CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT
Between
Sedona Corporation
and
the Investors Signatory Hereto
CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT dated as of
February 25, 2000 (the "Agreement"), between the Investors signatory hereto
(each an "Investor" and together the "Investors"), and Sedona Corporation, a
corporation organized and existing under the laws of the Commonwealth of
Pennsylvania (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) $3,000,000 Stated Value
of Convertible Preferred Stock (as defined below) and (ii) Warrants (as defined
below) to purchase up to 100,000 shares of Common Stock at an exercise price
equal to 130% of the closing bid price for such Common Stock on the Closing
Date).
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) and/or 4(6) of the Securities Act of 1933, as amended, (the
"Securities Act") and/or Regulation D ("Regulation D") and the other rules and
regulations promulgated under the Securities Act, and/or upon such other
exemption from the registration requirements of the Securities Act as may be
available with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights,
or obligations that are convertible into or exchangeable for or give any right
to subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
Section 1.4. "Certificate of Designations" shall mean the Certificate of
Designations setting forth the terms of the Convertible Preferred Stock in the
form of Exhibit A hereto.
Section 1.4. "Closing" shall mean the closing of the purchase and sale of the
Convertible Preferred tock and Warrants pursuant to Section 2.1.
Section 1.5. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.6. "Common Stock" shall mean the Company's common stock, $.001 par
value per share.
Section 1.7. "Conversion Shares" shall mean the shares of C ommon Stock
issuable upon conversion of the Convertible Preferred Stock.
Section 1.8. "Convertible Preferred Stock" shall mean the $3,000,000 Stated
Value of Series G Convertible Preferred Stock, as described in the Certificate
of Designations to be issued to the Investors pursuant to this Agreement.
Section 1.9. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.10. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.11. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.12. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.13. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.14. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.15. "Market Price" on any given date shall mean the lowest three (3)
day average on the Principal Market (as reported by Bloomberg L.P.) of the
Common Stock during the twenty (20) consecutive Trading Day period ending on
the Trading Day immediately prior to the date for which the Market Price is to
be determined.
Section 1.16. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Certificate of
Designations or the Warrants in any material respect.
Section 1.17. "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date
as of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect
of outstanding scrip or any certificates representing fractional interests
in such Shares; provided, however, that "Outstanding" shall not mean any
such Shares then directly or indirectly owned or held by or for the account of
the Company.
Section 1.18. "Person" shall mean an individual, a corporation, a partnership,
a limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
Section 1.19. "Principal Market" shall mean the American Stock Exchange,
the New York Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap
Market or the OTC Bulletin Board, whichever is at the time the principal trading
exchange or market for the Common Stock, based upon share volume.
Section 1.20. "Purchase Price" shall mean the Stated Value per share of
Convertible Preferred Stock, as defined in the Certificate of Designations.
Section 1.21. "Registrable Securities" shall mean the Conversion Shares and
the Warrant Shares until (i) the Registration Statement has been declared
effective by the SEC, and all Conversion Shares and Warrant Shares have
been disposed of pursuant to the Registration Statement, (ii) all Conversion
Shares and Warrant Shares have been sold under circumstances under which all of
the applicable conditions of Rule 144 (or any similar provision then in force)
under the Securities Act ("Rule 144") are met, (iii) all Conversion Shares
and Warrant Shares have been otherwise transferred to holders who may trade
such shares without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such securities
not bearing a restrictive legend or (iv) such time as, in the opinion of counsel
to the Company, all Conversion Shares and Warrant Shares may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
Section 1.22. "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as
of the Closing Date in the form annexed hereto as Exhibit C.
Section 1.23. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with
the provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for
the registration of the resale by the Investor of the Registrable Securities
under the Securities Act.
Section 1.24. "Regulation D" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.25. "SEC" shall mean the Securities and Exchange Commission.
Section 1.26. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.27. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.28. "SEC Documents" shall mean the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and each report, proxy
statement or registration statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.29. "Senior Securities" shall mean all existing Series of Preferred
Stock which by their terms are required to be senior in right of payment of
dividends and/or liquidation proceeds to any after-created Series of Preferred
Stock.
Section 1.30. "Shares" shall have the meaning set forth in Section 1.17.
Section 1.31. "Stated Value" shall have the meaning set forth in the
Certificate of Designations.
Section 1.32. "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.33. "Warrants" shall mean the Warrants substantially in the form of
Exhibit B to be issued to the Investors hereunder.
Section 1.34. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
Purchase and Sale of Convertible Preferred Stock and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the Company
agrees to sell, and the Investors agree to purchase the Convertible Preferred
Stock together with the Warrants at the Purchase Price on the Closing Date as
follows:
(i) Upon execution and delivery of this Agreement, each
Investor shall deliver to the Escrow Agent
immediately available funds in their proportionate
amount of the Purchase Price as set forth on the
signature pages hereto, and the Company shall deliver
the Convertible Preferred Stock certificates and the
Warrants to the Escrow Agent, in each case to be held
by the Escrow Agent pursuant to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in
Section 2.1(b), the losing ("Closing") shall occur
at the offices of the Escrow Agent at which time the
Escrow Agent (x) shall release the Convertible
Preferred Stock and the Warrants to the Investors and
(y) shall release the Purchase Price (after all fees
have been paid as set forth in the Escrow Agreement),
pursuant to the terms of the Escrow Agreement.
(b) The Closing is subject to the satisfaction or waiver by the party to be
benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price
of the Convertible Preferred Stock and the Warrants,
as more fully set forth in the Escrow Agreement;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as
of the Closing Date (as a condition to the
Investors' obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Convertible Preferred Stock and
Warrants, or shall have the availability of
exemptions therefrom;
(vi) the sale and issuance of the Convertible Preferred
Stock and the Warrants hereunder, and the proposed
issuance by the Company to the Investors of the
Common Stock underlying the Convertible Preferred
Stock and the Warrants upon the conversion or
exercise thereof shall be legally permitted by all
laws and regulations to which the Investors and
the Company are subject and there shall be no
ruling, judgment or writ of any court prohibiting
the transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible
Preferred Stock certificates and Warrants
certificates to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Xxxxx
Xxxxxxx Xxxxxxx & Xxxxx LLP, counsel to the Company,
in the form of Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached
hereto as Exhibit F; and
(x) delivery to the Escrow Agent of the Registration
Rights Agreement.
Section 2.2. Liquidated Damages.
The parties hereto acknowledge and agree that the sums payable pursuant to
the Registration Rights Agreement shall constitute liquidated damages and not
penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amounts specified in such agreement bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable
loss likely to be incurred by the Investors in connection with the failure by
the Company to timely cause the registration of the Registrable Securities
and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
Representations and Warranties of Investor
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Organization.
The Investor is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization.
Section 3.2. Intent.
The Investor is entering into this Agreement for its own account and not
with a view to or for sale in connection with any distribution of the Common
Stock. The Investor has no present arrangement (whether or not legally binding)
at any time to sell the Convertible Preferred Stock, the Warrants, any
Conversion Shares or Warrant Shares to or through any person or entity;
provided, however, that by making the representations herein, the Investor does
not agree to hold such securities for any minimum or other specific term and
reserves the right to dispose of the Conversion Shares and Warrant Shares at
any time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.3. Sophisticated Investor.
The Investor is a sophisticated investor (as described in Rule 506(b)(2)
(ii) of Regulation D) and an accredited investor (as defined in Rule 501 of
Regulation D), and Investor has such experience in business and financial
matters that it has the capacity to protect its own interests in connection with
this transaction and is capable of evaluating the merits and risks of an
investment in the Convertible Preferred Stock, the Warrants and the underlying
Common Stock. The Investor acknowledges that an investment in the Convertible
Preferred Stock, the Warrants and the underlying Common Stock is speculative and
involves a high degree of risk.
Section 3.4. Authority.
This Agreement and each agreement attached as an Exhibit hereto which is
required to be executed by Investor has been duly authorized and validly
executed and delivered by the Investor and is a valid and binding agreement of
the Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 3.5. Not an Affiliate.
The Investor is not an officer, director or "affiliate" (as that term is
defined in Rule 405 of the Securities Act) of the Company.
Section 3.6. Absence of Conflicts.
The execution and delivery of this Agreement and each agreement which is
attached as an Exhibit hereto and executed by the Investor in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby, and compliance with the requirements hereof and thereof by the
Investor, will not violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on Investor or (a) violate any provision of
any indenture, instrument or agreement to which Investor is a party or is
subject, or by which Investor or any of its assets is bound; (b) conflict with
or constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investor to
any third party; or (d) require the approval of any third-party (which has not
been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which Investor is subject or to which any of
its assets, operations or management may be subject.
Section 3.7. Disclosure; Access to Information.
The Investor has received all documents, records, books and other publicly
available information pertaining to Investor's investment in the Company that
have been requested by the Investor. The Company is subject to the periodic
reporting requirements of the Exchange Act, and the Investor has reviewed copies
of all SEC Documents deemed relevant by Investor.
Section 3.8. Manner of Sale.
At no time was Investor presented with or solicited by or through any
leadlet, public promotional meeting, television advertisement or any other
form of general solicitation or advertising.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and Warrants to the Investors that, except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company.
The Company is a corporation duly incorporated and existing in good standing
under the laws of the Commonwealth of Pennsylvania and has all requisite
corporate authority to own its properties and to carry on its business as now
being conducted. The Company does not have any subsidiaries and does not own
more that fifty percent (50%) of or control any other business entity except as
set forth in the SEC Documents. The Company is duly qualified and is in good
standing as a foreign corporation to do business in every jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 4.2. Authority.
(i) The Company has the requisite corporate power and corporate authority to
enter into and perform its obligations under this Agreement, the Registration
Rights Agreement, the Escrow Agreement, and the Warrants and to issue the
Convertible Preferred Stock, the Conversion Shares, the Warrants and the Warrant
Shares pursuant to their respective terms, (ii) the execution, issuance and
delivery of this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designations, the Convertible Preferred Stock
certificates and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Convertible Preferred
Stock certificates and the Warrants have been duly executed and delivered by the
Company and at the Closing shall constitute 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, 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 the Company makes no representation or warranty with respect to the
enforceability of any terms of these agreements which require the Company to
issue Conversion Shares upon conversion of the Convertible Preferred Stock and
Warrant Shares upon the exercise of the Warrants notwithstanding the
commencement of any case under 11 USC Sec. 101 et seq. (the "Bankruptcy Code")
or, in the event it is a debtor under the Bankruptcy Code, to waive any rights
to relief it may have under 11USC Sec. 362 in respect of the conversion of the
Convertible Preferred Stock and the exercise of the Warrants, or which prohibit
the Company form seeking affirmative judicial relief from its obligations
hereunder except pursuant to the Bankruptcy Code. The Company has duly and
validly authorized and reserved for issuance shares of Common Stock sufficient
in number for the conversion of the Convertible Preferred Stock and for the
exercise of the Warrants. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the
Conversion Shares and, upon any redemption of the Warrants, the Warrant Shares.
The Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Convertible Preferred Stock and Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Certificate
of Designations is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company and, to the extent permitted under the Bankruptcy Code,
notwithstanding the commencement of any case under the Bankruptcy Code. The
Company shall not seek affirmative judicial relief from its obligations
hereunder except pursuant to the Bankruptcy Code, although the Company reserves
the right to defend any action brought by any Investor or third party. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. ss. 362 in respect of the conversion of the Convertible Preferred Stock
and the exercise of the Warrants. The Company agrees, without cost or expense to
the Investors, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. ss. 362.
Section 4.3. Capitalization.
The authorized capital stock of the Company consists of (i) 50,000,000 shares
of Common Stock, $0.001 par value per share, of which 24,972,966 shares are
issued and outstanding as of February 3, 2000, (ii) 1,000,000 shares of Class A
preferred stock; of which (A) 500,000 have been designated as Series A
Convertible Preferred Stock, par value $2.00 per share, 500,000 of which shares
are issued and outstanding, (B) 5,000 have been designated as Series B
Convertible Preferred Stock, par value $2.00 per share, 1,000 of which are
issued and outstanding; (C) 125,000 of which have been designated as Series C
Convertible Preferred Stock, par value $2.00 per share, none of which are issued
and outstanding; (D) 3,300 of which have been designated as Series D Convertible
Preferred Stock, par value $2.00 per share, none of which are issued and
outstanding; (E) 5,200 have been designated as Series E Convertible Preferred
Stock, par value $1,000 per share, none of which are outstanding, and (F) 1000
have been designated as Series F Convertible Preferred Stock, par value $2.00,
1,000 of which are issued and outstanding; and (iii) 2,000,000 shares of Class B
preferred stock, none of which are issued and outstanding. The Company has duly
and validly designated 3,000 shares of its Class A preferred stock as Series G
Convertible Preferred Stock. Except for (i) the outstanding Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series F Convertible
Preferred Stock, (ii) outstanding options and warrants as set forth in the SEC
Documents, and (iii) as set forth in the Disclosure Schedule, there are no
outstanding Capital Shares Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding. The
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities. All
of the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable.
Section 4.4. Common Stock.
The Company has registered its Common Stock pursuant to Section 12(b) or (g)
of the Exchange Act and is in full compliance with all reporting requirements of
the Exchange Act, and the Company is in compliance with all requirements for the
continued listing or quotation of its Common Stock, and such Common Stock is
currently listed or quoted on, the Principal Market. As of the date hereof, the
Principal Market is the Nasdaq SmallCap Market and the Company has not received
any notice regarding, and to its knowledge there is no threat, of the
termination or discontinuance of the eligibility of the Common Stock for such
listing.
Section 4.5. SEC Documents.
The Company has made available to the Investors true and complete copies of
the SEC Documents. The Company has not provided to the Investors any information
that, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company, but which has not
been so disclosed. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act, and rules and
regulations of the SEC promulgated thereunder and the SEC Documents did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances.
Subject to the accuracy of the Investors' representations in Article III, the
sale of the Convertible Preferred Stock, the Conversion Shares, the Warrants and
the Warrant Shares will not require registration under the Securities Act and/or
any applicable state securities law. When issued and paid for in accordance with
the Warrants and validly converted in accordance with the terms of the
Convertible Preferred Stock, the Conversion Shares and the Warrant Shares will
be duly and validly issued, fully paid, and non-assessable. Neither the sales of
the Convertible Preferred Stock, the Conversion Shares, the Warrants or the
Warrant Shares pursuant to, nor the Company's performance of its obligations
under, this Agreement, the Registration Rights Agreement, the Escrow Agreement,
the Certificate of Designations or the Warrants will (i) result in the creation
or imposition by the Company of any liens, charges, claims or other encumbrances
upon the Convertible Preferred Stock, the Conversion Shares, the Warrants or the
Warrant Shares or, except as contemplated herein, any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe for or acquire the Capital Shares or other
securities of the Company. The Convertible Preferred Stock, the Conversion
Shares, the Warrants and the Warrant Shares shall not subject the Investors to
personal liability to the Company or its creditors by reason of the possession
thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction.
Neither the Company nor any of its affiliates nor, to the knowledge of the
Company, any person acting on its or their behalf (i) has conducted or will
conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Preferred Stock or the Warrants, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Convertible Preferred Stock, the
Conversion Shares, the Warrants or the Warrant Shares under the Securities Act.
Section 4.8. No Conflicts.
The execution, delivery and performance of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby,
including without limitation the issuance of and payment of dividends upon the
Convertible Preferred Stock, the Conversion Shares, the Warrants and the Warrant
Shares, do not and will not (i) result in a violation of the Company's
Certificate of Incorporation or By-Laws or (ii) conflict with, or constitute a
material default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state or local law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any material property or asset of the Company is bound or
affected, nor is the Company otherwise in violation of, conflict with or default
under any of the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not have, individually or in the aggregate, a Material Adverse Effect),
provided, that the Company makes no representation or warranty that any rights
of the Investors under this Agreement, the Certificate of Designations or the
Warrants will be enforceable in any bankruptcy proceeding involving the Company,
nor that the enforcement of the rights of the Investors under this Agreement or
the Certificate of Designations does not conflict with or create an event of
default under the governing documents respecting the creation and sale of the
Company's Series B Convertible Preferred Stock or Series F Convertible Preferred
Stock. Further, the Company does not represent or warrant that any terms of this
Agreement, the Certificate of Designations, the Warrants, the Registration
Rights Agreement or the Convertible Preferred Stock, Conversion Shares and
Warrant Shares issuable pursuant to such documents requiring the Company to
honor redemption requests during bankruptcy or insolvency, or to honor
redemption requests which cause such bankruptcy or insolvency, do not result in
a violation of any federal or sate law, rule or regulation applicable to the
Company. The business of the Company is not being conducted in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not have a Material
Adverse Effect. The Company is not required under any Federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Convertible Preferred Stock or the Warrants in
accordance with the terms hereof (other than any SEC, Principal Market or state
securities filings that may be required to be made by the Company subsequent to
Closing, any registration statement that may be filed pursuant hereto, and any
shareholder approval required by the rules applicable to companies whose common
stock trades on the Principal Market); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investors
herein.
Section 4.9. No Material Adverse Change.
Since September 30, 1999, no Material Adverse Effect has occurred or exists
with respect to the Company, except as disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances.
Since September 30, 1999, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, prospects, operations or
financial condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the SEC Documents.
Section 4.11. No Integrated Offering.
Other than pursuant to an effective registration statement under the
Securities Act, or pursuant to the issuance or exercise of employee stock
options, or pursuant to its discussion with the Investors in connection with the
transactions contemplated hereby, the Company has not issued, offered or sold
the Convertible Preferred Stock, the Warrants or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Convertible Preferred Stock, the Warrants or Common Stock, or any securities
convertible into, exchangeable or exercisable for the Convertible Preferred
Stock or Common Stock or any such other securities) within the six-month period
next preceding the date hereof, and the Company shall not permit any of its
directors, officers or affiliates directly or indirectly, to take any action
(including, without limitation, any offering or sale to any Person of the
Convertible Preferred Stock, Warrants or shares of Common Stock), so as to make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Investors of the Convertible Preferred
Stock (and the Conversion Shares) or the Warrants (and the Warrant Shares) as
contemplated by this Agreement.
Section 4.12. Litigation and Other Proceedings.
Except as disclosed in the SEC Documents, there are no lawsuits or proceedings
pending or, to the knowledge of the Company, threatened, against the Company or
any subsidiary, nor has the Company received any written or oral notice of any
such action, suit, proceeding or investigation, which could reasonably be
expected to have a Material Adverse Effect. Except as set forth in the SEC
Documents, no judgment, order, writ, injunction or decree or award has been
issued by or, to the knowledge of the Company, requested of any court,
arbitrator or governmental agency which could result in a Material Adverse
Effect.
Section 4.13. No Misleading or Untrue Communication.
The Company and, to the knowledge of the Company, any person representing the
Company, or any other person selling or offering to sell the Convertible
Preferred Stock or the Warrants in connection with the transaction contemplated
by this Agreement, have not made, at any time, any oral communication in
connection with the offer or sale of the same which contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements, in the light of the circumstances under which they
were made, not misleading.
Section 4.14. Material Non-Public Information.
The Company has not disclosed to the Investors any material non-public
information that (i) if disclosed, would reasonably be expected to have a
material effect on the price of the Common Stock or (ii) according to applicable
law, rule or regulation, should have been disclosed publicly by the Company
prior to the date hereof but which has not been so disclosed.
Section 4.15. Insurance.
The Company and each subsidiary maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns which it
is required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are, to the Company's
knowledge, no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the Company or
any subsidiary; no information related to Tax matters has been requested by any
foreign, federal, state or local taxing authority; and, except as disclosed
above, no written notice indicating an intent to open an audit or other review
has been received by the Company or any subsidiary from any foreign, federal,
state or local taxing authority. There are no material unresolved questions or
claims concerning the Company's Tax liability. The Company (A) has not executed
or entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to and is not required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries, does not have any
knowledge that the IRS has proposed any such adjustment or change in accounting
method, and does not have any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United States
real property holding corporation within the meaning of ss. 897(c)(2) of the
Internal Revenue Code during the applicable period specified in ss.
897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under ss. 341(f)of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that
is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not
a party to any tax sharing agreement. The Company has not made any payments,
is not obligated to make payments and is not a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 4.17. Property.
Neither the Company nor any of its subsidiaries owns any real property. Each
of the Company and its subsidiaries has good and marketable title to all
personal property owned by it, free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company; and to the Company's knowledge any real prop erty,
mineral or water rights, and buildings held under lease by the Company as tenant
are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
intended to be made of such property, mineral or water rights, and buildings by
the Company.
Section 4.18. Intellectual Property.
Each of the Company and its subsidiaries owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, except as disclosed in the SEC Documents neither the
Company nor any of its subsidiaries is infringing upon or in conflict with any
right of any other person with respect to any Intangibles. Except as disclosed
in the SEC Documents, no adverse claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.
Section 4.19. Internal Controls and Procedures.
The Company maintains books and records and internal accounting controls which
provide reasonable assurance that (i) all transactions to which the Company or
any subsidiary is a party or by which its properties are bound are executed with
management's authorization; (ii) the recorded accounting of the Company's
consolidated assets is compared with existing assets at regular intervals; (iii)
access to the Company's consolidated assets is permitted only in accordance with
management's authorization; and (iv) all transactions to which the Company or
any subsidiary is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions.
Neither the Company, any subsidiary, nor any of its directors, officers or, to
its knowledge, other employees has (i) used any Company funds for any unlawful
contribution, endorsement, gift, entertainment or other unlawful expense
relating to political activity; (ii) made any direct or indirect unlawful
payment of Company funds to any foreign or domestic government official or
employee; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with
respect to Company matters.
Section 4.21. No Misrepresentation.
The representations and warranties of the Company contained in this Agreement,
any schedule, annex or exhibit hereto and a ny agreement, instrument or
certificate furnished by the Company to the Investors pursuant to this
Agreement, do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law.
The Investor's trading activities with respect to shares of the Company's
Common Stock will be in compliance with all applicable state and federal
securities laws, rules and regulations and rules and regulations of the
Principal Market on which the Company's Common Stock is listed.
Section 5.2. Limitation on Short Sales.
The Investor agrees that it will make no short sales (as defined in any
applicable SEC or NASD rules) of the Company's Common Stock while any of the
Convertible Preferred Stock owned by such Investor remains issued and
outstanding. The foregoing limitation shall not apply on any Trading Day when
the closing bid price of the Common Stock on the previous Trading Day exceeds
three (3) times the closing bid price on the Closing Date.
Section 5.3. Observance of 120 Day Limitation on Sales of Common Stock.
The Investor acknowledges the limitation on resales of the Conversion Shares
contained in Section 5(b)(i) of the Certificate of Designations, notwithstanding
that the Effective Date may have occurred prior to such time.
ARTICLE VI
Covenants of the Company
Section 6.1. Registration Rights.
The Company shall cause the Registration Rights Agreement to remain in full
force and effect and the Company shall comply in all material respects with the
terms thereof.
Section 6.2. Reservation of Common Stock.
As of the date hereof, the Company has reserved and the Company shall continue
to reserve and keep available at all times, free of preemptive rights, shares of
Common Stock for the purpose of enabling the Company to issue the Conversion
Shares and the Warrant Shares pursuant to any conversion of the Convertible
Preferred Stock or exercise of the Warrants. The number of shares so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered pursuant to any
conversion of the Convertible Preferred Stock or exercise of the Warrants and
the number of shares so reserved shall be increased or decreased to reflect
potential increases or decreases in the Common Stock that the Company may
thereafter be obligated to issue by reason of adjustments to the Warrants.
Section 6.3. Listing of Common Stock.
The Company hereby agrees to maintain the listing of the Common Stock on a
Principal Market, and as soon as reasonably practicable following the Closing
to list the Conversion Shares and the Warrant Shares on the Principal
Market. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Principal Market, it will include in such application
the Conversion Shares and the Warrant Shares, and will take such other action as
is necessary or desirable in the opinion of the Investors to cause the
Conversion Shares and Warrant Shares to be listed on such other Principal Market
as promptly as possible. The Company will take all action to continue the
listing and trading of its Common Stock on a Principal Market (including,
without limitation, maintaining sufficient net tangible assets) and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market and shall provide Investors with
copies of any correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within three (3) Trading Days of the
Company's receipt thereof, until the Investors have disposed of all of their
Registrable Securities. The Company agrees to present a proposal for stockholder
approval at the next annual meeting of stockholders, which the Company in good
faith expects to be held no later than June 30, 2000, to permit the Company to
issue a number of Conversion Shares and Warrant Shares which is in excess of
19.9% of the number of the Company's issued and outstanding shares of Common
Stock on the Closing Date, with the recommendation of the Board of Directors
that such proposal be approved. If such proposal is not approved, the Company
shall either (i) voluntarily de-list its Common Stock from any Principal Market
which requires such approval or (ii) redeem any un-exchangeable Exchangeable
Preferred Stock pursuant to Section 7 of the Certificate of Designations, within
five (5) Trading Days of such vote.
Section 6.5. Exchange Act Registration.
The Company will cause its Common Stock to continue to be registered under
Section 12(b) or (g) of the Exchange Act, will use its best efforts to comply in
all respects with its reporting and filing obligations under 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
registration or to terminate or suspend its reporting and filing obligations
under said Act until the Investors have disposed of all of their Registrable
Securities.
Section 6.6. Legends.
Except as may be required by any change in laws or regualtions applicable
thereto enacted after the date hereof, the certificates evidencing the
Registrable Securities shall be free of legends, except as set forth in Article
IX.
Section 6.7. Corporate Existence; Conflicting Agreements.
The Company will take all steps necessary to preserve and continue the
corporate existence of the Company. The Company shall not enter into any
agreement, the terms of which agreement would restrict or impair the right or
ability of the Company to perform any of its obligations under this Agreement or
any of the other agreements attached as exhibits hereto or under the Certificate
of Designations.
Section 6.8. Consolidation; Merger.
The Company shall not, at any time after the date hereof, effect any merger or
consolidation of the Company with or into, or a transfer of all or substantially
all of the assets of the Company to, another entity (a "Consolidation Event")
unless the resulting successor or acquiring entity (if not the Company) assumes
by written instrument or by operation of law the obligation to deliver to the
Investors such shares of stock and/or securities as the Investors are entitled
to receive pursuant to this Agreement and the Certificate of Designations.
Section 6.9. Issuance of Convertible Preferred Stock and Warrant Shares.
The sale of the Convertible Preferred Stock and the Warrants and the issuance
of the Warrant Shares pursuant to exercise of the Warrants and the Conversion
Shares upon conversion of the Convertible Preferred Stock shall be made in
accordance with the provisions and requirements of Section 4(2), 4(6) or
Regulation D and any applicable state securities law. The Company shall make any
necessary SEC and "blue sky" filings required to be made by the Company in
connection with the sale of the Securities to the Investors as required by all
applicable laws, and shall provide a copy thereof to the Investors promptly
after such filing.
Section 6.10. Limitation on Future Financing.
The Company agrees that it will not enter into any sale of its securities for
cash at a discount to Market Price until 120 days after the effective date of
the Registration Statement except for any sales (i) pursuant to any presently
existing employee benefit plan which plan has been approved by the Company's
stockholders, (ii) pursuant to any compensatory plan for a full-time employee or
key consultant, (iii) pursuant to a shelf registration, or (iv) with the prior
approval of a majority in interest of the Investors, which will not be
unreasonably withheld, in connection with a strategic partnership or other
business transaction, the principal purpose of which is not simply to raise
money.
Section 6.11. Pro-Rata Redemption.
The Company agrees that if it shall redeem any of the Convertible Preferred
Stock, that it shall make such redemption pro-rata among all Investors in
proportion to their respective initial purchases of such securities pursuant to
this Agreement.
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival.
The representations, warranties and covenants made by each of the Company and
each Investor in this Agreement, the annexes, schedules and exhibits hereto and
in each instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, shall survive the Closing and the consummation of
the transactions contemplated hereby; provided, however, that the
representations and warranties of the parties set forth in Articles 3 and 4
shall survive until February 25, 2003. In the event of a breach or violation of
any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement, irrespective of any investigation made by or on behalf of
such party on or prior to the Closing Date.
Section 7.2. Indemnity.
(a) The Company hereby agrees to indemnify and hold harmless the Investors,
their respective Affiliates and their respective officers, directors, partners
and members (collectively, the "Investor Indemnitees"), from and against any and
all Damages in excess of $50,000, and agrees to reimburse the Investor
Indemnitees for all reasonable out-of-pocket expenses (including the reasonable
fees and expenses of legal counsel), in each case promptly as incurred by the
Investor Indemnitees and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of
any of the Company's representations or warranties
contained in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company
pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings
or obligations set forth in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement
or certificate entered into or delivered by the Company
pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of
them, by any stockholder of t he Company who is not an
Affiliate of an Investor, with respect to any of the
transactions contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify and
hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages in excess of $50,000, and agrees to reimburse
the Company Indemnitees for reasonable all out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact, or breach of
any of the Investor's representations or warranties
contained in this Agreement, the annexes, schedules
or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor
pursuant to this Agreement; or
(ii) any failure by the Investor to perform in any material
respect any of its covenants, agreements, undertakings
or obligations set forth in this Agreement, the
annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or
delivered by the Investor pursuant to this Agreement.
Section 7.3. Notice.
Promptly after receipt by either party hereto seeking indemnification pursuant
to Section 7.2 (an "Indemnified Party") of written notice of any investigation,
claim, proceeding or other action in respect of which indemnification is being
sought (each, a "Claim"), the Indemnified Party promptly shall notify the party
from whom indemnification pursuant to Section 7.2 is being sought (the
"Indemnifying Party") of the commencement thereof; but the omission so to notify
the Indemnifying Party shall not relieve it from any liability that it otherwise
may have to the Indemnified Party, except to the extent that the Indemnifying
Party is actually prejudiced by such omission or delay. In connection with any
Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party reasonably shall have concluded that
representation of the Indemnified Party and the Indemnifying Party by the same
legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
if there may be legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying Party, or (z)
the Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. Direct Claims.
In the event one party hereunder should have a claim for indemnification that
does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1. Due Diligence Review.
Subject to Section 8.2, the Company shall make available for inspection and
review by the Investors, advisors to and representatives of the Investors (who
may or may not be affiliated with the Investors and who are reasonably
acceptable to the Company), any underwriter participating in any disposition of
the Registrable Securities on behalf of the Investors pursuant to the
Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, Nasdaq or other filing, all SEC Documents
and other filings with the SEC, and all other publicly available corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such publicly available information reasonably requested
by the Investors or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investors and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to the
Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.
(b) Nothing herein shall require the Company to disclose material non-
public information to the Investors or their advisors or representatives, and
the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends.
Unless otherwise provided below, each certificate representing the Convertible
Preferred Stock, Warrants or Registrable Securities will bear the following
legend or equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR STATE
SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND STATE
SECURITIES LAWS OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH
REGISTRATION.
Section 9.2. Transfer Agent Instructions.
Upon the execution and delivery hereof, the Company is issuing to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions substantially in the form of Exhibit F
hereto. Such instructions shall be irrevocable by the Company from and after the
date hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions.
No legend other than the one specified in Section 9.1 has been or shall be
placed on the share certificates representing the Registrable Securities and no
instructions or "stop transfer orders," "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX or pursuant
to Section 6.6.
Section 9.4.Investors' Compliance.
Nothing in this Article shall affect in any way each Investor's obligations to
comply with all applicable securities laws upon resale of the Common Stock.
ARTICLE X
Choice of Law; Arbitration
Section 10.1 Governing Law/Arbitration.
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York applicable to contracts made in New York by persons
domiciled in New York City and without regard to its principles of conflicts of
laws. Any dispute under this Agreement shall be submitted to arbitration under
the American Arbitration Association (the "AAA") in New York City, New York, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected according to the rules governing the AAA. The
Board of Arbitration shall meet on consecutive business days in New York City,
New York, and shall reach and render a decision in writing (concurred in by a
majority of the members of the Board of Arbitration) with respect to the amount,
if any, which the losing party is required to pay to the other party in respect
of a claim filed. In connection with rendering its decisions, the Board of
Arbitration shall adopt and follow the laws of the State of New York unless the
matter at issue is the corporation law of the company's state of incorporation,
in which event the corporation law of such jurisdiction shall govern such issue.
To the extent practical, decisions of the Board of Arbitration shall be rendered
no more than thirty (30) calendar days following commencement of proceedings
with respect thereto. The Board of Arbitration shall cause its written decision
to be delivered to all parties involved in the dispute. Any decision made by the
Board of Arbitration (either prior to or after the expiration of such thirty
(30) calendar day period) shall be final, binding and conclusive on the parties
to the dispute, and entitled to be enforced to the fullest extent permitted by
law and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to any arbitration
(as determined by the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorney's fees, in connection with such
arbitration. Any party shall be entitled to obtain injunctive relief from a
court in any case where such relief is available, and the non-prevailing party
to any such injunctive proceeding shall pay the expenses of the prevailing
party, including reasonable attorney's fees, in connection with such proceeding.
ARTICLE XI
Assignment
Section 11.1. Assignment.
Neither this Agreement nor any rights of the Investors or the Company
hereunder may be assigned by either party to any other person. Notwithstanding
the foregoing, (a) the provisions of this Agreement shall inure to the benefit
of, and be enforceable by, any permitted transferee of any of the Convertible
Preferred Stock or Warrants purchased or acquired by any Investor hereunder with
respect to the Convertible Preferred Stock or Warrants held by such person, and
(b) upon the prior written consent of the Company, which consent shall not
unreasonably be withheld or delayed, each Investor's interest in this Agreement
may be assigned at any time, in whole or in part, to any other person or entity
(including any Affiliate of the Investor) who agrees to make the representations
and warranties contained in Article III and who agrees to be bound by the terms
of this Agreement. The Investor shall not assign its rights under this Agreement
to any Person identified to the Investor by the Company as a competitor of the
Company.
ARTICLE XII
Notices
Section 12.1. Notices.
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) hand delivered, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
If to the Company: Sedona Corporation
000 Xxxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx
Facsimile:
with a copy to (shall not constitute Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP
notice): 0000 Xxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
if to the Investors: As set forth on the signature pages hereto
with a copy to: Xxxxxx X. Xxxxx, Esq.
(shall not constitute notice) Xxxxxxx Xxxxxx & Green, P.C.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts/ Facsimile/ Amendments.
This Agreement may be executed in multiple counterparts, each of which may be
executed by less than all of the parties and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing
such counterparts and all of which together shall constitute one and the same
instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended only
by a writing executed by all parties.
Section 13.2. Entire Agreement.
This Agreement, the agreements attached as Exhibits hereto, which include, but
are not limited to the Certificate of Designations, the Warrants, the Escrow
Agreement, and the Registration Rights Agreement, set forth the entire agreement
and understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein.
Section 13.3. Severability.
In the event that any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that such severability shall be ineffective if it materially changes
the economic benefit of this Agreement to any party.
Section 13.4. Headings.
The headings used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
Section 13.5. Number and Gender.
There may be one or more Investors parties to this Agreement, which Investors
may be natural persons or entities. All references to plural Investors shall
apply equally to a single Investor if there is only one Investor, and all
references to an Investor as "it" shall apply equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock.
The reporting entity relied upon for the determination of the trading price or
trading volume of the Common Stock on any given Trading Day for the purposes of
this Agreement shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investors and the Company shall be required to employ any
other reporting entity.
Section 13.7. Replacement of Certificates.
Upon (i) receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of a certificate representing the
Convertible Preferred Stock or any Conversion Shares or Warrants or any Warrant
Shares and (ii) in the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form to the Company (which shall not include the posting of any
bond) or (iii) in the case of any such mutilation, on surrender and cancellation
of such certificate, the Company at its expense will execute and deliver, in
lieu thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses.
Each of the Company and the Investors agrees to pay its own expenses incident
to the performance of its obligations hereunder, except that the Company shall
pay the fees, expenses and disbursements of Xxxxxxx Xxxxxx & Green, P.C.,
counsel to the Investors, in an amount equal to $15,000, all as set forth in the
Escrow Agreement.
Section 13.9. Brokerage.
Each of the parties hereto represents that it has had no dealings in
connection with this transaction with any finder or broker who will demand
payment of any fee or commission from the other party except for Ladenburg
Xxxxxxx & Co., Inc., whose fee shall be paid by the Company. The Company on the
one hand, and the Investors, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section 13.1. Publicity.
The Company agrees that it will not issue any press release or other public
announcement of the transactions contemplated by this Agreement without
the prior consent of the Investors, which shall not be unreasonably withheld nor
delayed by more than two (2) Trading Days from their receipt of such proposed
release. No release shall name the Investors without their express consent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
SEDONA CORPORATION
By:__________________________________
Xxxxx X. Xxxxxx, President and CEO
Address: c/o Ultrafinanz AG AMRO International, S.A.
Xxxxxxxxxxxxxxxxxx 00
Xxxxxx XX-0000 Xxxxxxxxxxx
Fax: 000-000-000-0000 By:__________________________________
Amount: $1,700,000 X. X. Xxxxxxxx, Director
Address: Suite 7B and 0X Xxxxxxx Holdings Limited
50 Town Range
Gibraltar
Fax: 000-000-00000 By:__________________________________
Amount: $300,000 J. Xxxxx Xxxxxx, Authorized Signatory
Address: Charlotte House Aspen International Limited
Charlotte Street
Nassau, Bahamas
Fax: 000-000-0000 By:__________________________________
Amount: $500,000 Authorized Signatory
Address: The Cuttyhunk Fund Limited
Amount: $250,000
By:____________________________________
Authorized Signatory
Address: The Xxxxxx X. Xxxxx 1995 Charitable Remainder Trust
Amount: $250,000
By:___________________________________
Authorized Signatory
