
for or acquire, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings, agreements or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable or exercisable for, any shares of capital
stock of the Company or any of its Subsidiaries, (iii) there are no outstanding
debt securities of the Company or any of its Subsidiaries, (iv) there are no
contracts, commitments, understandings, agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the sale of any
of their securities under the Securities Act (except the Registration Rights
Agreement), (v) there are no outstanding securities of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings, agreements or arrangements by
which the Company or any of its Subsidiaries is or may become bound to redeem a
security of the Company or any of its Subsidiaries, (vi) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the shares of Common Stock as contemplated
by this Agreement, (vii) the Company does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or agreement
and (viii) except as specifically disclosed in the SEC Documents (as defined in
Section 2.1(k)), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership
of in excess of 5% of the Common Stock. As used herein, "Person" means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
d. Authorization and Validity; Issuance of Shares. The shares of
Common Stock issuable upon conversion of the Debentures and exercise of the
Warrants (collectively, the "Underlying Shares") are and will at all times
hereafter continue to be duly authorized and reserved for issuance and the
shares of Common Stock issued upon conversion of the Debentures (the "Debenture
Shares") and exercise of the Warrants (the "Warrant Shares") will be validly
issued, fully paid and nonassessable, free and clear of all liens, claims,
encumbrances and Company rights of first refusal, other than liens, claims and
encumbrances created by the Purchasers (collectively, "Liens") and will not be
subject to any preemptive or similar rights. When issued by the Company in
accordance with the terms of this Agreement, the Debentures and the Warrants
will be validly issued, fully paid and nonassessable.
e. No Conflicts. The execution, delivery and performance of this
Agreement and each of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including the issuance of the Underlying Shares) do not and will not (i)
conflict with or violate any provision of the Certificate of Incorporation,
Bylaws or other organizational documents of the Company or any of its
Subsidiaries, (ii) subject to obtaining the consents referred to in Section
2.1(f), conflict with, or
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constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to other Persons any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, license or instrument (evidencing a Company or Subsidiary
debt or otherwise) to which the Company or any of its Subsidiaries is a party
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected or (iii) to the best of the Company's knowledge, result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company
or any of its Subsidiaries is subject (including federal and state securities
laws and regulations and the rules and regulations of the principal market or
exchange on which the Common Stock is traded or listed), applicable to the
Company or any of its Subsidiaries, or by which any material property or asset
of the Company or any of its Subsidiaries is bound or affected.
f. Consents and Approvals. Except as specifically set forth on
Schedule 2.1(f), neither the Company nor any of its Subsidiaries is required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority, regulatory or self regulatory agency, or other
Person in connection with the execution, delivery and performance by the
Company of this Agreement and the Transaction Documents, other than (i) the
filing of a registration statement with the Commission, which shall be filed in
accordance with and in the time periods set forth in the Registration Rights
Agreement, (ii) the application(s) or any letter(s) acceptable to the Nasdaq
SmallCap Market ("Nasdaq") for the listing or quoting of the Underlying Shares
on Nasdaq (and with any other national securities exchange or market on which
the Common Stock is then listed or quoted), (iii) the filing of a Form D with
the Commission and (iv) any filings, notices or registrations under applicable
state securities laws (together with the consents, waivers, authorizations,
orders, notices and filings referred to on Schedule 2.1(f), the "Required
Approvals").
g. Litigation; Proceedings. Except as specifically set forth on
Schedule 2.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, currently threatened
in writing against or affecting the Company or any of its Subsidiaries or any
of their respective assets or properties before or by any court, governmental
or administrative agency or regulatory authority (federal, state, county, local
or foreign) or any arbitrator, which (i) materially adversely affects or
challenges the legality, validity or enforceability of this Agreement or any of
the Transaction Documents, (ii) could reasonably be expected to have a Material
Adverse Effect or (iii) if adversely decided, could reasonably be expected to
have a Material Adverse Effect on the issuance or conversion of the Debentures
or the Debenture Shares, or the issuance or exercise of the Warrants or the
Warrant Shares, or the consummation of the transactions contemplated by this
Agreement and the Transaction Documents.
h. No Default or Violation. Neither the Company nor any of its
Subsidiaries is (i) in default under or in material violation of any indenture,
loan or other credit agreement or any other agreement or instrument to which it
is a party or by which it or any of its assets or properties is bound and which
is required to be included as an exhibit to any SEC Document or
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will be required to be included as an exhibit to the Company's next filing
under either the Securities Act or the Exchange Act, (ii) to the Company's
knowledge, in violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court, arbitrator or
governmental authority applicable to it, (iii) to the Company's knowledge, in
violation of any law, statute, ordinance, rule or regulation of any
governmental authority to which it is subject, (iv) in default under or in
violation of its certificate of incorporation, bylaws or other organizational
documents or (v) in default under or in violation of any of the listing or
quotation requirements of Nasdaq as in effect on the date hereof and the
Company is not aware of any facts which would reasonably lead to delisting or
suspension of the Common Stock by Nasdaq in the foreseeable future, which
violations or defaults would materially and adversely affect the business,
results of operations, assets, prospects, or financial condition of the Company
and its Subsidiaries. The business of the Company and its Subsidiaries is not
being conducted, and shall not be conducted, in violation of any law, statute,
ordinance, rule or regulation of any governmental authority, except where such
violations have not resulted or would not reasonably result in a Material
Adverse Effect.
i. Disclosure; Absence of Certain Changes. None of this Agreement,
the Schedules to this Agreement, the Transaction Documents, the SEC Documents
or any other written or formally presented information, report, financial
statement, exhibit, schedule or document furnished by or on behalf of the
Company in connection with the negotiation of the transactions contemplated
hereby contained, contains, or will contain at the time it was or is so
furnished any untrue statement of a material fact or omitted, omits or will
omit at such time to state any material fact necessary in order to make the
statements made herein and therein, in light of the circumstances under which
they were made, not materially misleading. Except as disclosed on Schedule
2.1(i) or in the SEC Documents filed on XXXXX at least five (5) business days
prior to the date hereof, since December 31, 1998, there has been no material
adverse change and no material adverse development in the business, properties,
operations, financial condition, liabilities or results of operations or,
insofar as can reasonably be foreseen, prospects of the Company or the
Subsidiaries. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law nor
does the Company or any of its Subsidiaries have any knowledge that their
respective creditors intend to initiate involuntary bankruptcy proceedings. No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective businesses, properties, operations or financial condition or,
insofar as can reasonably be foreseen, prospects, that would be required to be
disclosed by the Company under applicable securities laws on a registration
statement (including by way of incorporation by reference) filed with the
Commission, on the date this representation is made or deemed to be made,
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly disclosed.
j. Private Offering. The Company and all Persons acting on its
behalf have not made, directly or indirectly, and will not make, offers or
sales of any securities, or solicited any offers to buy any securities under
circumstances that would require registration of the Debentures, the Warrants,
the Debenture Shares, the Warrant Shares or the Underlying Shares or the
issuance of such securities under the Securities Act. The offer, issuance and
sale of the
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Debentures, the Warrants, the Debenture Shares and the Warrant Shares to the
Purchasers will not be integrated with any other offer, sale and issuance of
the Company's securities (past or current) under the Securities Act or any
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated or for purposes of any
stockholder approval provision applicable to the Company or its securities.
Subject to the accuracy and completeness of the representations and warranties
of the respective Purchasers contained in Section 2.2, the offer, issuance and
sale by the Company to the Purchasers of the Debentures, the Warrants and the
Underlying Shares is exempt from the registration requirements of the
Securities Act.
k. SEC Documents; Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Exchange Act. Since
December 31, 1997, the Company has 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 pursuant
to Sections 13, 14 or 15(d) thereof (the foregoing materials and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits to such documents) incorporated by reference therein being
collectively referred to herein as the "SEC Filings"), on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Filings prior to the expiration of any such extension. The Company has
delivered to each of the Purchasers or its representatives true, complete and
accurate copies of the SEC Documents. As of their respective dates, the SEC
Filings complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Filings, when filed,
contained 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. All agreements to which the Company or any of its Subsidiaries
is a party or to which the property or assets of the Company or any of its
Subsidiaries are subject and which are required to be filed as exhibits to the
SEC Filings have been filed as exhibits to the SEC Filings. As of their
respective dates, the financial statements of the Company included in the SEC
Filings comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company as of and for 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, immaterial year-end audit adjustments. No
other information provided by or on behalf of the Company to the Purchasers
which is not included in the SEC Filings, including, without limitation,
information referred to in Section 2.1(i) of this Agreement, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they are or were made, not misleading. The Company
shall publicly disclose within one hundred twenty (120) days of the First
Closing Date any material nonpublic information that has been disclosed to the
Purchasers. The Company acknowledges that the Purchasers will be trading in the
securities of
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the Company in reliance on the foregoing representation and warranty. The
Company shall include in the S-3 registration statement or otherwise publicly
disclose any information disclosed to the Purchasers on or prior to the First
Closing Date to the extent (and only to the extent) that such information
continues to constitute material, nonpublic information as of the 120th day
following the First Closing Date.
l. Investment Company. The Company is not, and is not controlled by
or under common control with an Affiliate (as defined below) of an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
m. Broker's Fees. No fees or commissions or similar payments with
respect to the transactions contemplated by this Agreement and the Transaction
Documents have been paid or will be payable by the Company to any broker,
financial advisor, finder, investment banker or bank, other than as set forth
in Schedule 2.1(m). The Purchasers shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section 2.1(m) that may be due in
connection with the transactions contemplated by this Agreement and the
Transaction Documents.
n. Form S-3 Eligibility. The Company is, and at each Closing Date
hereunder will be, eligible to register securities (including the Underlying
Shares) for resale with the Commission on Form S-3 (or any successor form) as
currently promulgated under the Securities Act.
o. Listing and Maintenance Requirements Compliance. The principal
market on which the Common Stock is currently traded is Nasdaq. Except as
disclosed on Schedule 2.1(o), the Company has not in the three (3) years
preceding the date hereof received notice (written or oral) from Nasdaq (or any
stock exchange, market or trading facility on which the Common Stock is or has
been listed (or on which it has been quoted)) to the effect that the Company is
not in compliance with the listing or maintenance requirements of such market,
exchange or trading facility. Except for the transactions contemplated by the
Transaction Documents, the Company is not aware of any facts that would
reasonably lead to delisting or suspension of the Common Stock by Nasdaq.
Immediately after the First Closing, the Company is and will be in compliance
with all such maintenance requirements.
p. Intellectual Property Rights. The Company and each of its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trademark applications, trade names and service marks, whether or not
registered, and all patents, patent applications, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and
intellectual property rights (collectively, "Intellectual Property Rights")
which are necessary for use in connection with their respective businesses as
now conducted and as described in the SEC Filings. Neither the Company nor any
of its Subsidiaries has received any communications alleging that the Company
or any of its Subsidiaries has violated, or by conducting their respective
businesses as now conducted, would violate any of the patents, trademarks,
service marks, trade names, copyrights or trade secrets or other proprietary
rights of any other Person. Except as set forth on Schedule 2.1(p), there is no
claim, action or proceeding which has been
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made or brought against, or to the Company's knowledge, is currently threatened
in writing against the Company or any of its Subsidiaries regarding the
infringement of any of the Intellectual Property Rights, and the Company and
its Subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing, except where any of the foregoing would not have
a Material Adverse Effect. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights.
q. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union or labor dispute nor, to the knowledge of
the Company or any of its Subsidiaries, is any such dispute currently
threatened. Neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its Subsidiaries believe
that relations with their employees are good. Except as set forth on Schedule
2.1(q), since December 31, 1998, no executive officer (as defined in Rule
501(f) under the Securities Act) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company.
r. Registration Rights; Rights of Participation. Except as
described on Schedule 2.1(r), (i) the Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration rights) to
have any securities of the Company registered with the Commission or any other
governmental authority which have not been satisfied and (ii) no Person,
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any Transaction Document.
s. Title. Except as disclosed on Schedule 2.1(s), the Company and
each of its Subsidiaries have good and marketable title to all real property
and personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all Liens, except
for Liens that do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held under lease
by the Company and its Subsidiaries are held by them under valid, subsisting
and, to the Company's best knowledge, enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and facilities by the Company and its Subsidiaries.
t. Permits. The Company and each of its Subsidiaries possess all
certificates, authorizations, licenses, easements, consents, approvals, orders
and permits necessary to own, lease and operate their respective properties and
to conduct their respective businesses as currently conducted except where the
failure to possess such permits would not have a Material Adverse Effect
("Material Permits"), and there is no claim, action or proceeding pending, or,
to the knowledge of the Company, currently threatened in writing relating to
the revocation, modification, suspension or cancellation of any Material
Permit. Neither the
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Company nor any of its Subsidiaries is in conflict with, in default under or in
material violation of any Material Permit.
u. Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be prudent
and customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverages as and when
such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business, at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiaries, taken as a whole.
v. Internal Accounting Controls. The Company and each of the
Subsidiaries maintain a system of internal accounting controls sufficient 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 United States generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorizations and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
w. Tax Status; Firpta. Except as set forth on Schedule 2.1(w), the
Company and each of its Subsidiaries have made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith (which are set forth
on Schedule 2.1(w)), and have set aside on their books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due from the Company or any of its
Subsidiaries by the taxing authority of any jurisdiction, and the officers of
the Company know of no basis for any such claim. The Company is not a "United
States real property holding corporation" within the meaning of Section
847(c)(2) of the Internal Revenue Code of 1986, as amended.
x. Transactions With Affiliates. Except as set forth on Schedule
2.1(c) or Schedule 2.1(x), none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real property or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such
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employee or, to the knowledge of the Company, any Person in which any officer,
director or any such employee has a substantial interest or is an officer,
director, trustee or partner.
y. Application of Takeover Protection. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the Certificate of Incorporation, Bylaws
or the laws of the state of incorporation of the Company which is or could
become applicable to the Purchasers or the Transaction Documents as a result of
the transactions contemplated by this Agreement and the Transaction Documents.
None of the transactions contemplated by this Agreement and the Transaction
Documents, including the conversion of the Debentures and the exercise of the
Warrants, will trigger any poison pill provisions of any of the Company's
stockholders' rights or similar agreements.
z. Environmental Laws. Except as set forth on Schedule 2.1(z), to
the best of the Company's knowledge, the Company and its Subsidiaries (i) are
in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment and hazardous and toxic substances and wastes, and pollutants and
contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permits, licenses or other approvals except where
the failure to comply with any of the foregoing would not result in a Material
Adverse Effect.
aa. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity, (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds, (iii)
violated or is in violation of any provision of the United States Foreign
Corrupt Practices Act of 1977, as amended or (iv) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
bb. Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Debentures
or the Warrants, other than the SEC Documents, the Schedules to this Agreement,
any amendments and supplements thereto and the materials listed on Schedule
2.1(bb) or (ii) solicited any offer to buy or sell the Debentures or the
Warrants by means of any form of general solicitation or advertising. Neither
the Company, nor any of its Affiliates, nor any Person acting on its or their
behalf, has engaged or will engage 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 the Debentures or the Warrants.
cc. Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the
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Debenture Shares and Warrant Shares upon conversion of the Debentures or
exercise of the Warrants. The Company further acknowledges that its obligation
to issue Debenture Shares and Warrant Shares upon conversion of the Debentures
or exercise of the Warrants in accordance with this Agreement, the Debentures
and the Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.
dd. Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that the Purchasers are acting solely in
the capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is
merely incidental to the Purchasers' purchase of the securities. The Company
further represents to each Purchaser that the Company's decision to enter into
this Agreement has been based solely on the independent evaluation of the
Company and its representatives.
ee. Solvency. The Company (both before and immediately after giving
effect to the transactions contemplated by this Agreement) is solvent (i.e.,
its assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and
matured).
ff. Seniority; Exclusivity. No class of equity securities of the
Company will be senior to the Debentures in right of payment, whether upon
liquidation, dissolution or otherwise. So long as any Debentures issued
hereunder remain outstanding, the Company shall not exchange, redeem or convert
any of the Company's capital stock for or into indebtedness, including
convertible debt, of the Company. The Company shall not issue and sell any
Debentures, other than to the Purchasers pursuant to this Agreement, without
the prior written consent of each of the Purchasers.
gg. Other Agreements. The Company has not, directly or indirectly,
made any agreements with any Purchasers relating to the terms and conditions of
the transactions contemplated by the Transaction Documents except as set forth
in the Transaction Documents.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company (as to itself) as follows:
a. Organization; Authority. Such Purchaser is a corporation or a
limited duration company or a limited liability company or limited partnership
duly formed, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, organization or formation with the requisite
power and authority, corporate or otherwise, to enter into and to consummate
the transactions contemplated hereby and by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The purchase
by such Purchaser of the Debentures and the Warrants hereunder has been duly
authorized by all necessary action
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on the part of such Purchaser. Each of this Agreement and the Registration
Rights Agreement has been duly executed and delivered by such Purchaser and
constitutes the valid and legally binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application, and except that rights to
indemnification and contribution may be limited by federal or state securities
laws or public policy relating thereto.
b. Investment Intent. Such Purchaser is acquiring the Debentures
and the Warrants for its own account and not with a present view to or for
distributing or reselling the Debentures, the Warrants, the Debenture Shares or
the Warrant Shares or any part thereof or interest therein in violation of the
Securities Act; provided, however, that by making the representations herein,
such Purchaser does not agree to hold any of the Debentures, the Warrants, the
Debenture Shares or the Warrant Shares for any minimum or other specific term
and reserves the right to dispose of the Debentures at any time in accordance
with or pursuant to a registration statement or an exemption under the
Securities Act.
c. Purchaser Status. At the time such Purchaser was offered the
Debentures and the Warrants, and at the Closing Date, (i) it was and will be an
"accredited investor" as defined in Rule 501 under the Securities Act and (ii)
such Purchaser, either alone or together with its representatives, had and will
have such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Debentures and the Warrants.
d. Reliance. Such Purchaser understands and acknowledges that (i)
the Debentures and the Warrants are being offered and sold to such Purchaser
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act under Section
4(2) of the Securities Act or Regulation D promulgated thereunder and (ii) the
availability of such exemption depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the representations set forth in this
Section 2.2 and such Purchaser hereby consents to such reliance.
e. Information. Such Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Debentures
and the Warrants which have been requested by such Purchaser or its advisors.
Such Purchaser and its advisors, if any, have been afforded the opportunity to
ask questions of the Company. Neither such inquiries nor any other due
diligence investigation conducted by such Purchaser or any of its advisors or
representatives shall modify, amend or affect such Purchaser's right to rely on
the Company's representations and warranties contained in Section 2.1 above or
representations and warranties of the Company contained in any other
Transaction Document. Such Purchaser understands that its investment in the
Debentures and the Warrants involves a significant degree of risk.
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f. Governmental Review. Such Purchaser understands that no United
States federal or state agency or any other government or governmental agency
or authority has passed upon or made any recommendation or endorsement of the
Debentures or the Warrants.
g. Residency. Such Purchaser is a resident of the jurisdiction set
forth immediately below such Purchaser's name on Schedule II hereto.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III.
OTHER AGREEMENTS
3.1 Transfer Restrictions; Legend.
a. Transfer Restrictions. If any Purchaser should decide to
transfer or dispose of the Debentures, the Warrants, the Debenture Shares or
the Warrant Shares held by it, such Purchaser understands and agrees that it
may do so only pursuant to an effective registration statement under the
Securities Act, pursuant to an available exemption from the registration
requirements of the Securities Act or Rule 144 promulgated under the Securities
Act ("Rule 144") or to the Company. Except pursuant to the Company's rights
under Section 3(k) of the Registration Rights Agreement, the Company shall
announce any material non-public information that it legally is required to
announce on or prior to the Effectiveness Date (as defined in the Registration
Rights Agreement) of the registration statement filed pursuant to the
Registration Rights Agreement and shall not enter into any subsequent
non-disclosure agreements that would prevent it from announcing any such
information that otherwise legally could have been announced on or prior to the
Effectiveness Date, unless confidential treatment for such information is
granted by the Commission. In connection with any transfer or disposition of
any Debentures, Warrants, Debenture Shares or Warrant Shares other than
pursuant to an effective registration statement or to the Company, the Company
may require the transferor thereof to provide to the Company a written opinion
of counsel experienced in the area of United States securities laws selected by
the transferor, the form and substance of which opinion shall be customary for
opinions of counsel in comparable transactions, to the effect that such
transfer or disposition does not require registration of such transferred
securities under the Securities Act; provided, however, that if the Debentures,
Warrants, Debenture Shares or Warrant Shares may be sold pursuant to Rule
144(k), no written opinion of counsel shall be required from the Purchaser if
such Purchaser provides reasonable assurances (in the Company's reasonable
belief) that such security can be sold pursuant to Rule 144(k). If a Purchaser
provides the Company with an opinion of counsel, the form and substance of
which opinion shall be customary for opinions of counsel in comparable
transactions, to the effect that a public sale, assignment or transfer of the
Debentures, the Debenture Shares, the Warrants and/or the Warrant Shares may be
made without registration under the Securities Act, the Company shall permit
the transfer, and, in the case of the Debenture Shares and the Warrant Shares,
promptly instruct its
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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. Notwithstanding the foregoing or anything else contained herein to the
contrary, the Debentures, the Warrants, the Debenture Shares and the Warrant
Shares may be pledged as collateral in connection with a bona fide margin
account or other lending arrangement.
b. Legend. Each Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Debentures, the
Warrants, the Debenture Shares and the Warrant Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
Neither the Debentures, the Warrants, the Debenture Shares, nor the
Warrant Shares shall contain the legend set forth above (or any other legend)
if in the written opinion of counsel to the Company experienced in the area of
United States securities laws such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company agrees that
it will provide each Purchaser, upon request, with a certificate or
certificates representing the Debentures, the Warrants, the Debenture Shares or
the Warrant Shares, free from such legend at such time as such legend is no
longer required hereunder. If such certificate or certificates had previously
been issued with such a legend or any other legend, the Company shall, upon
request, receive such certificate or certificates free of any legend.
3.2 Stop Transfer Instruction. The Company may not make any notation
on its records or give instructions to any transfer agent of the Company which
enlarge the restrictions on transfer set forth in Section 3.1.
3.3 Furnishing of Information. As long as any Purchaser owns any
Debentures, Warrants, Debenture Shares or Warrant Shares, the Company will
cause the Common Stock to continue at all times to be registered under Section
12(g) of the Exchange Act, will timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to Sections 13, 14 or 15(d)
of the Exchange Act and will not take any action or file any document (whether
or not permitted by the Exchange Act or the rules thereunder) to terminate or
suspend such reporting and filing obligations, and will make and keep public
information available, as those terms are defined in Rule 144. The Company
further covenants that it will take such further action as any holder of the
Debentures, the Warrants, the Debenture Shares or the Warrant Shares may
reasonably
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request, all to the extent required from time to time to enable such Person to
sell the Debentures, the Warrants, the Debenture Shares or the Warrant Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
delivering the legal opinion referenced above in Section 3.1(b). Upon the
request of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall (a) qualify the Debenture Shares and the Warrant
Shares under the state securities or "blue sky" laws of such jurisdictions as
the Purchasers may request (or to obtain an exemption from such qualification),
(b) provide evidence of any such action so taken to each Purchaser on or before
the Effectiveness Date and (c) continue such qualification at all times through
the resale of all Debenture Shares or Warrant Shares, but in any event not past
the fourth (4th) anniversary of the last Closing Date.
3.5 Integration. Except for (a) the sale of 156,250 shares of Common
Stock to Xxxxxx Xxxx Xxxxxxx and (b) an offer and sale of shares of Common
Stock to certain foreign investors in an aggregate amount of up to $3,000,000,
with no more than a twenty percent (20%) discount to the market price and which
may include warrant coverage at no more than twenty-five percent (25%) of the
shares of Common Stock sold (which offer and sale shall be made in accordance
with Regulation S under the Securities Act (the "Reg S Financing")), the
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Debentures, the
Warrants, the Debenture Shares or the Warrant Shares in a manner that would
require the registration under the Securities Act of the sale of the
Debentures, the Warrants, the Debenture Shares or the Warrant Shares to any
Purchaser or cause the offering of such securities to be integrated with any
other offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
3.6 Listing and Reservation of Debenture Shares and Warrant Shares.
a. Listing of Shares. The Company shall (i) not later than fifteen
(15) business days after the applicable Closing Date prepare and file with
Nasdaq (as well as any other national securities exchange or market on which
the Common Stock is then listed or quoted) additional shares listing
applications or letters acceptable to Nasdaq covering and listing a number of
shares of Common Stock which is at least equal to 110% of the maximum number of
Underlying Shares then issuable, assuming that the payment of all future
dividends on such shares then outstanding were made in shares of Common Stock,
(ii) take all steps necessary to cause the Underlying Shares to be approved for
listing or quotation on Nasdaq (as well as on any other national securities
exchange or market on which the Common Stock is then listed or quoted) as soon
as possible thereafter, (iii) maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all such Underlying Shares and (iv)
provide to the Purchasers evidence of such listing. Neither the Company nor any
of its Subsidiaries shall take any action that may result in the delisting or
suspension of the Common Stock on Nasdaq. The Company shall promptly provide to
each Purchaser copies of any notices it receives from Nasdaq
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regarding the continued eligibility of the Common Stock for listing on such
automated quotation system, so long as such notice does not include material,
non-public information. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 3.6(a).
b. Reservation of Shares. The Company at all times shall reserve a
sufficient number of shares of its authorized but unissued Common Stock to
provide for 1.1 times the full conversion of the outstanding Debentures
(including the payment of all interest thereon) and exercise of the outstanding
Warrants. The shares of Common Stock reserved for issuance upon conversion of
the Debentures and the exercise of the Warrants shall be allocated pro rata to
each of the Purchasers in accordance with the number of Debentures and Warrants
issued and delivered to such Purchaser at the applicable Closing. If at any
time the number of shares of Common Stock authorized and reserved for issuance
is insufficient to cover 100% of the number of Debenture Shares and Warrant
Shares issued and issuable upon conversion of the Debentures and exercise of
the Warrants (based on the Conversion Price (as defined in the Debenture) of
the Debentures in effect from time to time and the Exercise Price (as defined
in the Warrants) of the Warrants in effect from time to time) without regard to
any limitation on conversions or exercises, the Company will promptly take all
corporate action necessary to authorize and reserve 110% of such shares
pursuant to Section 3(b) of the Registration Rights Agreement, including,
without limitation, calling a special meeting of stockholders to authorize
additional shares to meet the Company's obligations under this Section 3.6(b),
in the case of an insufficient number of authorized shares, and using its best
efforts to obtain stockholder approval of an increase in such authorized number
of shares. In addition, if, at any time within the 45-day period preceding a
reset or adjustment (a "reset") of the Conversion Price pursuant to the terms
of the Debentures, the closing bid price per share of the Common Stock on
Nasdaq (or any Subsequent Market (as defined in the Debentures) on which the
Common Stock is then listed or quoted, or if there is no such price on such
date, then the closing bid price on such exchange or quotation system on the
date nearest preceding such date) is less than $3.00 for any consecutive five
(5) Trading Day period, the Company shall be required to file within ten (10)
business days after such fifth (5th) Trading Day a registration statement
covering the greater of (i) the product of (A) 1.2 and (B) the aggregate number
of Underlying Shares that would be issuable based on a Conversion Price equal
to the average closing bid price during such five (5) Trading Day period, less
the number of Underlying Shares for which a registration statement is then
effective and (ii) the aggregate number of Underlying Shares, calculated as if
the Conversion Price was reset on such fifth (5th) day pursuant to the terms of
the Debenture, less the number of Underlying Shares for which a registration
statement is then effective; provided, however, that if on the actual reset
date (pursuant to the Debentures) the registration statements are insufficient
to register all Underlying Shares (after giving effect to such reset), the
Company shall immediately, but in no more than ten (10) business days
thereafter, file a registration statement sufficient to register such
additional shares of Common Stock. All calculations of the above amount shall
be made without regard to any limitation on conversions of Debentures or
exercises of Warrants.
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3.7 Notice of Breaches and Violations; Purchaser Default.
a. Notice of Breach. The Company and each Purchaser shall give
prompt written notice to each other of any breach by it of any representation,
warranty or other agreement contained in this Agreement or in the Transaction
Documents, as well as any events or occurrences arising after the date hereof
and prior to the applicable Closing Date, which would reasonably be likely to
cause any representation or warranty or other agreement of such party, as the
case may be, contained herein to be incorrect or breached as of the applicable
Closing Date, provided such notice will not constitute material non-public
information. However, no disclosure by any party pursuant to this Section 3.7
shall be deemed to cure any breach of any representation, warranty or other
agreement contained herein or in the Transaction Documents.
b. Notice of Violation. Notwithstanding the generality of Section
3.7(a), the Company shall promptly notify (provided, such notification will not
constitute material non-public information) each Purchaser of any notice or
claim (written or oral) that it receives from any lender of the Company or any
of its Subsidiaries to the effect that the consummation of the transactions
contemplated hereby and by the Registration Rights Agreement violates or would
violate any written agreement or understanding between such lender and the
Company or any of its Subsidiaries, and the Company shall promptly furnish by
facsimile to the Purchasers a copy of any written statement in support of or
relating to such claim or notice.
c. Purchaser Default. The default by any Purchaser of any of its
obligations, representations or warranties under this Agreement or the
Transaction Documents shall not be imputed to, and shall have no effect upon,
any other Purchaser or affect the Company's obligations under this Agreement or
any Transaction Document to any non-defaulting Purchaser.
3.8 Form D. The Company agrees to file a Form D with respect to the
Debentures and the Warrants as required by Rule 506 under Regulation D under
the Securities Act and to provide a copy thereof to each Purchaser promptly
after such filing.
3.9 Future Financings. Except for (i) the Reg S Financing, (ii) the
issuance of the Underlying Shares and any shares issued in lieu of cash
interest payments on the Debentures, (iii) shares of Common Stock reserved for
issuance by the Company in connection with any plan which has been approved by
the Board of Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director or consultant of
the Company, (iv) shares of Common Stock issuable upon the exercise of any
options or warrants outstanding on the date hereof and listed in Schedule
2.1(c), (v) the securities to be issued in the transactions set forth on such
Schedule 2.1(c), (vi) shares of Common Stock issued or deemed to have been
issued as consideration for an acquisition by the Company of a division, assets
or business (or stock constituting any portion thereof) from another Person, if
the Company agrees to issue shares of Common Stock or other securities
convertible into or exchangeable or exercisable for Common Stock, (vii) shares
of Common Stock issued pursuant to any equipment leasing arrangement, or debt
financing from a bank or similar financial institution or (viii) shares of
Common Stock issued pursuant to a strategic alliance, provided such issuances
are for other
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than primarily equity financing purposes (the "New Security") while any
Debentures are outstanding at (A) an effective price per share which is less or
may be less (including, without limitation, any security which is convertible
into or exchangeable or exercisable for Common Stock at a price which may
change with the market price of the Common Stock) than the Conversion Price (as
defined in the Debenture) of the Debentures as of the date thereof or (B) an
effective price per share greater than the Conversion Price but less than the
Average Price (as defined in the Debenture) on the date of such issuance or
sale (either of (A) or (B), a "Future Financing"), the Company shall provide to
the Purchasers by 5:00 p.m. (New York time) on or before the third (3rd)
Trading Day after the decision to issue the New Security has been made, written
notice of the Future Financing containing in reasonable detail (x) the proposed
terms of the Future Financing, (y) the amount of the proceeds that will be
raised and (z) the Person with whom such Future Financing shall be effected,
and attached to which shall be a term sheet or similar document relating
thereto (the "Future Financing Notice"). Upon receiving the Future Financing
Notice, each Purchaser shall have the pro rata right (based on the principal
amount of the Debentures held by such Purchaser relative to the aggregate
principal amount of Debentures outstanding) to purchase, on the same terms as
the Future Financing, an amount of New Securities having a purchase price which
shall not exceed the sum of (1) the outstanding principal amount of and any
interest owing on such Purchaser's Debenture and (2) the aggregate purchase
price for the Warrants purchased by such Purchaser. In the event a Purchaser
desires to exercise the right granted under this Section 3.9, such Purchaser
must notify the Company on or prior to the fifth (5th) Trading Day after such
Purchaser has received the Future Financing Notice. In the event the terms and
conditions of a proposed Future Financing are amended in any respect after
delivery of the Future Financing Notice but prior to the closing of the
proposed Future Financing to which such Future Financing Notice relates, the
Company shall deliver a new notice to each Purchaser describing the amended
terms and conditions of the proposed Future Financing and each Purchaser
thereafter shall have an option during the five (5) Trading Days following
delivery of such new notice to purchase its pro rata share (based on the
Purchaser's percentage ownership of the principal amount of the then
outstanding Debentures such Purchaser owns) of the New Securities being offered
on the same terms as contemplated by such proposed Future Financing, as
amended. The foregoing sentence shall apply to successive amendments to the
terms and conditions of any proposed Future Financing. In the event one or more
Purchasers elect not to exercise their rights granted hereby, the Company shall
permit those Purchasers electing to exercise the right granted under this
Section 3.9 to purchase, on a pro rata basis equal to its percentage ownership
of the principal amount of the then outstanding Debentures, the sum of the
number of New Securities that the other Purchaser(s) were eligible to purchase,
if they had exercised their right hereunder. Those Purchasers desiring to
purchase additional New Securities must notify the Company of their intention
to do so within five (5) Trading Days after the Company has informed the
Purchasers of their right to purchase additional New Securities. Within five
(5) Trading Days of the termination of the final notice period, the
transactions contemplated by this Section 3.9 shall close, subject to the
completion of mutually satisfactory documentation, and the Company shall tender
to each Purchaser certificates representing the New Securities that it agreed
to purchase and the Purchasers shall make payment for the entire purchase price
in immediately available funds at the closing of such sale; provided, however,
that each Purchaser, in lieu of providing cash as consideration for the
purchase price, may retire all or a portion of the outstanding principal amount
of and any interest
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owing on the Debentures as payment of the purchase price for the New Securities
that it desires to purchase pursuant to this Section 3.9. As used herein,
"Trading Day" shall mean a day on which Nasdaq (or in the event the Common
Stock is not traded on Nasdaq, such other securities market on which the Common
Stock is listed or quoted) is open for trading.
3.10 Use of Proceeds. The Company shall use the proceeds from the sale
of the Debentures and the Warrants and the exercise of the Warrants to acquire
assets, reduce debt and for working capital.
3.11 Transactions with Affiliates. So long as any Debentures or
Warrants are outstanding, the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any of
its Subsidiaries to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors or persons who were officers or directors at any time
during the previous two (2) years, stockholders who beneficially own 5% or more
of the Common Stock, or Affiliates or any individual related by blood, marriage
or adoption to any such individual or with any Person in which any such Person
owns a 5% or more beneficial interest (each, a "Related Party"), except for (a)
customary employment arrangements and benefit programs on reasonable terms, (b)
any agreement, transaction, commitment or arrangement on an arm's length basis
on terms no less favorable than terms which would have been obtainable from a
Person other than such Related Party or (c) any agreement, transaction,
commitment or arrangement which is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any of its Subsidiaries shall not be a disinterested
director with respect to any such agreement, transaction, commitment or
arrangement. "Affiliate" for purposes of this Agreement means, with respect to
any Person, another Person that, directly or indirectly, (i) has a 5% or more
equity interest in that Person, (ii) has 5% or more common ownership with that
Person, (iii) controls that Person or (iv) shares common control with that
Person. "Control" for purposes of this Agreement, when used with respect to any
Person, means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "affiliated", "controlling" and "controlled" have meanings correlative to
the foregoing.
3.12 Transfer Agent Instructions. At each Closing the Company shall
issue irrevocable instructions to its transfer agent (and shall issue to any
subsequent transfer agent as required), to issue certificates, registered in
the name of each such Purchaser or its respective nominee(s), for the Debenture
Shares and/or the Warrant Shares in such amounts as specified from time to time
by each Purchaser to the Company in a form acceptable to such Purchasers (the
"Irrevocable Transfer Agent Instructions"). So long as required pursuant to
Section 3.1(b), all such certificates shall bear the restrictive legend
specified in Section 3.1(b) of this Agreement. The Company warrants that no
instruction other than (i) instructions for blackout periods described in
Section 3(k) of the Registration Rights Agreement, (ii) the Irrevocable
Transfer Agent Instructions referred to in this Section 3.12 and (iii) stop
transfer instructions to give effect to Section 3.1 (in the case of the
Debenture Shares and the Warrant Shares, prior to registration of the Debenture
Shares and the Warrant Shares under the Securities Act) will be given by the
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Company to its transfer agent and that the Debentures, the Warrants, the
Debenture Shares and the Warrant 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 Transaction Documents. If a Purchaser provides the Company
with an opinion of counsel experienced in the area of United States securities
laws, the form and substance of which opinion shall be customary for opinions
of counsel in comparable transactions, to the effect that a public sale,
assignment or transfer of the Debentures, the Debenture Shares, the Warrants
and/or the Warrant Shares may be made without registration under the Securities
Act, the Company shall permit the transfer, and, in the case of the Debenture
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 hereunder will cause irreparable harm to
the Purchasers by violating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.12 will be inadequate
and agrees, in the event of a beach or threatened breach by the Company of the
provisions of this Section 3.12, that the Purchasers, shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
3.13 Press Release; Filing of Form 8-K. Subject to the provisions of
Section 6.11, prior to the opening of Nasdaq on June 11, 1999, the Company
shall file a press release in form and substance acceptable to the Purchasers.
On or before the fifth (5th) business day following the Closing Date, the
Company shall file a Form 8-K with the Commission describing the terms of the
transaction contemplated by this Agreement and the Transaction Documents in the
form required by the Exchange Act.
3.14 Information. The Company agrees to send to each Purchaser prior
to and during the Effectiveness Period copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
3.15 Ordinary Course Brokerage and Trading. Subject to compliance with
all applicable securities laws and Nasdaq regulations, no Purchaser shall be
prohibited from engaging in its ordinary course brokerage and trading
activities in respect of the Common Stock.
3.16 Best Efforts. Each of the parties hereto shall use its
commercially reasonable best efforts to satisfy each of the conditions to be
satisfied by it as provided in Article IV of this Agreement.
3.17 Corporate Existence. Until such time as all of the Purchasers
provide the Company with written notice that they do not beneficially own any
Debentures or Warrants, the Company shall maintain its corporate existence and
shall not sell all or substantially all of the Company's assets, except in the
event of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor Person in such transaction
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(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii)(A) is a publicly
traded corporation whose common stock is listed for trading or quoted on
Nasdaq, the New York Stock Exchange or the American Stock Exchange or (B) pays
all cash in such transaction such that the Purchasers and all other
stockholders of the Company are fully cashed out of their holdings of
securities of the Company.
3.18 No Violation of Applicable Law. Notwithstanding any provision of
this Agreement to the contrary, if the redemption of the Debentures or
Underlying Shares otherwise required under this Agreement or the Transaction
Documents would be prohibited by the relevant provisions of the Delaware
General Corporation Law, such redemption shall be effected as soon as it is
permitted under such law.
3.19 Trading Restrictions. Prior to the Company's announcement of its
1999 third quarter earnings (but in any event, no later than November 15,
1999), the Purchasers agree that they shall not sell the Common Stock at or
below the Conversion Price of the Debentures.
ARTICLE IV.
CONDITIONS
4.1 First Closing.
a. Conditions Precedent to the Obligation of the Company to Sell
the Debentures and Warrants at the First Closing. The obligation of the Company
to sell the Debentures and Warrants at the First Closing is subject to the
satisfaction or waiver (with prior written notice to each Purchaser) by the
Company, at or before the First Closing Date, of each of the following
conditions:
(i) Accuracy of the Purchasers' Representations and Warranties.
The representations and warranties of each Purchaser set forth in this
Agreement shall be true and correct in all material respects as of the date
when made and as of the First Closing Date;
(ii) 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 and the Transaction
Documents to be performed, satisfied or complied with by such Purchaser at or
before the First Closing Date; and
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated, endorsed or threatened or is pending by or before any court or
governmental authority of competent jurisdiction which prohibits or threatens
to prohibit the consummation of any of the transactions contemplated by this
Agreement and the Transaction Documents.
b. Conditions Precedent to the Obligation of the Purchasers to
Purchase the Debentures and Warrants at the First Closing. The obligation of
each Purchaser to acquire and pay for the Debentures and Warrants at the First
Closing is subject to the satisfaction or waiver
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(with prior written notice to the Company and each other Purchaser) by such
Purchaser, at or before the First Closing Date, of each of the following
conditions:
(i) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company set forth in this Agreement
and in the Registration Rights Agreement shall be true and correct in all
respects as of the date when made and as of the First Closing Date;
(ii) 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 and the Transaction
Documents to be performed, satisfied or complied with by the Company at or
before the First Closing Date;
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated, endorsed or threatened or is pending by or before any court or
governmental authority of competent jurisdiction which prohibits or threatens
to prohibit the consummation of any of the transactions contemplated by this
Agreement and the Transaction Documents;
(iv) No Suspensions of Trading in Common Stock. The trading in
the Common Stock shall not have been suspended by the Commission, on Nasdaq
(except for any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company);
(v) Listing of Common Stock. The Common Stock shall have been at
all times since the date of this Agreement and on the First Closing Date listed
for trading or quoted on Nasdaq;
(vi) Required Approvals. All Required Approvals, other than
those relating solely to Closing Dates other than the First Closing Date, shall
have been obtained and copies thereof delivered to the Purchasers other than
those relating solely to Closing Dates other than the First Closing Date;
(vii) Shares of Common Stock. The Company shall have duly
reserved the number of Underlying Shares required by this Agreement and the
Transaction Documents to be reserved for issuance upon the exercise of the
Warrants or the conversion of the Debentures acquired by the Purchaser on the
First Closing Date;
(viii) Adverse Changes. Since the date of the financial
statements included in the Company's Quarterly Report on Form 10-QSB or Annual
Report on Form 10-KSB, whichever is more recent, last filed prior to the date
of this Agreement, no event which has had a Material Adverse Effect shall have
occurred which is not disclosed on any Schedule hereto (for purposes hereof,
changes in the market price of the Common Stock may be considered in
determining whether there has occurred an event which has had a Material
Adverse Effect);
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(ix) Litigation. No action, proceeding or litigation shall have
been instituted or threatened in writing against the Company which could
reasonably be expected to have a Material Adverse Effect;
(x) Change of Control. No Change of Control shall have occurred
between the date hereof and the First Closing Date. As used herein, "Change of
Control" means the occurrence of any of (i) an acquisition after the date
hereof by an individual or legal entity or "group" (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act), other than the Purchasers or
any of their Affiliates, of in excess of 40% of the voting securities of the
Company, (ii) a replacement of more than one-half of the members of the
Company's Board of Directors that is not approved by a majority of those
individuals who are members of the Board of Directors on the date hereof, or
their duly elected successors who are directors immediately prior to such
transaction, in one or a series of related transactions, (iii) the merger of
the Company with or into another Person, unless following such transaction, the
holders of the Company's securities continue to hold at least a majority of
such securities following such transaction, (iv) the consolidation or sale of
all or substantially all of the assets of the Company in one or a series of
related transactions or (v) the execution by the Company of an agreement to
which the Company is a party or by which it is bound, providing for any of the
events set forth above in clauses (i), (ii), (iii) or (iv); and
(xi) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in a form acceptable to the Purchasers, shall have been delivered
to and acknowledged in writing by the Company's transfer agent with a copy
forwarded to each Purchaser.
c. Documents and Certificates. At the First Closing, the Company
shall have delivered to the Purchasers, the following in form and substance
reasonably satisfactory to the Purchasers:
(i) Opinion. An opinion of the Company's legal counsel,
substantially in the form attached hereto as Exhibit D dated as of the First
Closing Date;
(ii) Debenture. A Debentures(s), substantially in the form of
Exhibit A hereto, representing the principal amount of Debentures purchased by
each Purchaser as set forth next to such Purchaser's name on Schedule I,
registered in the name of such Purchaser, with a Conversion Price equal to
$3.9125;
(iii) Warrant. A Warrant(s), substantially in the form of
Exhibit B hereto, with the Exercise Price equal to $4.499375, representing the
Warrant(s) being purchased by each Purchaser as set forth next to such
Purchaser's name on the Schedule I, registered in the name of such Purchaser;
(iv) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement, substantially in the
form of Exhibit C here to;
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(v) Officer's Certificate. An Officer's Certificate dated the
First Closing Date and signed by an executive officer of the Company to the
effect that the conditions specified in Section 4.1(b)(i) and 4.1(b)(ii) have
been satisfied as of the First Closing Date;
(vi) Secretary's Certificate. A Secretary's Certificate dated
the First Closing Date and signed by the Secretary or Assistant Secretary of
the Company certifying (A) that attached thereto is a true and complete copy of
the Certificate of Incorporation of the Company, as in effect on the First
Closing Date, (B) that attached thereto is a true and complete copy of the
Bylaws of the Company, as in effect on the First Closing Date and (C) that
attached thereto is a true and complete copy of the resolutions duly adopted by
the Board of Directors of the Company authorizing the execution, delivery and
performance of this Agreement and of the Transaction Documents, and that such
resolutions have not been modified, rescinded or revoked;
(vii) Certificates of Incorporation. The Company shall have
delivered to each of the Purchasers a copy of a certificate evidencing the
incorporation and good standing of the Company and each Subsidiary, in such
corporation's state of incorporation issued by the Secretary of State of such
state of incorporation as of a date within ten (10) days of the First Closing
Date. The Company shall have delivered to each of the Purchasers a copy of its
Certificate of Incorporation as certified by the Secretary of State of the
State of Delaware and the State of Idaho, respectively, within ten (10) days of
the First Closing Date;
(viii) Transfer Agent Letter. The Company shall have delivered
to each Purchaser a letter from the Company's transfer agent certifying the
number of shares of Common Stock outstanding as of a date within five (5) days
of the First Closing Date; and
(ix) Other Documents. The Company shall have delivered to each
Purchaser such other documents relating to the transactions contemplated by
this Agreement and the Transaction Documents as the Purchasers or their counsel
may reasonably request.
4.2 Second Closing.
a. Conditions Precedent to the Obligation of the Company to Sell
the Debentures and Warrants at the Second Closing. The obligation of the
Company to sell the Debentures and Warrants at the Second Closing is subject to
the satisfaction or waiver (with prior written notice to each Purchaser) by the
Company, at or before the Second Closing Date, of each of the following
conditions:
(i) Accuracy of the Purchasers' Representations and Warranties.
The representations and warranties of each Purchaser in this Agreement shall be
true and correct in all material respects as of the date when made and as of
the Second Closing Date;
(ii) 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 and the Transaction
Documents to be performed, satisfied or complied with by such Purchaser at or
before the Second Closing Date; and
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(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated, endorsed or threatened or is pending by or before any court or
governmental authority of competent jurisdiction which prohibits or threatens
to prohibit the consummation of any of the transactions contemplated by this
Agreement and the Transaction Documents.
b. Conditions Precedent to the Obligation of the Purchasers to
Purchase the Debentures and Warrants at the Second Closing. The obligation of
each Purchaser to acquire and pay for the Debentures and Warrants at the Second
Closing is subject to the satisfaction or waiver (with prior written notice to
the Company and each other Purchaser) by such Purchaser, at or before the
Second Closing Date, of each of the following conditions:
(i) First Closing. The First Closing shall have occurred;
(ii) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company set forth in this Agreement
and in the Registration Rights Agreement shall be true and correct in all
material respects as of the date when made and as of the Second Closing Date as
though made at that time (except for representations and warranties made as of
a specific date);
(iii) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Transaction
Documents to be performed, satisfied or complied with by the Company at or
before the Second Closing Date;
(iv) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated, endorsed or threatened or is pending by or before any court or
governmental authority of competent jurisdiction which prohibits or threatens
to prohibit the consummation of any of the transactions contemplated by this
Agreement and the Transaction Documents;
(v) Registration Statements for Underlying Shares of Debentures
and Warrants issued at First Closing. The registration statement with respect
to the Underlying Shares of the Warrants and the Debentures sold at the First
Closing shall have been declared effective under the Securities Act by the
Commission; and on the Second Closing Date such registration statement shall be
effective, not subject to any stop order and shall not be subject to any
suspension pursuant to Sections 3(k) and/or 3(p) of the Registration Rights
Agreement, and shall have been effective and shall not have been subject to any
stop order for the thirty (30) business days prior to the Second Closing Date
and no stop order shall be pending or threatened as at the Second Closing Date;
(vi) Adverse Changes. Since the date of the financial statements
included in the Company's Quarterly Report on Form 10-QSB or Annual Report on
Form 10-KSB, whichever is more recent, last filed prior to the date of this
Agreement, no event which has had a Material Adverse Effect shall have occurred
which is not disclosed on any Schedule hereto or otherwise in writing to each
of the Purchasers;
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(vii) Litigation. No action, proceeding or litigation shall have
been instituted or threatened in writing against the Company which could
reasonably be expected to have a Material Adverse Effect;
(viii) Management. There shall have been no substantial changes
in the position or responsibilities of the Chief Executive Officer or the Chief
Financial Officer of the Company;
(ix) No Suspensions of Trading in Common Stock. The trading in
the Common Stock shall not have been suspended by the Commission on Nasdaq
(except for any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company);
(x) Listing of Common Stock. The Common Stock shall have been at
all times since the date of this Agreement and on the Second Closing Date
listed for trading or quoted on Nasdaq. The Underlying Shares shall on the
Second Closing Date be listed for trading or quoted on Nasdaq or other exchange
acceptable to the Purchasers;
(xi) Required Approvals. All Required Approvals shall have been
obtained and copies thereof delivered to the Purchasers;
(xii) Shares of Common Stock. The Company shall have duly
reserved the number of Underlying Shares required by this Agreement and the
Transaction Documents to be reserved for issuance upon exercise of the Warrants
purchased on the First Closing Date and on the Second Closing Date or the
conversion of the Debentures purchased on the First Closing Date and on the
Second Closing Date;
(xiii) Performance of Conversion/Exercise Obligations. The
Company shall have delivered Underlying Shares upon any demand for conversion
of any of the Debenture(s) or exercise of the Warrant(s) and otherwise
performed its obligations in accordance with the terms, conditions and timing
requirements of this Agreement and the Transaction Documents;
(xiv) Change of Control. No Change of Control in the Company
shall have occurred;
(xv) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in a form acceptable to the Purchasers, shall have been delivered
to and acknowledged in writing by the Company's transfer agent with a copy
forwarded to each Purchaser; and
(xvi) Revenue. The Company's revenue from its Internet Access
Products Unit reported in the third quarter of its 1999 fiscal year equals or
exceeds One Million Seven Hundred Fifty Thousand Dollars ($1,750,000).
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c. Documents and Certificates. At the Second Closing, the Company
shall have delivered to the Purchasers, the following in form and substance
reasonably satisfactory to the Purchasers:
(i) Opinion. An opinion of the Company's legal counsel,
substantially in the form attached hereto as Exhibit D dated as of the Second
Closing Date;
(ii) Debenture. A Debenture(s), substantially in the form of
Exhibit A hereto, representing the principal amount of Debentures purchased by
each Purchaser as set forth next to such Purchaser's name on the Second Closing
Schedule, registered in the name of such Purchaser, with a Conversion Price
equal to $3.9125;
(iii) Warrant. A Warrant(s), substantially in the form of
Exhibit B hereto, with the Exercise Price equal to $4.499375, representing the
Warrant(s) being purchased by each Purchaser as set forth next to such
Purchaser's name on the Second Closing Schedule, registered in the name of such
Purchaser;
(iv) Registration Rights Agreement. The Company and each of the
Purchasers shall have executed and delivered a Registration Rights Agreement,
substantially in the form of Exhibit C attached hereto;
(v) Officer's Certificate. An Officer's Certificate dated the
Second Closing Date and signed by an executive officer of the Company to the
effect that the conditions specified in Section 4.2(b)(i) and 4.2(b)(ii) have
been satisfied as of the Second Closing Date;
(vi) Secretary's Certificate. A Secretary's Certificate dated
the Second Closing Date and signed by the Secretary or Assistant Secretary of
the Company certifying (A) that attached thereto is a true and complete copy of
the Certificate of Incorporation of the Company, as in effect on the Second
Closing Date, (B) that attached thereto is a true and complete copy of the
Bylaws of the Company, as in effect on the Second Closing Date and (C) that
attached thereto is a true and complete copy of the resolutions duly adopted by
the Board of Directors of the Company authorizing the execution, delivery and
performance of this Agreement and the Transaction Documents, and that such
resolutions have not been modified, rescinded or revoked;
(vii) Certificates of Incorporation. The Company shall have
delivered to each of the Purchasers a copy of a certificate evidencing the
incorporation and good standing of the Company and each Subsidiary, in such
corporation's state of incorporation issued by the Secretary of State of such
state of incorporation as of a date within ten (10) days of the Second Closing
Date. The Company shall have delivered to each of the Purchasers a copy of its
Certificate of Incorporation as certified by the Secretary of State of the
State of Delaware and the State of Idaho, respectively, within ten (10) days of
the Second Closing Date;
(viii) Transfer Agent Letter. The Company shall have delivered
to each Purchaser a letter from the Company's transfer agent certifying the
number of shares of Common Stock outstanding as of a date within five (5) days
of the Second Closing Date; and
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(ix) Other Documents. The Company shall have delivered to each
Purchaser such other documents relating to the transactions contemplated by
this Agreement and the Transaction Documents as the Purchasers or their counsel
may reasonably request.
4.3 Third Closing.
a. Conditions Precedent to the Obligation of the Company to Sell
the Debentures and Warrants at the Third Closing. The obligation of the Company
to sell the Debentures and Warrants at the Third Closing is subject to the
satisfaction or waiver (with prior written notice to each Purchaser) by the
Company, at or before the Third Closing Date, of each of the following
conditions:
(i) Accuracy of the Purchasers' Representations and Warranties.
The representations and warranties of each Purchaser in this Agreement shall be
true and correct in all material respects as of the date when made and as of
the Third Closing Date;
(ii) 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 and the Transaction
Documents to be performed, satisfied or complied with by such Purchaser at or
before the Third Closing Date; and
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated, endorsed or threatened or is pending by or before any court or
governmental authority of competent jurisdiction which prohibits or threatens
to prohibit the consummation of any of the transactions contemplated by this
Agreement and the Transaction Documents.
b. Conditions Precedent to the Obligation of the Purchasers to
Purchase the Debentures and Warrants at the Third Closing. The obligation of
each Purchaser to acquire and pay for the Debentures and Warrants at the Third
Closing is subject to the satisfaction or waiver (with prior written notice to
the Company and each other Purchaser) by such Purchaser, at or before the Third
Closing Date, of each of the following conditions:
(i) First Closing and Second Closing. The First Closing and
Second Closings shall have occurred;
(ii) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company set forth in this Agreement
and the Registration Rights Agreement shall be true and correct in all material
respects as of the date when made and as of the Third Closing Date as though
made at that time (except for representations and warranties made as of a
specific date);
(iii) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Transaction
Documents to be performed, satisfied or complied with by the Company at or
before the Third Closing Date;
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(iv) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated, endorsed or threatened or is pending by or before any court or
governmental authority of competent jurisdiction which prohibits or threatens
to prohibit the consummation of any of the transactions contemplated by this
Agreement and the Transaction Documents;
(v) Registration Statements for Underlying Shares of Debentures
and Warrants issued at First Closing and Second Closing. The registration
statement with respect to the Underlying Shares of the Warrants and the
Debentures sold at the First Closing and the Second Closing shall have been
declared effective under the Securities Act by the Commission; and on the Third
Closing Date such registration statement shall be effective, not subject to any
stop order and shall not be subject to any suspension pursuant to Sections 3(k)
and/or 3(p) of the Registration Rights Agreement, and shall have been effective
and shall not have been subject to any stop order for the thirty (30) business
days prior to the Third Closing Date and no stop order shall be pending or
threatened as at the Third Closing Date;
(vi) Adverse Changes. Since the date of the financial statements
included in the Company's Quarterly Report on Form 10-QSB or Annual Report on
Form 10-KSB, whichever is more recent, last filed prior to the date of this
Agreement, no event which has had a Material Adverse Effect shall have occurred
which is not disclosed on any Schedule hereto or otherwise in writing to each
of the Purchasers;
(vii) Litigation. No action, proceeding or litigation shall have
been instituted or threatened in writing against the Company which could
reasonably be expected to have a Material Adverse Effect;
(viii) Management. There shall have been no substantial changes
in the position or responsibilities of the Chief Executive Officer or the Chief
Financial Officer of the Company;
(ix) No Suspensions of Trading in Common Stock. The trading in
the Common Stock shall not have been suspended by the Commission on Nasdaq
(except for any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company);
(x) Listing of Common Stock. The Common Stock shall have been at
all times since the date of this Agreement and on the Third Closing Date listed
for trading or quoted on Nasdaq. The Underlying Shares shall on the Third
Closing Date be listed for trading on or quoted on Nasdaq or other exchange
acceptable to the Purchasers;
(xi) Required Approvals. All Required Approvals shall have been
obtained and copies thereof delivered to the Purchasers;
(xii) Shares of Common Stock. The Company shall have duly
reserved the number of Underlying Shares required by this Agreement and the
Transaction Documents to be reserved for issuance upon exercise of the Warrants
purchased on the First Closing Date, the
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Second Closing Date and the Third Closing Date, and the conversion of
Debentures purchased on the First Closing Date, the Second Closing Date and the
Third Closing Date;
(xiii) Performance of Conversion/Exercise Obligations. The
Company shall have delivered Underlying Shares upon any demand for conversion
of any of the Debenture(s) or exercise of the Warrant(s) and otherwise
performed its obligations in accordance with the terms, conditions and timing
requirements of this Agreement and the Transaction Documents;
(xiv) Change of Control. No Change of Control in the Company
shall have occurred; and
(xv) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in a form acceptable to the Purchasers, shall have been delivered
to and acknowledged in writing by the Company's transfer agent with a copy
forwarded to each Purchaser.
c. Documents and Certificates. At the Third Closing, the Company
shall have delivered to the Purchasers, the following in form and substance
reasonably satisfactory to the Purchasers:
(i) Opinion. An opinion of the Company's legal counsel,
substantially in the form attached hereto as Exhibit D dated as of the Third
Closing Date;
(ii) Debenture. A Debenture(s), substantially in the form of
Exhibit A hereto, representing the principal amount of Debentures purchased by
each Purchaser as set forth next to such Purchaser's name on the Third Closing
Schedule, registered in the name of such Purchaser, with a Conversion Price
equal to the lesser of (A) $5.50 per share of Common Stock and (B) the five (5)
day average closing bid price of the Common Stock (as reported by Bloomberg
Information Services, Inc., or any successor reporting service) for the five
(5) Trading Days immediately preceding the Second Closing Date (provided, that
in no event shall such Conversion Price be lower than the Conversion Price at
the First Closing);
(iii) Warrant. A Warrant(s), substantially in the form of
Exhibit B hereto, with an Exercise Price equal to 115% of the Conversion Price
at the Third Closing, representing the Warrant(s) being purchased by each
Purchaser as set forth next to such Purchaser's name on the Third Closing
Schedule, registered in the name of such Purchaser;
(iv) Registration Rights Agreement. The Company and each of the
Purchasers shall have executed and delivered a Registration Rights Agreement,
substantially in the form of Exhibit C attached hereto;
(v) Officer's Certificate. An Officer's Certificate dated the
Third Closing Date and signed by an executive officer of the Company to the
effect that the conditions specified in Section 4.3(b)(i) and 4.3(b)(ii) have
been satisfied as of the Third Closing Date;
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(vi) Secretary's Certificate. A Secretary's Certificate dated
the Third Closing Date and signed by the Secretary or Assistant Secretary of
the Company certifying (A) that attached thereto is a true and complete copy of
the Certificate of Incorporation of the Company, as in effect on the Third
Closing Date, (B) that attached thereto is a true and complete copy of the
Bylaws of the Company, as in effect on the Third Closing Date and (C) that
attached thereto is a true and complete copy of the resolutions duly adopted by
the Board of Directors of the Company authorizing the execution, delivery and
performance of this Agreement and the Transaction Documents, and that such
resolutions have not been modified, rescinded or revoked;
(vii) Certificates of Incorporation. The Company shall have
delivered to each of the Purchasers a copy of a certificate evidencing the
incorporation and good standing of the Company and each Subsidiary, in such
corporation's state of incorporation issued by the Secretary of State of such
state of incorporation as of a date within ten (10) days of the Third Closing
Date. The Company shall have delivered to each of the Purchasers a copy of its
Certificate of Incorporation as certified by the Secretary of State of the
State of Delaware and the State of Idaho, respectively, within ten (10) days of
the Third Closing Date;
(viii) Transfer Agent Letter. The Company shall have delivered
to each Purchaser a letter from the Company's transfer agent certifying the
number of shares of Common Stock outstanding as of a date within five (5) days
of the Third Closing Date; and
(ix) Other Documents. The Company shall have delivered to each
Purchaser such other documents relating to the transactions contemplated by
this Agreement and the Transaction Documents as the Purchasers or their counsel
may reasonably request.
ARTICLE V.
INDEMNIFICATION
5.1 Indemnification. Except to the extent that matters which could be
covered by this Article V are covered by Section 5 of the Registration Rights
Agreement, in consideration of the Purchasers' execution and delivery of this
Agreement and the Transaction Documents and acquiring the Debentures, the
Debenture Shares, the Warrants and the Warrant Shares thereunder and in
addition to all of the Company's other obligations under this Agreement and the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Purchaser, its past and present Affiliates and their successors
and assigns (in accordance with the provisions of Section 6.6), each other
holder of the Underlying Shares and all of their stockholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, proceedings, costs (as incurred), penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including interest, penalties and
attorneys' fees, expenses and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a
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result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in this Agreement
or in any of the Transaction Documents, or in any other certificate, instrument
or document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement or in any of
the Transaction Documents, or in any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim
brought or made, other than by the Company, against such Indemnitee and arising
out of or resulting from (i) the execution, delivery, performance or
enforcement of this Agreement or any of the Transaction Documents, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Debentures or the Warrants
or (iii) solely the status of such Purchasers or holder of the Debentures, the
Debenture Shares, the Warrants or the Warrant Shares as an investor in the
Company. The indemnification obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliate of the
Purchasers and partners, directors, agents, employees and controlling Persons
(if any), as the case may be, of the Purchasers and of any such Affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, the Purchasers and any such
Affiliate and any such Person. To the extent that the foregoing undertakings by
the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
ARTICLE VI.
MISCELLANEOUS
6.1 Entire Agreement. This Agreement, together with the Exhibits and
Schedules hereto and the Transaction Documents, contains the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, with
respect to such matters.
6.2 Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement shall be in
writing and shall be deemed to have been delivered (a) upon receipt, when
delivered personally, (b) upon receipt, when sent by facsimile, provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party (if received before 7:00 p.m. EST where such
notice is received) or the first business day following such delivery (if
received on or after 7:00 p.m. EST where such notice is received) or (c) one
(1) business day after deposit with a nationally recognized overnight courier,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
(i) If to the Company:
eSOFT, Inc.
000 Xxxxxxxxxxx Xxxx., #000
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Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxx
President and Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx Godward LLP
0000 Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(ii) If to the Transfer Agent:
The Trust Company of Bank of Montreal
000 Xx. Xxxxxxx Xxxxxx
X Xxxxx Xxxxx
Xxxxxxxx, Xxxxxx
Xxxxxx X0X0X0
Attention: Xx. Xxxxx XxXxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(iii) If to the Purchasers:
Xxxxx Xxxxxxx Strategic Growth Fund, Ltd.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
and
Xxxxx Xxxxxxx Strategic Growth Fund, L.P.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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with a copy to:
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Each party shall provide written notice to the other parties of any change in
address or facsimile number in accordance with the provisions hereof.
6.3 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and each of the Purchasers or, in the case of a waiver, by
the party against whom enforcement of any such waiver is sought. No waiver 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. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies
to less than all of the holders of the Debentures outstanding. The Company
shall not offer or pay any consideration to a Purchaser for consenting to such
an amendment or waiver unless the same consideration is offered to each
Purchaser and the same consideration is paid to each Purchaser which consents
to such amendment or waiver.
6.4 Titles and Headings. The titles and headings herein are for
convenience only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.
6.5 References. References herein to Articles or Sections are to
Articles or Sections of this Agreement, unless otherwise expressly provided.
6.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of each of the Purchasers. The
Purchasers may assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Company; provided that any assignees
must make the representations and warranties set forth in Section 2.2 and
otherwise comply with the terms of this Agreement otherwise applicable to its
assignor; and provided, further, that no such assignment shall relieve any
Purchaser of its obligations hereunder. This provision shall not limit a
Purchaser's right to transfer securities in accordance with all of the terms of
this Agreement or the Transaction Documents.
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6.7 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.
6.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or
that such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN.
6.9 Survival. The representations and warranties of the Company and
the Purchasers contained in Sections 2.1 and 2.2, the agreements and covenants
set forth in Article III, and the indemnification provisions set forth in
Article V, shall survive the Closing and any conversion of the Debentures or
exercise of the Warrants regardless of any investigation made by or on behalf
of the Purchasers or by or on behalf of the Company, except that, in the case
of representations and warranties such survival shall be limited to the period
of four (4) years following the Closing Date on which they were made or deemed
to have been made (other than with respect to any claim by a third party
against the party to this Agreement who seeks to assert a claim based on such
representations and warranties). This Section shall have no effect on the
survival of the indemnification provisions of the Registration Rights
Agreement.
6.10 Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other parties, it being understood that the
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile
signature page were an original thereof.
6.11 Publicity. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the
prior written consent of the other parties which consent shall not be
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unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement. The Company shall not publicly or otherwise disclose the
names of any of the Purchasers without each such Purchaser's prior written
consent; provided, however, that each Purchaser hereby consents to being named
in the Company's registration statement relating to the transactions
contemplated hereby. The Purchasers and their affiliated companies shall,
without further cost, have the right to use in their advertising, marketing or
other similar materials all or parts of the Company's press releases that focus
on the transactions contemplated hereby forming the subject matter of this
Agreement or which make reference to the transactions contemplated hereby. The
Purchasers understand that this grant by the Company only waives objections
that the Company might have to the use of such materials by the Purchasers and
in no way constitutes a representation by the Company that references in such
materials to the activities of third-parties have been cleared or constitute a
fair use.
6.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
6.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the
Purchasers will be entitled to specific performance of the obligations of the
Company under this Agreement and the Transaction Documents without the showing
of economic loss and without any bond or other security being required. The
Company and each of the Purchasers (severally and not jointly) agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of any breach of the obligations described in the foregoing sentence and
hereby agree to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
6.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder are several and not joint with the
obligations of the other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser
pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of Person, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
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6.15 Payment Set Aside. To the extent that the Company makes a payment
or payments to the Purchasers hereunder or pursuant to the Transaction
Documents or the Purchasers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared fraudulent
or preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other Person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to
the extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
6.16 Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other parties may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
6.17 Fees and Expenses. Except as set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, 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
the Purchasers an aggregate fee of $25,000 at the First Closing. The Company
shall pay all stamp and other taxes and duties levied in connection with the
issuance of the Debentures, the Warrants and the Underlying Shares pursuant
hereto.
[SIGNATURE PAGES FOLLOW]
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45
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons
as of the date first indicated above.
eSOFT, INC.
By: /s/ Xxxxxxx Xxxx
------------------------------------------
Name: Xxxxxxx Xxxx
Title: President and Chief Executive Officer
46
XXXXX XXXXXXX STRATEGIC GROWTH FUND, LTD.
By: /s/ Xxxx Xxxxxx
------------------------------------------
Name: Xxxx Xxxxxx
Title: Principal
XXXXX XXXXXXX STRATEGIC GROWTH FUND, L.P.
By: /s/ Xxxx Xxxxxx
------------------------------------------
Name: Xxxx Xxxxxx
Title: Principal
47
SCHEDULE I
Number of
Debentures at Number of shares
Name of Purchaser First Closing Purchase Price underlying Warrant
----------------- ------------- -------------- ------------------
Xxxxx Xxxxxxx $ 1,100,000 $ 1,100,000 281,150
Strategic Growth
Fund, X.X.
Xxxxx Xxxxxxx $ 1,900,000 $ 1,900,000 485,623
Strategic Growth
Fund, Ltd.
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Name of Purchaser Address
----------------- -------
Xxxxx Xxxxxxx Strategic Growth Fund, Ltd. 000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Facsimile: (000) 000-0000
Residence: Grand Cayman, Cayman Islands
Xxxxx Xxxxxxx Strategic Growth Fund, L.P. 000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Facsimile: (000) 000-0000
Residence: New York, New York
49
Exhibit A
[Form of Convertible Debenture]
50
Exhibit B
[Form of Warrant]
51
Exhibit C
[Registration Rights Agreement]
52
Exhibit D
[Company's Legal Opinion]
1. Each of the Company(1) and its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company has no
subsidiaries other than the Subsidiaries. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business
and is in good standing as a foreign corporation in each jurisdiction
in which the nature of the business conducted or property owned by it
makes such qualification necessary.
2. The Company has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by each of the
Transaction Documents(2) and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of the Company and no further
action is required by the Company, its Board of Directors or its
stockholders in connection therewith. Each of the Transaction
Documents has been duly executed and delivered by the Company and
constitutes the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general
application.
3. The execution, delivery and performance of each of the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated by the Transaction Documents (including the
issuance of the Underlying Shares) do not and will not (a) conflict
with or violate any provision of the Certificate of Incorporation,
Bylaws, or other organizational documents of the Company or any of its
Subsidiaries, (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 other Persons any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent,
license or instrument to which the Company or any of its Subsidiaries
is a party and which is required to be included as an exhibit to the
SEC Documents (as defined below) or (c) result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company or any of its Subsidiaries is subject (including federal and
state securities laws and regulations), or by which any material
property or asset of the Company or any of its
------------
(1) The opinion letter should state that capitalized terms not otherwise defined
have the meanings assigned to them in the Securities Purchase Agreement.
(2) The term Transaction Documents means the Securities Purchase Agreement, the
Registration Rights Agreement, the Debentures and the Warrants.
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53
Subsidiaries is bound or affected. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of
any governmental authority.
4. Neither the Company nor any of its Subsidiaries is required to obtain
any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal,
state, local or other governmental authority, regulatory or self
regulatory agency, or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents.
Based on the representations and warranties of the Company set forth
in Section 2.1 of the Securities Purchase Agreement and assuming the
accuracy of the representations and warranties of the Purchasers set
forth in Section 2.2 of the Securities Purchase Agreement, the offer,
issuance and sale of the Debentures, the Warrants and the Underlying
Shares by the Company to the Purchasers pursuant to the Securities
Purchase Agreement, are exempt from the registration requirements of
the Securities Act.
5. To our knowledge, the Company has 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 pursuant to Sections 13, 14 or 15(d) thereof, for the three
(3) years preceding the date hereof (the "SEC Documents") on a timely
basis. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission
promulgated thereunder.
6. There is no action, suit, notice of violation, proceeding or
investigation pending or, to our knowledge, threatened against the
Company or any of its Subsidiaries or affecting the Company or any of
their respective assets or properties before any court, governmental
or administrative agency or regulatory authority or any arbitrator,
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents, (ii) could
reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect or (iii) if adversely decided, could
reasonably be expected to have a material adverse effect on the
issuance or conversion of the Debentures or the Debenture Shares, or
the issuance or exercise of the Warrants or the Warrant Shares, or the
consummation of the transactions contemplated by the Transaction
Documents.
7. All of the Company's issued and outstanding capital stock has been
duly authorized, validly issued and is fully paid and nonassessable as
of the date hereof.
8. The Company has full corporate power and authority to issue, sell and
deliver the Debentures, the Debenture Shares, the Warrants and the
Warrant Shares pursuant to the Transaction Documents.
9. The Company has duly authorized and reserved for issuance such number
of shares of Common Stock as are issuable upon conversion of the
Debentures and exercise of the
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Warrants (the "Underlying Shares") in accordance with the terms of the
Debentures and the Warrants. When issued by the Company in accordance
with the terms of the Debentures and the Warrants, the Underlying
Shares will be validly issued, fully paid and nonassessable. When
issued by the Company in accordance with the terms of the Securities
Purchase Agreement, the Debentures and the Warrants will be validly
issued, fully paid and nonassessable.
3
