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Exhibit 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April 25,
2000, by and among ARI Network Services, Inc., a Wisconsin corporation, with
headquarters located at 000 Xxxx Xxxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxx
00000-0000 ("COMPANY"), and each of the purchasers set forth on the signature
pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration under
Section 4(2) of the Securities of 1933, as amended (the "1933 ");
B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement, (i) convertible
subordinated debentures of the Company, in the form attached hereto as EXHIBIT
"A", in the aggregate principal amount of Four Million Dollars ($4,000,000)
(together with any debenture(s) issued in replacement thereof or otherwise with
respect thereto in accordance with the terms thereof, the "DEBENTURES"),
convertible into shares of common stock, $.001 par value per share, of the
Company (the "COMMON STOCK"), upon the terms and subject to the limitations and
conditions set forth in such Debentures, (ii) warrants, in the form attached
hereto as EXHIBIT "B", to purchase Six Hundred Thousand (600,000) shares of
Common Stock (the "WARRANTS") and (iii) investment options, in the form attached
hereto as EXHIBIT "C", to purchase Eight Hundred Thousand (800,000) shares of
Common Stock (the "INVESTMENT OPTIONS");
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such principal amount of Debentures and number of Warrants
and Investment Options as is set forth immediately below its name on the
signature pages hereto;
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT "D " (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES, WARRANTS AND INVESTMENT
OPTIONS.
a. PURCHASE OF DEBENTURES, WARRANTS AND INVESTMENT OPTIONS. On
the Closing Date (as defined below), the Company shall issue and sell to each
Buyer and each Buyer severally agrees to purchase from the Company such
principal amount of Debentures and
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number of Warrants and Investment Options as is set forth immediately below such
Buyer's name on the signature pages hereto.
b. FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Debentures, the Warrants and
the Investment Options to be issued and sold to it at the Closing (as defined
below) (the "PURCHASE PRICE") by wire transfer of immediately available funds to
the Company, in accordance with the Company's written wiring instructions,
against delivery of duly executed Debentures in the principal amount equal to
the Purchase Price and the number of Warrants and Investment Options as is set
forth immediately below such Buyer's name on the signature pages hereto, and
(ii) the Company shall deliver such Debentures, Warrants and Investment Options
duly executed on behalf of the Company, to such Buyer, against delivery of such
Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Debentures, the Warrants and Investment
Options pursuant to this Agreement (the "CLOSING DATE ") shall be no later than
12:00 noon Eastern Standard Time on April 27, 2000 or such other mutually agreed
upon time. The closing of the transactions contemplated by this Agreement (the
"CLOSING") shall occur on the Closing Date at the offices of Xxxxxxx & Xxxx,
S.C., 000 X. Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxx 00000, or at such other location
as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally
(and not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the (i) Debentures and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Debentures (including, without
limitation, such additional shares of Common Stock as are issuable as a result
of the events described in Articles II.D.3 and II.E. of the Debentures and
Section 2(c) of the Registration Rights Agreement, such shares of Common Stock
being collectively referred to herein as the "CONVERSION SHARES"), (ii) the
Warrants and the shares of Common Stock issuable upon exercise of or otherwise
pursuant to the Warrants (the "WARRANT SHARES") and (iii) the Investment Options
and the shares of Common Stock issuable upon exercise of or otherwise pursuant
to the Investment Options (the "INVESTMENT OPTION SHARES" and, collectively with
the Debentures, Conversion Shares, Warrants, Warrant Shares and Investment
Options, the "SECURITIES"), for its own account and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided, however,
that by making the representations herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
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c. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. INFORMATION. The Buyer 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 Securities
which have been requested by the Buyer or its advisors. The Buyer 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 Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. TRANSFER OR RE-SALE. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, (c) the Securities are sold or transferred
to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor, or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
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g. LEGENDS. The Buyer understands that the Debentures,
Warrants and Investment Options and, until such time as the Conversion Shares,
Investment Option Shares and Warrant Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement or otherwise may be
sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, the Conversion
Shares, Investment Option Shares and Warrant Shares, may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under said Act, or an opinion of counsel in form,
substance and scope customary for opinions of counsel in
comparable transactions that registration is not required
under said Act or unless sold pursuant to Rule 144 under said
Act."
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, or (b) such holder provides the Company with an
opinion of counsel in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the 1933 Act and such
sale or transfer is effected or (c) such holder provides the Company with
reasonable assurances that such Security can be and will be sold pursuant to
Rule 144. The Buyer agrees to sell all Securities, including those represented
by a certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any, and if such legend is
removed, pursuant to clause (c) above, in compliance with the requirements of
Rule 144.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
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a. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. SCHEDULE 3(A) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, (iii)
the transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith or (iv) the authority or the ability of the
Company to perform its obligation under this Agreement, the Registration Rights
Agreement, the Debentures, the Investment Options or the Warrants.
"SUBSIDIARIES" means any corporation or other organization, whether incorporated
or unincorporated, in which the Company owns, directly or indirectly, any equity
or other ownership interest and which would be a "Significant Subsidiary" of the
Company as defined under Rule 1-02(w) of Regulation S-X promulgated under the
1933 Act.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures, the Investment
Options and the Warrants and to consummate the transactions contemplated hereby
and thereby and to issue the Securities, in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the Registration
Rights Agreement, the Debentures, the Investment Options and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Debentures, the
Investment Options and the Warrants and the issuance and reservation for
issuance of the Conversion Shares issuable upon conversion of otherwise pursuant
to the Debentures, the Investment Option Shares issuable upon exercise of or
pursuant to the Investment Option Shares and the Warrant Shares issuable upon
exercise of or otherwise pursuant to the Investment Options and the Warrants)
have been duly authorized by the Company's Board of Directors and no further
consent or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company, and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Registration Rights Agreement, the
Debentures, the Investment Options and the Warrants, each of such agreements and
instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 25,000,000 shares of Common Stock
of which 6,168,020 shares are issued and outstanding, 636,741 shares are
reserved for issuance pursuant to the Company's stock option plans, 280,000
shares are reserved for issuance pursuant to securities (other than the
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Debentures, Investment Options and the Warrants) exercisable for, or convertible
into or exchangeable for shares of Common Stock and 4,000,000 shares are
reserved for issuance upon conversion of the Debentures and exercise of the
Investment Options and the Warrants (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below); and (ii) 1,000,000 shares
of preferred stock, 40,000 shares of which are designated as Series A Preferred,
of which 20,350 are issued and outstanding. All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly issued
and, subject to Wisconsin Statute ss.180.0622(2)(b), fully paid and
nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders of the Company
or any liens or encumbrances imposed through the actions or failure to act of
the Company. Except as disclosed in SCHEDULE 3(C), as of the effective date of
this Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, 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,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Debentures, the
Investment Options, the Warrants, the Conversion Shares, the Investment Option
Shares or Warrant Shares. The Company has furnished to the Buyer true and
correct copies of the Company's Articles of Incorporation as in effect on the
date hereof ("ARTICLES OF INCORPORATION "), the Company's By-laws, as in effect
on the date hereof (the "BY-LAWS"), and the terms of all securities convertible
into or exercisable for Common Stock of the Company and the material rights of
the holders thereof in respect thereto. The Company shall provide the Buyer with
a written update of this representation signed by the Company's Chief Executive
Officer on behalf of the Company as of the Closing Date.
d. ISSUANCE OF SHARES. The Conversion Shares, the Investment
Option Shares and Warrant Shares are duly authorized and reserved for issuance
and, when issued upon conversion of or otherwise pursuant to the Debentures and
upon exercise of or otherwise pursuant to the Investment Options and the
Warrants in accordance with the terms thereof, will be validly issued and,
subject to Wisconsin Statute ss.180.0622(2)(b), fully paid and non-assessable,
and free from all taxes, liens, claims and encumbrances and shall not be subject
to preemptive rights or other similar rights of shareholders of the Company and
subject to Wisconsin Statute ss.180.0622(2)(b) will not impose personal
liability upon the holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon (i) the
issuance of the Conversion Shares upon conversion of or otherwise pursuant to
the Debentures, (ii) the issuance of the Investment Option Shares upon exercise
of or otherwise pursuant to the Investment Options and (iii) the issuance of the
Warrant Shares upon exercise of or otherwise pursuant to the Warrants. The
Company's directors and executive officers have studied and fully understand the
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nature of the Securities being sold hereunder. The Company further acknowledges
that its obligation to issue (i) Conversion Shares upon conversion of or
otherwise pursuant to the Debentures, (ii) the Investment Option Shares upon
exercise of or otherwise pursuant to the Investment Options and (iii) the
Warrant Shares upon exercise of or otherwise pursuant to the Warrants, in
accordance with this Agreement, the Debentures, the Investment Options and the
Warrants is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company. Taking the foregoing into account, the Company's Board of Directors has
determined, in its good faith business judgment, that the issuance of the
Securities hereunder and under the Debentures, the Investment Options and the
Warrants and the consummation of the transactions contemplated hereby and
thereby are in the best interest of the Company and its shareholders.
f. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Debentures, the
Investment Options and the Warrants by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the Conversion Shares,
the Investment Option Shares and Warrant Shares) will not (i) conflict with or
result in a violation of any provision of the Articles of Incorporation or
By-laws or (ii) violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which with notice or lapse of time or
both could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Articles of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, in
violation of any law, ordinance or regulation of any governmental entity. Except
as specifically contemplated by this Agreement and as required under the 1933
Act and any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Debentures, the Investment Options or the
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Warrants in accordance with the terms hereof or thereof or to issue and sell the
Debentures, the Investment Options and Warrants in accordance with the terms
hereof and to issue the Conversion Shares upon conversion of or otherwise
pursuant to the Debentures, the Investment Option Shares and the Warrant Shares
upon exercise of or otherwise pursuant to the Warrants. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in violation of the listing
requirements of the Nasdaq National Market System ("NASDAQ") and does not
reasonably anticipate that the Common Stock will be delisted by Nasdaq in the
foreseeable future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
g. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since July 31, 1997,
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to as the "SEC DOCUMENTS"). The Company has delivered or made available
to each Buyer true and complete copies of the SEC Documents, except for such
exhibits and incorporated documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, 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. None of the statements made in any such SEC Documents is,
or has been, required to be amended or updated under applicable law (except for
such statements as have been amended or updated in subsequent filings prior to
the date hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the
SEC Documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent to
July 31, 1999 and (ii) liabilities and not required under generally accepted
accounting principles to be reflected in such financial statements.
h. ABSENCE OF CERTAIN CHANGES. Since July 31, 1999, there have
been no changes or developments in the Company, its business or any of its
Subsidiaries that may have a
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Material Adverse Effect, except for losses reflected in the SEC Documents, filed
since July 31, 1999.
i. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. SCHEDULE
3(I) contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
j. PATENTS, COPYRIGHTS, ETC.
(I) The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(J) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right of the
Company or of a Subsidiary with respect to any Intellectual Property necessary
to enable it to conduct its business as now operated (and, except as set forth
in SCHEDULE 3(j) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
(II) All of the Company's computer software and computer
hardware, and other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the conduct of its
business or that were, or currently are being, sold or licensed by the Company
to customers (collectively, "INFORMATION TECHNOLOGY"), are, to the Company's
knowledge, Year 2000 Compliant. For purposes of this Agreement, the term "YEAR
2000 COMPLIANT" means, with respect to the Company's Information Technology,
that the Information Technology is designed to be used prior to, during and
after the calendar Year 2000 A.D., and the Information Technology used during
each such time period will accurately receive, provide and process date and time
data (including, but not limited to, calculating, comparing and sequencing)
from, into and between the 20th and 21st centuries, including the years 1999 and
2000, and leap-year calculations, and will not malfunction, cease to function,
or provide invalid or incorrect results as a result of the date or time data, to
the extent that other information technology, used in combination with the
Information Technology, properly exchanges date and
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time data with it. The Company has delivered to the Buyer true and correct
copies of all analyses, reports, studies and similar written information,
whether prepared by the Company or another party, relating to whether the
Information Technology is Year 2000 Compliant.
k. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
l. TAX STATUS. The Company and each of its Subsidiaries has
made or filed all federal, state and foreign 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 except as disclosed on Schedule 3(l) 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 and has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
Except as disclosed on Schedule 3(l) there are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The Company has not
executed a waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, state or local tax. None of
the Company's tax returns is presently being audited by any taxing authority.
m. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(M)
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on SCHEDULE
3(C), 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 or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
n. DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists
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with respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which has not been
publicly announced or disclosed but under applicable law, rule or regulation,
requires public disclosure or announcement by the Company (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
o. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES.
The Company acknowledges and agrees that the Buyers 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 Buyer
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 that any statement made by any Buyer 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 Buyers' purchase of the Securities and has not been relied upon by the
Company, its officers or directors in any way. The Company further represents to
each Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
p. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities.
q. NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with Crown Energy Incorporated, whose commissions
and fees will be paid for by the Company.
r. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits,
except in each case where the failure to possess Company Permits would not
reasonably be expected to have a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since July 31, 1999, neither the
Company nor any of its Subsidiaries has received any notification with respect
to possible conflicts, defaults or violations of applicable
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laws, except for notices relating to possible conflicts, defaults or violations,
which conflicts, defaults or violations would not have a Material Adverse
Effect.
s. ENVIRONMENTAL MATTERS.
(I) There are, to the Company's knowledge, with respect to
the Company or any of its Subsidiaries or any predecessor of the Company, no
past or present violations of Environmental Laws (as defined below), releases of
any material into the environment, actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which may give rise to
any common law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor
is any action pending or, to the Company's knowledge, threatened in connection
with any of the foregoing. The term "ENVIRONMENTAL LAWS" means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(II) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(III) There are no underground storage tanks on or under
any real property owned, leased or used by the Company or any of its
Subsidiaries that are not in compliance with applicable law.
t. TITLE TO PROPERTY. Neither the Company nor any of its
Subsidiaries own any real property. The Company and its Subsidiaries have good
and marketable title to all 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, encumbrances and defects except such as are described in SCHEDULE
3(T) or such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
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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
coverage 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 have a Material Adverse Effect.
v. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
w. 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 Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
x. SOLVENCY. The Company (both before and 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) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from time to
time incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors likely would issue a qualified opinion in respect of its current fiscal
year.
y. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will not
be an "investment company" required to be registered under the Investment
Company Act of 1940 (an "INVESTMENT COMPANY"). The Company is not controlled by
an Investment Company.
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4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. BLUE SKY LAWS. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary to
qualify the Securities for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Buyer on or prior to the
Closing Date.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3; DISCLOSURE
OF TRANSACTIONS. The Company's Common Stock is registered under Section 12(g) of
the 1934 Act. So long as any Buyer beneficially owns any of the Securities, the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. The Company currently
meets, and will take all necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions to Form S-3. On
or before the first (1st) business day following the Closing Date, the Company
shall issue and publicly disseminate a press release describing the material
terms of the transactions contemplated by this Agreement (the "PRESS RELEASE").
On or before the third (3rd) business day following the Closing Date, the
Company shall file a Current Report on Form 8-K with the SEC describing the
material terms of the transactions contemplated by this Agreement and including
as exhibits to such filing this Agreement, the Registration Rights Agreement,
the form of Debenture, the form of Warrants and form of Investment Options (the
"FORM 8-K"). The Press Release and the Form 8-K shall be subject to the
requirements of Section 8(j).
d. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Debentures in the manner set forth in SCHEDULE 4(D) attached
hereto and made a part hereof and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently existing
direct or indirect Subsidiaries).
e. ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL. Subject
to the exceptions described below, the Company will not, without the prior
written consent of RGC International Investors, LDC ("XXXX XXXX"), negotiate or
contract with any party to obtain additional equity financing (including debt
financing with an equity component) during the period (the "LOCK-UP PERIOD")
beginning on the Closing Date and ending one hundred and eighty (180) days from
the date the Registration Statement (as defined in the Registration Rights
Agreement) is declared effective (subject to extension for any days in which
sales of all of the Registrable Securities (as defined in the Registration
Rights Agreement) cannot be made pursuant to the Registration Statement
occurring after the date on which such Registration Statement is first declared
effective by the SEC). In addition, subject to the exceptions described
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below, the Company will not conduct any equity financing (including debt with an
equity component) ("FUTURE OFFERINGS") during the period beginning on the
Closing Date and ending one hundred and eighty (180) days after the end of the
Lock-up Period (subject to extension for any days in which sales of all of the
Registrable Securities cannot be made pursuant to the Registration Statement
occurring after the date on which such Registration Statement is first declared
effective by the SEC) unless it shall have first delivered to Xxxx Xxxx, at
least ten (10) business days prior to the closing of such Future Offering,
written notice describing the proposed Future Offering, including the terms and
conditions thereof and proposed definitive documentation to be entered into in
connection therewith, and providing Xxxx Xxxx an option during the ten (10) day
period following delivery of such notice to purchase all or any portion of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATIONS"). In the event the terms and conditions of a proposed
Future Offering are amended in any respect after delivery of the notice to Xxxx
Xxxx concerning the proposed Future Offering, the Company shall deliver a new
notice to Xxxx Xxxx describing the amended terms and conditions of the proposed
Future Offering and Xxxx Xxxx thereafter shall have an option during the ten
(10) day period following delivery of such new notice to purchase the securities
being offered on the same terms as contemplated by such proposed Future
Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act), (ii)
issuances of securities as consideration for a merger, consolidation or purchase
of assets, or in connection with any strategic alliance, relationship,
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company, (iii) issuance up to an aggregate
of 200,000 shares of Common Stock (which may be in the form of warrants to
purchase shares of Common Stock) to vendors to satisfy outstanding financial
obligations; provided that the price at which such Common Stock is issued or the
exercise price of such warrants is not less than the Exercise Price (as defined
in the Warrants), or (iv) issuance of warrants to purchase up to 400,000 shares
of Common Stock in connection with restructuring debt or accounts receivable
sales facility, provided that such restructuring does not involve the issuance
of securities convertible into Common Stock (other than warrants) and provided,
further that the exercise price of such warrants is not less than the Exercise
Price (as defined in the Warrants). The Capital Raising Limitations also shall
not apply to the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option, stock
purchase or restricted stock plan approved by the shareholders of the Company.
f. EXPENSES. The Company shall reimburse Xxxx Xxxx Capital
Management, L.P. ("XXXX XXXX") for all expenses incurred by it in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement and the other agreements to be executed in connection herewith,
including, without limitation, attorneys' and consultants' fees and expenses and
travel expenses. The Company's obligation to reimburse
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Rose Glen's expenses under this Section 4(f) shall be limited to Twenty Thousand
Dollars ($20,000) of which Ten Thousand Dollars ($10,000) was advanced
previously.
g. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of its Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K; (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the shareholders
of the Company, copies of any notices or other information the Company makes
available or gives to such shareholders.
h. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Debentures, Investment Options and Warrants and issuance of the
Conversion Shares issuable upon conversion of or otherwise pursuant to the
Debentures (based on the Conversion Price of the Debentures in effect from time
to time), the issuance of the Investment Option shares upon exercise of or
otherwise pursuant to the Investment Options (based upon the exercise price of
the Investment Options as in effect from time to time) and the issuance of the
Warrant Shares upon exercise of or otherwise pursuant to the Warrants (based
upon the exercise price of the Warrants in effect from time to time). The
Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of or otherwise pursuant to the Debentures and exercise
of or otherwise pursuant to the Warrants and the Investment Options without the
consent of each Buyer. The Company shall use its best efforts at all times to
maintain the number of shares of Common Stock so reserved for issuance at no
less than one and one-half (1 1/2) times the number that is then actually
issuable upon full conversion of the Debentures (based on the Conversion Price
of the Debentures in effect from time to time), full exercise of the Investment
Options and the Warrants and full exercise of the Warrants (based on the
Exercise Price of the Investment Options and the Warrants in effect from time to
time). If at any time the number of shares of Common Stock authorized and
reserved for issuance is below the number of Conversion Shares issued and
issuable upon conversion of or otherwise pursuant to the Debentures (based on
the Conversion Price in effect from time to time) and the number of Warrant
Shares and Investment Option Shares issued or issuable upon exercise of or
otherwise pursuant to the Investment Options and the Warrants (based on the
exercise price of the Warrants and Investment Options in effect from time to
time), the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of shareholders to authorize additional
shares to meet the Company's obligations under this Section 4(h), 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.
i. LISTING. The Company shall promptly secure the listing of
the Conversion Shares, Investment Option Shares and Warrant Shares upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and, so long as any Buyer owns any of the Securities, shall
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maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares from time to time issuable upon conversion of
or otherwise pursuant to the Debentures and all Warrant Shares and Investment
Option Shares from time to time issuable upon exercise of or otherwise pursuant
to the Warrants and Investment Options. The Company will obtain and, so long as
any Buyer owns any of the Securities, maintain the listing and trading of its
Common Stock on Nasdaq, the New York Stock Exchange ("NYSE") or the American
Stock Exchange ("AMEX"), and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company shall promptly provide to each Buyer copies of any
notices it receives from Nasdaq and any other exchanges or quotation systems on
which the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges and quotation systems.
j. CORPORATE EXISTENCE. Subject to Article I.D. of the
Debentures, so long as a Buyer beneficially owns any Debentures, the Company
shall maintain its corporate existence and shall not merge, consolidate or 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 (i) the successor or acquiring entity and, if an entity
different from the successor or acquiring entity, the entity whose securities
into which the Debentures shall become convertible pursuant to Article II.C.2 of
the Debentures, in such transaction assumes the Company's obligations hereunder
and under the agreements and instruments entered into in connection herewith
(including the Debentures, Investment Options and the Warrants) and (ii) the
entity whose securities into which the Debentures shall become convertible
pursuant to Article II.C.2 of the Debentures is a publicly traded corporation
whose Common Stock is listed for trading on Nasdaq, Nasdaq SmallCap, NYSE or
AMEX.
k. NO INTEGRATION. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of the 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.
l. TRADING LIMITATIONS. So long as the Securities held by a
Buyer are outstanding, such Buyer covenants and agrees that it will conduct all
transactions in the Common Stock in compliance with applicable securities laws
and will not create a daily low trading price for such Common Stock on Nasdaq.
m. NO VIOLATION. The businesses of the Company and its
Subsidiaries, if any, shall not be conducted in violation of any law, ordinance
or regulation of any governmental entity so long as the Buyer owns any of the
Securities, except for any violation that would not have a Material Adverse
Effect.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of each Buyer or its nominee, for the Conversion Shares, the
Investment Option Shares and Warrant Shares in such
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amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or exercise of the Investment Options and the
Warrants in accordance with the terms thereof (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares, the Investment
Option Shares and Warrant Shares under the 1933 Act or the date on which the
Conversion Shares, the Investment Option Shares and Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares, the
Investment Option Shares and Warrant Shares, prior to registration of the
Conversion Shares, Investment Option Shares and Warrant Shares under the 1933
Act or the date on which the Conversion Shares, the Investment Option Shares and
Warrant Shares may be sold pursuant to Rule 144 without any restriction as to
the number of securities as of a particular date that can then be immediately
sold), will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement set forth in Section 2(g) hereof to comply with all
applicable prospectus delivery requirements, if any, upon re-sale of the
Securities. If a Buyer provides the Company with (i) an opinion of counsel in
form, substance and scope customary for opinions in comparable transactions to
the effect that a public sale or transfer of such Securities may be made without
registration under the 1933 Act and such sale or transfer is effected or (ii)
the Buyer provides reasonable assurances that the Securities can be and will be
sold pursuant to Rule 144, the Company shall permit the transfer, and, in the
case of the Conversion Shares, the Investment Option Shares and Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates, free
from any restrictive legend, in such name and in such denominations as specified
by such Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation
of the Company hereunder to issue and sell the Debentures, the Investment
Options and Warrants to a Buyer at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase
Price in accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with the
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covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Debentures, the Investment
Options and Warrants at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for such Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly
executed Debentures, Investment Options and Warrants (in such denominations as
the Buyer shall request) in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Articles of Incorporation, By-laws and Board of Directors' resolutions relating
to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
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f. The Conversion Shares, the Investment Option Shares and
Warrant Shares shall have been authorized for quotation on Nasdaq and trading in
the Common Stock on Nasdaq shall not have been suspended by the SEC or Nasdaq.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "E"
attached hereto.
h. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wisconsin applicable to
agreements made and to be performed in the State of Wisconsin (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
exclusive jurisdiction of the United States federal courts located in Delaware
with respect to any suit or proceeding based on or arising under this Agreement,
the agreements entered into in connection herewith or the transactions
contemplated hereby or thereby and irrevocably agree that all claims in respect
of such suit or proceeding may be determined in such courts. Both parties
irrevocably waive the defense of an inconvenient forum to the maintenance of
such suit or proceeding. Both parties further agree that service of process upon
a party mailed by first class mail shall be deemed in every respect effective
service of process upon the party in any such suit or proceeding. Nothing herein
shall affect either party's right to serve process in any other manner permitted
by law. Both parties agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in one or more counterparts, all of which 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 party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
c. HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters
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covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
f. NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
ARI Network Services, Inc.
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: Xxxxx Xxxxxxx
Facsimile: (000) 000-0000
With copy to:
Xxxxx Xxxxxxxxx, Esq.
Xxxxxxx & Xxxx
000 X. Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Facsimile: (000) 000-0000
If to a Buyer:
To the address set forth immediately
below such Buyer's name on the
signature pages hereto.
With copy to:
Xxxxxxx X. Xxxxxx, Esq.
Akerman, Senterfitt & Xxxxxx, P.A.
Xxx XX Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxx, XX 00000
Facsimile: (000) 000-0000
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any
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Buyer shall assign this Agreement or any rights or obligations hereunder without
the prior written consent of the other. Notwithstanding the foregoing, subject
to Section 2(f), any Buyer may assign its rights hereunder to any person that
purchases Securities in a private transaction from a Buyer or to any of its
"affiliates," as that term is defined under the 1934 Act, without the consent of
the Company; provided, however that any assignee of the Debenture, Investment
Options or Warrants shall be obligated to assume the duties and obligations of
such transferring Buyer pursuant to this Agreement; provided further, however,
that such assignee purchases or otherwise acquires at least $500,000 in
principal amount of the Debentures or at least 10% of either the Warrants or
Investment Options issued pursuant to this Agreement.
h. 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.
i. SURVIVAL. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers.
j. PUBLICITY. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, filings with the SEC, NASD or any stock exchange or interdealer
quotation system, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to comment
thereon).
k. 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 party 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.
l. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. REMEDIES. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to each Buyer, by
vitiating 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 Agreement will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this
Agreement, that each Buyer shall be entitled, in addition to all other available
remedies in law or in equity, to an injunction or injunctions to prevent or cure
any breaches of the provisions of this
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Agreement and to enforce specifically the terms and provisions of this
Agreement, without the necessity of showing economic loss and without any bond
or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
ARI NETWORK SERVICES, INC.
By: /s/ Xxxxx Xxxxxxx
Xxxxx Xxxxxxx,
Chairman and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By: /s/ Xxxxxx X. Xxxxxxxxxx
Xxxxxx X. Xxxxxxxxxx
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Xxxx Xxxx Capital Management, L.P.
0 Xxxx Xxxxx Xxxx, Xxxxx 000
000 Xx. Xxxxxx Xxxx
Xxxx Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Principal Amount of Debentures: $4,000,000
------------------
Number of Warrants: 600,000
--------- ------------------
Number of Investment Options: 800,000
--------- ------------------
Aggregate Purchase Price: $4,000,000
--------- ------------------
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