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EXHIBIT 1
SERIES C CONVERTIBLE PREFERRED STOCK AND SERIES C CONVERTIBLE PREFERRED STOCK
WARRANT PURCHASE AGREEMENT
This Agreement dated as of December 5, 2000 is entered into by and
among The IXATA Group, Inc., a Delaware corporation (the "Company"), and the
Purchasers listed on Exhibit A attached hereto (the "Purchasers").
WHEREAS, the parties hereto desire to provide for the purchase and sale
of certain securities of the Company as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
(a) Authorization. The Company has duly authorized the sale and
issuance of up to 2,135,461 shares of its Series C Convertible Preferred Stock,
$.001 par value per share (the "Series C Preferred"), and the issuance of
warrants for the purchase of an aggregate of 2,100,000 shares of the Series C
Preferred, having the rights, restrictions, privileges and preferences set forth
in the Certificate of Designations attached hereto as Exhibit B-1 (the
"Certificate of Designations"). The Company has, or on or before the Closing (as
defined in Section 2) will have, adopted and filed the Certificate of
Designations with the Delaware Secretary of State.
(b) Sale of Shares. Subject to the terms and conditions of this Agreement, at
each Closing (as defined in Section 2), the Company will sell and issue to the
Purchasers and each Purchaser will purchase the number of shares of Series C
Preferred set forth opposite its name on Exhibit A attached hereto for the
purchase price of $1.00 per share in cash and/or cancellation of indebtedness.
The shares of Series C Preferred being sold under this Agreement are referred to
as the "Shares." In addition, at the each Closing (as defined below), the
Company will issue to each Purchaser a Warrant in the form attached hereto as
Exhibit B-2 to purchase the number of shares of Series C Preferred, subject to
adjustment, set forth opposite its name on Exhibit A attached hereto at an
exercise price of $1.00 per share, subject to adjustment (collectively, the
"Warrants").
(c) At any time on or before the thirtieth (30th) day following the Closing, the
Company may sell up to 300,000 of the authorized shares of Series C Preferred
Stock not sold at the Closing to such persons as may be approved by the Board of
Directors of the Company (the "Additional Purchasers"). All such sales made at
any additional closings (each an "Additional Closing") shall be made on the
terms and conditions set forth in this Agreement, including without limitation,
the representations and warranties by such Additional Purchasers as set forth in
Section 4. This Agreement, including without limitation, the Schedule of
Purchasers, may be amended by the Company without the consent of the Purchasers
solely to include any Additional Purchasers. Any shares of Series C Preferred
Stock sold pursuant to this Section 1(c) shall be deemed to be "Shares" for all
purposes under this Agreement and any Additional Purchasers thereof shall be
deemed to the "Purchasers" for all purposes under this Agreement.
(d) Use of Proceeds. The Company will use the proceeds from the sale of
the Shares for working capital and other general corporate purposes.
(e) Separate Agreements. The Company's agreement with each of the
Purchasers is a separate agreement, and the sale of the Shares and the Warrants
to each of the Purchasers is a separate sale.
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2. Closing. (a) The closing of the initial sale and purchase of Shares as
set forth on Exhibit A under the heading First Closing ("First Closing") is
taking place simultaneously with the execution of this Agreement, at the offices
of Xxxx and Xxxx LLP in Reston, VA at 10:00 A.M. on December 4, 2000, or in such
other manner as the parties may agree. At the First Closing, the Company will
deliver to each Purchaser a certificate for the number of Shares then being
purchased by such Purchaser, registered in the name of such Purchaser, against
payment to the Company of the purchase price therefor, by wire transfer, check
or other method acceptable to the Company. In addition, the Company shall issue
to each Purchaser a Warrant to purchase the number of shares of Series C
Preferred specified with respect to such Purchaser on Exhibit A. The date of the
First Closing is hereinafter referred to as the "First Closing Date." If at the
First Closing any of the conditions specified in Section 5 shall not have been
fulfilled, each Purchaser shall, at his or its election, be relieved of all of
his or its obligations under this Agreement without thereby waiving any other
rights he or it may have by reason of such failure or such nonfulfillment.
(b) The closing of the sale and purchase of the Shares as set
forth on Exhibit A under the heading "Second Closing" (the "Second Closing")
will take place at the offices of Xxxx and Xxxx LLP in Reston, VA, or in such
other manner as the parties may agree, within thirty (30) days after the Second
Closing Conditions (as defined below) are met (the "Second Closing Date").
(c) The obligation of the Purchasers to purchase Shares at the
Second Closing is conditioned upon fulfillment of the conditions set forth on
Exhibit B-3 hereto (the "Second Closing Conditions"). At the Second Closing, the
Company will deliver to each of the Purchasers a certificate for the number of
shares then being purchased by such Purchaser, registered in the name of such
Purchaser, against payment to the Company of the purchase price therefor, by
wire transfer, check, or other method acceptable to the Company. In addition,
the Company shall issue to each Purchaser a Warrant to purchase the number of
shares of Series C Preferred specified with respect to such Purchaser on Exhibit
A. If at the Second Closing any of the Second Closing Conditions shall not have
been fulfilled, each of the Purchasers shall, at its election, be relieved of
all of his or its obligations under this Agreement without thereby waiving any
of the rights it may have by reason of such failure or such non-fulfillment.
(d) The closing of the sale and purchase of Shares as set
forth on Exhibit A under the heading "Third Closing" (the "Third Closing") will
take place at the offices of Xxxx and Xxxx LLP in Reston, VA, or in such other
manner as the parties may agree within 60 days after the Third Closing
Conditions (as defined below) are met (the "Third Closing Date"). The First
Closing, the Second Closing and the Third Closing are sometimes hereinafter
referred to as the "Closing," and the First Closing Date, the Second Closing
Date and the Third Closing Date are sometimes hereinafter referred to as the
"Closing Date"
(e) The obligation of the Purchasers, as set forth in Exhibit
A, to purchase Shares at the Third Closing is conditioned upon fulfillment of
the conditions set forth on Exhibit B-3 hereto (the "Third Closing Conditions").
At the Third Closing, the Company will deliver to each of the Purchasers a
certificate for the number of shares then being purchased by such Purchaser,
registered in the name of such Purchaser, against payment to the Company of the
purchase price therefor, by wire transfer, check, or other method acceptable to
the Company. In addition, the Company shall issue to each Purchaser a Warrant to
purchase the number of shares of Series C Preferred specified with respect to
such Purchaser on Exhibit A. If at the Third Closing any of the Third Closing
Conditions shall not have been fulfilled, each of the Purchasers shall, at its
election, be relieved of all of his or its obligations under this Agreement
without thereby waiving any of the rights it may have by reason of such failure
or such non-fulfillment.
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3. Representations of the Company. Other than as disclosed in the attached
disclosure schedules (the "Schedules"), the Company hereby represents and
warrants to the Purchasers as follows:
(a) Organization and Standing. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to conduct its business as presently
conducted and as proposed to be conducted by it and to enter into and perform
this Agreement and the transactions contemplated hereby. The Company is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where such qualification is required. The Company has furnished to
the Purchasers true and complete copies of its Certificate of Incorporation and
By-Laws, each as amended to date and presently in effect.
(b) Capitalization. The authorized capital stock of the Company immediately
prior to the Closing will consist of 100,000,000 shares of Common Stock, $.001
par value per share ("Common Stock"), of which 13,791,680 shares of Common Stock
are issued and outstanding, 3,000,000 shares of Class B common stock, $0.001 par
value per share, none of which are issued and outstanding and 10,000,000 shares
of Preferred Stock, $.001 par value per share, 350,000 of which are designated
Series A Preferred with none issued and outstanding; 510,000 of which are
designated Series B Preferred with none issued and outstanding; and 4,235,461 of
which shall be designated as Series C Preferred, none of which shall have been
issued. All of the issued and outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in the exhibits and schedules attached hereto
or provided in this Agreement, (i) no subscription, warrant, option, convertible
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock of the Company is authorized or outstanding, (ii) there
is not any commitment of the Company to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets of the
Company, (iii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof and (iv) there is no outstanding indebtedness of the Company in
excess of $5,000 in the aggregate. Except as provided in this Agreement, no
person or entity is entitled to (i) any preemptive or similar right with respect
to the issuance of any capital stock of the Company, or (ii) any rights with
respect to the registration of any capital stock of the Company under the
Securities Act of 1933, as amended (the "Securities Act"). All of the issued and
outstanding shares of Common Stock have been offered, issued and sold by the
Company in compliance with applicable Federal and state securities laws. To the
best of the Company's knowledge, no stockholder of the Company has granted
options or other rights to purchase any shares of Common Stock from such
stockholder.
(c) Subsidiaries. Schedule 3(c) sets forth for each subsidiary of the
Company (a "Subsidiary") (a) its name and jurisdiction of incorporation, (b) the
number of shares of authorized, issued and outstanding capital stock of each
class of its capital stock and (c) the names and the number of shares held by
each holder of such shares. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. Each Subsidiary is duly qualified to conduct business and is in
good standing under the laws of each jurisdiction in which the nature of its
businesses or the ownership or leasing of its properties requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the business, properties or rights of such Subsidiary. Each
Subsidiary has all requisite corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. The Company has delivered or made available to special counsel to
the Purchasers correct and complete copies of the Certificate of Incorporation
and By-laws of each Subsidiary, as amended to date. All of the issued and
outstanding shares of capital stock of each Subsidiary are duly authorized,
validly issued, fully paid, nonassessable and are held of record and
beneficially by either the Company or another Subsidiary, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), claims, security interests, options, warrants, rights,
contracts, calls, commitments, equities and demands. There are no outstanding or
authorized options,
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warrants, rights, agreements or commitments to which the Company or any
Subsidiary is a party or which are binding on any of them providing for the
issuance, disposition or acquisition of any capital stock of any Subsidiary.
There are no outstanding stock appreciation, phantom stock or similar rights
with respect to any Subsidiary. There are no voting trusts, proxies or other
agreements or understandings with respect to the voting of any capital stock of
any Subsidiary. No Subsidiary is in default under or in violation of any
provision of its Charter or By-Laws. The Company does not control directly or
indirectly or have any direct or indirect equity participation in any
corporation, partnership, trust, or other business association which is not a
Subsidiary. The Company has two subsidiaries as set forth in Schedule 3 ( c).
(d) Stockholder List and Agreements. Attached as Exhibit C is a true and
complete list of the record holders of Common Stock of the Company prepared by
the Company's Transfer Agent as of a date within five days of the date of this
Agreement. Also attached as Exhibit C is a true and complete list of the holders
of all other securities of the Company, showing the number of shares of Common
Stock or other securities of the Company held by each stockholder as of the date
of this Agreement. Except as contemplated by this Agreement, or as set forth in
Schedule 3(d), there are no agreements, written or oral, between the Company and
any holder of its capital stock, or, to the best knowledge of the Company, among
any holders of its capital stock, relating to the acquisition, disposition or
voting of the capital stock of the Company.
(e) Issuance of Shares. The issuance, sale and delivery of the Shares and
the Warrants, the issuance and delivery of the shares of Common Stock issuable
upon conversion of the Shares and the issuance and delivery of the shares of
Series C Preferred issuable upon exercise of the Warrants (the "Warrant Shares")
have been duly authorized and reserved for issuance, as the case may be, by all
necessary corporate action on the part of the Company, and the Shares when so
issued, sold and delivered against payment therefor in accordance with the
provisions of this Agreement, the shares of Common Stock issuable upon
conversion of the Shares when issued upon such conversion and the Warrant
Shares, when issued upon exercise of the Warrants against payment therefor in
accordance with the provisions of the Warrant, will be duly and validly issued,
fully paid and nonassessable.
(f) Authority for Agreement. The execution, delivery and performance by the
Company of this Agreement and the Warrants (this Agreement and the Warrants are
collectively referred to herein as "Agreements") have been duly authorized by
all necessary corporate action, and each of the Agreements has been duly
executed and delivered by the Company. Each of the Agreements constitutes the
valid and binding obligation of the Company enforceable in accordance with its
terms. The execution of the Agreements and performance of the transactions
contemplated thereby and compliance with their provisions by the Company will
not violate any provision of law and will not conflict with or result in any
breach of any of the terms, conditions or provisions of, or constitute a default
under, the Company's Certificate of Incorporation or By-Laws, each as amended to
date and presently in effect, or any indenture, lease, agreement or other
instrument to which the Company is a party or by which the Company, or any of
its respective properties is bound, or any decree, judgment, order, statute,
rule or regulation applicable to the Company.
(g) SEC Documents; Financial Statements. Since March 13, 1997, the Company
has 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 incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). A
complete list of the Company's SEC Documents is set forth on Exhibit D. Except
as disclosed on Schedule 3(g), as of the date hereof, the SEC Documents, as they
may have been subsequently amended by filings made by the Company with the SEC
prior to the date hereof, 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. None of the SEC
Documents, as of the date hereof and as they may have been subsequently amended
by filings made by the Company with the SEC prior to the date hereof, contained
any untrue statement of a material fact or omitted to state a material fact
required
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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. Except as
disclosed on Schedule 3(g), 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. Except as disclosed on
Schedule 3(g), such financial statements have been prepared in accordance with
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 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 its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). The Company is not
required to file and will not be required to file any agreement, note, lease,
mortgage, deed or other instrument entered into prior to the date hereof and to
which the Company is a party or by which the Company is bound which has not been
previously filed as an exhibit to its reports filed with the SEC under the 1934
Act.
(h) Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
governmental authority is required on the part of the Company in connection with
the execution and delivery of the Agreements, the offer, issue, sale and
delivery of the Shares or the Warrants, or the other transactions to be
consummated at each Closing, except (i) requisite filings with appropriate state
securities authorities, which the Company hereby covenants to make on a timely
basis, and (ii) such filings as shall have been made prior to and shall be
effective on and as of each Closing. Based on the representations made by the
Purchasers in Section 4 of this Agreement, and the making of such filings, the
offer and sale of the Shares and the Warrants to the Purchasers will be in
compliance with applicable Federal and state securities laws.
(i) Litigation. There is no action, suit, proceeding or investigation
pending, or, to the best of the Company's knowledge, any basis therefor or
threat thereof, against the Company, which questions the validity of this
Agreement or the right of the Company to enter into any such agreement, or which
might result, either individually or in the aggregate, in any material adverse
change in the assets, condition (financial or otherwise), business or prospects
of the Company.
(j) Absence of Liabilities. The outstanding liabilities of the Company are
listed on Schedule 3(j) attached hereto. Such liabilities, excluding liabilities
which extend more than 3 years from the date of this Agreement and, excluding
current payables and deferred revenue, in the aggregate, do not exceed
$1,000,000, whether absolute or contingent and have a maximum interest rate of 8
percent.
(k) No Undisclosed Events, Liabilities, Developments or Circumstances.
Except for the issuance of the Series C Preferred and Warrants contemplated by
this Agreement, no event, liability, development or circumstance has occurred or
exists, with respect to the Company or its respective business, properties,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement on Form S-1
filed with the SEC relating to an issuance and sale by the Company of its Common
Stock and which has not been publicly disclosed.
(l) No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Securities.
(m) 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 of the issuance by the
Company of any of the Securities under the 1933 Act or cause this offering of
the Securities to be integrated with prior offerings by the Company for purposes
of the 1933 Act, nor
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will the Company take any action or steps that would require registration of the
issuance by the Company of any of the Securities under the 1933 Act or, except
as set forth on Schedule 3(m), cause the offering of the Securities to be
integrated with other offerings.
(n) Internal Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with 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.
(o) Property and Assets. The Company has good title to all of its material
properties and assets, and none of such properties or assets is subject to any
mortgage, pledge, lien, security interest, lease, charge or encumbrance other
than those described on Schedule 3(o) attached hereto.
(p) Patents and Trademarks. Set forth on Schedule 3(p) attached hereto is a
true and complete list of all patents, patent applications, trademarks, service
marks, trademark and service xxxx applications, trade names, copyrights and
licenses presently owned or held by the Company. The Company owns or possesses
all of the patents, trademarks, service marks, trade names, copyrights,
proprietary rights, trade secrets, and licenses or rights to the foregoing,
necessary for the conduct of the Company's business as conducted. To the best of
the Company's knowledge, the business proposed by the Company will not cause the
Company to infringe or violate any of the patents, trademarks, service marks,
trade names, copyrights, licenses, trade secrets or other proprietary rights of
any other person or entity except that the possibility exists that other persons
have independently developed trade secrets or technical information similar or
identical to those of the Company. The Company is not aware that any employee is
obligated under any contract (including any license, covenant or commitment of
any nature), or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or would conflict with the
Company's business as proposed to be conducted. To the best of the Company's
knowledge, no prior employer of any employee of the Company has any right to or
interest in any inventions, improvements, discoveries or other information
assigned to the Company by such employee pursuant to the nondisclosure and
assignment of invention agreement (in the form attached hereto as Exhibit E)
executed by such employee, or otherwise so assigned.
(q) Insurance. The Company maintains valid policies of workers'
compensation insurance and of insurance with respect to its properties and
business of the kinds and in the amounts not less than is customarily obtained
by corporations of established reputation engaged in the same or similar
business and similarly situated, including, without limitation, insurance
against loss, damage, fire, theft, public liability and other risks.
(r) Material Contracts and Obligations. Schedule 3(r) attached hereto sets
forth a list of all written or oral material agreements of any nature to which
the Company is a party or by which it is bound, including without limitation (i)
each agreement which requires future expenditures by the Company in excess of
$5,000, (ii) all employment and consulting agreements, employee benefit, bonus,
pension, profit-sharing, stock option, stock purchase and similar plans and
arrangements, and distributor and sales representative agreements, and (iii) any
agreement or arrangement to which any stockholder, officer or director of the
Company, or any "affiliate" or "associate" of such persons (as such terms are
defined in the rules and regulations promulgated under the Securities Act), is
presently a party or under which such a person receives a benefit, including
without limitation any agreement or other arrangement providing for the
furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity. The Company has
delivered to the Purchasers copies of such of the foregoing agreements as the
Purchasers have requested. All of such agreements and contracts are valid,
binding and in full force and effect.
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(s) Rights Agreement. The Company has not adopted a shareholder rights plan
or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
(t) Compliance. The Company has, in all material respects, complied with
all laws, regulations and orders applicable to its present business and has all
material permits and licenses required thereby. Except as set forth in Schedule
3(t) there is no term or provision of any material mortgage, indenture,
contract, agreement or instrument to which the Company is a party or by which it
is bound, or, to the knowledge of the Company, of any provision of any state or
Federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon the Company, which materially adversely affects or, so far as the
Company may now foresee, in the future is reasonably likely to materially
adversely affect, the business, prospects, condition, affairs or operations of
the Company or any of its properties or assets. To the best of the knowledge of
the Company, none of the employees of the Company is in violation of any term of
any employment contract, patent or other proprietary information disclosure
agreement or any other contract or agreement relating to the employment of such
employee by the Company.
(u) Absence of Changes. Except as disclosed in Schedule 3(u) or as
disclosed in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, Quarterly Reports on Form 10-QSB for the period ending March
31, June 30, and September 30, 2000 or current Report on Form 8-K, since
December 31, 1999, there has been no change or development that has had or could
reasonably be expected to have a material adverse effect on the business
prospects, condition, affairs or operations of the Company. The Company has not
taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings. Except as disclosed in Schedule 3(u) or as disclosed in
the Company's Quarterly Report on Form 10-QSB for the period ending March 31,
June 30, and September 30, 2000 or Current Report on Form 8-K, since December
31, 1999, the Company has not declared or paid any dividends, sold any assets,
individually or in the aggregate, in excess of $100,000 outside of the ordinary
course of business or had capital expenditures, individually or in the
aggregate, in excess of $100,000.
(v) Employees. All employees, material consultants, or other consultants
of, or vendors to, the Company whose activities require access to confidential
or proprietary information of the Company have executed and delivered
nondisclosure and assignment of invention agreements substantially in the form
of Exhibit E attached hereto, respectively, and all of such agreements are in
full force and effect. All employees at or above the director level whose
responsibilities with respect to the Company are technical in nature have
executed non-competition agreements substantially in the form of Exhibit F
attached hereto, and all of such agreements are in full force and effect. None
of the employees of the Company is represented by any labor union, and there is
no labor strike or other labor trouble pending with respect to the Company
(including, without limitation, any organizational drive) or, to the best
knowledge of the Company, threatened.
(w) Taxes. Except as set forth on Schedule 3(w), the Company has filed or
has obtained presently effective extensions with respect to all Federal, state,
county, local and foreign tax returns which are required to be filed by it, such
returns are true and correct and all taxes shown thereon to be due have been
timely paid with exceptions not material to the Company. Federal income tax
returns of the Company have not been audited by the Internal Revenue Service,
and no controversy with respect to taxes of any type is pending or, to the best
of the Company's knowledge, threatened. The Company has never filed an election
pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the
"Code"), that the Company be taxed as an S Corporation or consent pursuant to
Section 341(f) of the Code relating to collapsible corporations.
(x) U.S. Real Property Holding Corporation. The Company is not now and has
never been a "United States Real Property Holding Corporation" as defined in
Section 897(c)(2) of the Code and Section 1.897-2(b) of the Regulations
promulgated by the Internal Revenue Service.
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(y) Books and Records. The minute books of the Company contain complete and
accurate records of all material meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof. The stock ledger
of the Company is complete and reflects all issuances, transfers, repurchases
and cancellations of shares of capital stock of the Company.
(z) Disclosures. Neither this Agreement nor any Exhibit or Schedule hereto,
nor any report, certificate, statement or instrument supplied by the Company to
the Purchasers or their counsel in connection with the transactions contemplated
by this Agreement, when read together, contains or will contain any material
misstatement of fact or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading. The Company
knows of no information or fact which has or would have a material adverse
effect on the financial condition, business or prospects of the Company which
has not been disclosed in writing to the Purchasers.
4. Representations of the Purchasers. Each Purchaser severally represents
and warrants to the Company as follows:
(a) Investment. Such Purchaser is acquiring the Shares and the shares of
Common Stock into which the Shares may be converted and the Warrant and the
Warrant Shares for its own account for investment and not with a view to, or for
sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling the same; and, except as contemplated by
this Agreement and the Exhibits and Schedules hereto, such Purchaser has no
present or contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for the disposition thereof.
(b) Authority. Such Purchaser has full power and authority to enter into
and to perform this Agreement in accordance with its terms. Such Purchaser
represents that it has not been organized, reorganized or recapitalized
specifically for the purpose of investing in the Company, or, if it has been
organized specifically for the purpose of investing in the Company, all of the
equity owners of such corporation, partnership, trust or other entity are
Accredited Investors within the definition set forth in Securities Act Rule
501(a).
(c) Experience. Such Purchaser has carefully reviewed the representations
concerning the Company and such contained in this Agreement, and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have made available to such Purchaser any and all
written information which such Purchaser has requested and have answered to such
Purchaser's satisfaction all inquiries made by such Purchaser; and such
Purchaser has adequate net worth and means of providing for its current needs
and contingencies to sustain a complete loss of its investment in the Company;
such Purchaser's overall commitment to investments which are not readily
marketable is not disproportionate to its net worth and such Purchaser's
investment in the Shares will not cause such overall commitment to become
excessive.
(d) Accredited Investor. Such Purchaser is an Accredited Investor within
the definition set forth in Securities Act Rule 501(a).
(e) Restricted Securities. Such Purchaser understands that the Securities
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulation such Securities may be resold without registration under
the Act only in certain limited circumstances. In the absence of an effective
registration statement covering the Securities (or the Common Stock issued on
conversion thereof) or an opinion of counsel reasonably acceptable to the
Company (it being understood that Xxxx and Xxxx LLP is acceptable) that a sale
may be made pursuant to an exemption from registration under the Act, the Shares
(and any Common Stock issued on conversion thereof) must be held indefinitely.
In this connection, such Purchaser represents that it is familiar with SEC Rule
144, as presently in effect, and understands the resale limitations imposed
thereby and by the Act, including
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without limitation the Rule 144 condition that current information about the
Company be available to the public.
(f) Legend. Each certificate or other instrument representing the Shares
and the Registrable Shares and shares issued in respect of the Shares shall bear
a legend substantially in the following form:
"The securities represented by this instrument have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and until
such shares are registered under such Act or an opinion of counsel
satisfactory to the Company is obtained to the effect that such
registration is not required."
The foregoing legend shall be removed from the certificates representing any
Registrable Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Securities Act.
(g) Notwithstanding the foregoing, no registration or opinion of counsel
shall be required by the Company for a transfer by a Purchaser to any person or
entity which directly or indirectly holds an interest in the Purchaser or a
partner of any purchaser, or in connection with a bona fide reorganization, if
the transferee agrees in writing to be subject to the terms of this Agreement to
the same extent as if he were an original Purchaser hereunder.
5. Conditions to the Obligations of the Purchasers. The obligation of each
Purchaser to purchase Shares at the Closing is subject to the fulfillment, or
the waiver by such Purchaser, of the following conditions on or before the
Closing Date:
(a) Accuracy of Representations and Warranties. The representations and
warranties contained in Section 3 of this Agreement shall be true on and as of
such Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
(b) Performance. The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by the Company prior to or at the Closing.
(c) Opinion of Counsel. The Purchaser shall have received an opinion from
Xxxxxxx Xxxxxxx & Xxxxxx P.L.L., counsel for the Company, dated such Closing
Date, to the following effect:
(i) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and to our knowledge
has full corporate power and authority to conduct its business as presently
conducted, to enter into and perform each of the Agreements and to carry out the
transactions contemplated by each of the Agreements. The Company is duly
qualified to do business as a foreign corporation in California, Ohio, New
Jersey, Massachusetts, and the District of Columbia and is in good standing in
such state(s).
(ii) Except for changes contemplated by this Agreement, the authorized
capital stock of the Company is as described in subsection 3(b) of this
Agreement.
(iii) The issuance, sale and delivery of the Shares and the Warrants by
the Company, the issuance and delivery of the shares of Common Stock issuable
upon conversion of the Shares or the Warrants and the issuance and delivery of
the Warrant Shares have been duly authorized and reserved for issuance, as the
case may be, by all necessary corporate action on the part of the Company, and
the Shares and the Warrants when so issued, sold and delivered against payment
therefor in accordance with the provisions of this Agreement, the shares of
Common Stock issuable upon conversion of the Shares or the Warrants, when issued
upon such
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conversion, and the Warrant Shares, when issued upon exercise of the Warrants,
will be duly and validly issued, fully paid and nonassessable.
(iv) The execution, delivery and performance by the Company of each of
the Agreements have been duly authorized by all necessary corporate action, and
each of the Agreements has been duly executed and delivered by the Company. Each
of the Agreements (other than subsections 8(g) and 8(h) hereof, as to which no
opinion need be expressed) constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms, subject as to enforcement of
remedies to applicable bankruptcy, insolvency, reorganization or similar laws
affecting generally the enforcement of creditors' rights and subject to a
court's discretionary authority with respect to the granting of a decree
ordering specific performance or other equitable remedies. The execution and
delivery of each of the Agreements and the offer, issue and sale of the Shares
hereunder will not conflict with, or result in any breach of any of the terms,
conditions, or provisions of, or constitute a default under, the Certificate of
Incorporation or By-Laws of the Company, each as amended to date and presently
in effect, or any indenture, lease, agreement, or other instrument known to such
counsel to which the Company is a party or by which it or any of its properties
are bound, or any decree, judgment or order specifically naming the Company and
known to such counsel.
(v) To our knowledge, except as obtained and in effect at the Closing,
no consent, approval, order or authorization of, or registration, qualification,
designation, declaration, or filing with, any governmental authority (other than
filings required to be made after such Closing under applicable federal and
state securities laws) is required on the part of the Company in connection with
the execution and delivery of the Agreements, or the offer, issue, sale and
delivery of the Shares or the other transactions to be consummated at such
Closing pursuant to this Agreement.
(vi) Based on the representations of the Purchasers in Section 4, the
offer, issuance and sale of the Shares and the Warrants are exempt from
registration under the Securities Act.
(vii) To such counsel's actual knowledge, except as set forth in
Schedule 3(i) to this Agreement, there is no action, suit or proceeding, or
governmental inquiry or investigation, pending or threatened against the
Company.
(d) The Irrevocable Transfer Agent Instructions, (as defined in Section 9),
in the form of Exhibit G attached hereto, shall have been delivered and
acknowledged in writing by the Company's transfer agent.
(e) Blue Sky Filings. The Company shall have made any requisite filings
with the securities commissioners of any state in which a Purchaser is located
and any such approvals shall be in full force and effect on the Closing Date
(other than filings required to be made after such Closing Date).
(f) Certificates and Documents. The Company shall have delivered to the
Purchasers:
(i) The Certificate of Incorporation of the Company, as amended and in
effect prior to the Closing Date, certified by the Secretary of State;
(ii) Certificates, as of the most recent practicable dates, as to the
corporate good standing of the Company issued by the Secretary of State of
Delaware, confirming such good standing on or immediately prior to the Closing
Date;
(iii) By-laws of the Company as amended and in effect immediately prior
to each Closing Date, certified by its Secretary or Assistant Secretary as of
the Closing Date; and
(iv) Resolutions of the Board of Directors of the Company, authorizing
and approving all requisite matters in connection with this Agreement,
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and the transactions contemplated hereby, certified by the Secretary or
Assistant Secretary of the Company as of such Closing Date.
(g) Board of Directors. Immediately after the Closing, the Board of
Directors of the Company shall consist of Xxxxx Xxxxxx, Xxxxxxx Xxxxx, Xxxxxx
Xxxxxx, Xxxx Xxxxxxxx and Xxxxxxx X. Grand. NextGen Fund II, L.L.C. and NextGen
SBS Fund II, L.L.C. shall have the right to elect a majority of the Board of
Directors. The parties hereto agree to promptly take any action required to
implement the provisions of Article FOURTH.C.7 of the Certificate of
Designations and elect as directors the persons designated pursuant thereto. No
amendment shall be made to the provisions of Article FOURTH.C.7 of the
Certificate of Designations (as the same may be amended from time to time),
without the prior written consent of NextGen Fund II, L.L.C. and NextGen SBS
Fund II, L.L.C. so long as they continue to hold, in the aggregate, at least 20%
of the outstanding Series C Preferred. Meetings of the Board of Directors shall
be held on a monthly basis except as approved by a majority of the directors who
are not employed by the Company. The Company agrees to pay the reasonable
expenses associated with Board meeting attendance by non-employee directors.
(h) Warrants. The Warrants shall have been executed and delivered by the
parties thereto.
(i) Indebtedness. As of the date hereof, there shall be no outstanding debt
of the Company other than as listed on attached Schedule 3(j). The Company shall
have reduced its debt, other than liabilities which extend more than three years
from the date of this Agreement and other than deferred revenue and current
payables, to less than $1,000,000, with a maximum interest rate of 8%. The
holders of the remaining debt will agree to terms such that the Company will not
be required to repay interest or principal for at least 36 months.
(j) Other Matters. All corporate and other proceedings in connection with
the transactions contemplated by this Agreement, and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchasers, and the Purchasers shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
6. Conditions to the Obligations of the Company. The obligations of the
Company under subsection 1(b) of this Agreement are subject to fulfillment, on
or before the applicable Closing Date, of each of the following conditions:
(a) Accuracy of Representations and Warranties. The representations and
warranties of each Purchaser contained in Section 4 shall be true on and as of
each Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
7. Covenants.
(a) Certain Agreements. Without the prior approval of a majority of the
Board of Directors, including the directors designated by the Purchasers, the
Company shall not: (i) borrow or incur any indebtedness or liability (including
by means of any equipment lease or any other type of transaction) in any year
which exceeds an aggregate of $50,000 or, (ii) pay annual salary or other
compensation or benefits in excess of $85,000 to any employee of the Company.
(b) Financial Statements and Other Information. The Company agrees to send
the following to each Purchaser so long as shares of Series C Preferred remain
outstanding: (i) within two (2) days after the filing thereof with the SEC, a
copy of its Annual Reports on Form 10-KSB (or 10-K), its Quarterly Reports on
Form 10-QSB (or 10-Q), any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, provided that if any such report is not filed with the SEC through XXXXX
then the Company shall deliver a copy of such report to each Purchaser by
facsimile on the same day it is filed with the SEC; (ii) on the same day as the
release thereof, facsimile copies of all press
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releases issued by the Company; and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
(c) Other Agreements. The Company will require all persons now or hereafter
employed by the Company who have access to confidential and proprietary
information of the Company to enter into agreements containing nondisclosure and
assignment of invention provisions substantially similar to that set forth in
Exhibit E. Additionally, the Company will require all employees at or above the
director level or whose responsibilities are technical in nature to enter into a
one-year non-competition agreement substantially similar to that set forth in
Exhibit F. Purchasers holding at least 51% of the outstanding Shares shall have
the right to enforce the Company's rights under each of such agreements to the
extent the Company waives its rights thereunder without the prior written
consent of Purchasers holding at least 51% of the outstanding Shares.
(d) Right of First Refusal.
(i) The Company hereby grants to each Purchaser (the "Rightholders") a
right of first refusal to purchase, on a pro rata basis, all or any part of New
Securities (as defined below) which the Company may, from time to time, propose
to sell and issue, subject to the terms and conditions set forth below. Each
Rightholder's pro rata share, for purposes of this subsection 7(e), shall equal
a fraction, the numerator of which is the number of shares of capital stock of
the Company owned by such Rightholder and the denominator of which is the total
number of issued and outstanding shares of capital stock of the Company,
assuming full conversion of any convertible preferred stock or debt instruments
at their applicable conversion rates as of the date the pro rata share is
determined.
(ii) "New Securities" shall mean any capital stock of the Company
whether now authorized or not, and rights, options or warrants to purchase
capital stock, and securities of any type whatsoever which are, or may become,
convertible into capital stock; provided however, that the term "New Securities"
does not include (A) the Shares issuable under this Agreement (including any
amendment hereto) or the shares of Common Stock issuable upon conversion of the
Series C Preferred or upon exercise of the Warrants; (B) securities offered to
the public pursuant to a Registration Statement (as defined in subsection 8(a));
(C) securities issued for the acquisition of another corporation by the Company
by merger, purchase of substantially all the assets of such corporation or other
reorganization resulting in the ownership by the Company of not less than 51% of
the voting power of such corporation; (D) not more than 7.0 million shares of
Common Stock (subject to adjustment for stock dividends, stock splits and
similar recapitalizations) issued to employees or consultants of the Company
pursuant to the Company's stock option plans; (E) not more than 3.0 million
shares of common stock issued in bona fide consideration of services provided to
the Company by third parties not affiliated with the Company, or (F) securities
issued as a result of any stock split, stock dividend or reclassification of
Common Stock, distributable on a pro rata basis to all holders of Common Stock.
(iii) In the event the Company intends to issue New Securities, it
shall give each Rightholder written notice of such intention, describing the
type of New Securities to be issued, the price thereof and the general terms
upon which the Company proposes to effect such issuance. Each Rightholder shall
have 30 days from the date of any such notice to agree to purchase all or part
of its or his pro rata share of such New Securities for the price and upon the
general terms and conditions specified in the Company's notice by giving written
notice to the Company stating the quantity of New Securities to be so purchased.
Each Rightholder shall have a right of overallotment such that if any
Rightholder fails to exercise his or its right hereunder to purchase his or its
total pro rata portion of New Securities, the other Rightholders may purchase
such portion on a pro rata basis, by giving written notice to the Company within
five days from the date that the Company provides written notice to the other
Rightholders of the amount of New Securities with respect to which such
nonpurchasing Rightholder has failed to exercise its or his right hereunder.
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(iv) In the event any Rightholder fails to exercise the foregoing right
of first refusal with respect to any New Securities within such 30-day period,
the Company may within 120 days thereafter sell any or all of such New
Securities not agreed to be purchased by the Rightholders, at a price and upon
general terms no more favorable to the purchasers thereof than specified in the
notice given to each Rightholder pursuant to paragraph (iii) above. In the event
the Company has not sold such New Securities within such 120-day period, the
Company shall not thereafter issue or sell any New Securities without first
offering such New Securities to the Rightholders in the manner provided above.
(v) For purposes of this subsection 7(e), "Rightholder" shall include
the general partners, officers or other affiliates of a Purchaser, and a
Purchaser may apportion its pro rata share among itself and such general
partners, officers and other affiliates in such proportions as it deems
appropriate so long as such general partner, officers or other affiliates are
accredited investors within the definition set forth in Securities Act Rule
501(a) and such apportionment does not invalidate any Federal or State
securities exemption; provided that the pro rata share ownership of a
Rightholder shall be determined solely on the basis of the number of shares of
capital stock of the Company owned by such Rightholder and shall not be
increased by the share holdings of any affiliate of such Rightholder.
(e) International Investment and Trade in Services Survey Act. The Company
shall use its best efforts to file on a timely basis all reports required to be
filed by it under 22 U.S.C. Section 3104, or any similar statute, relating to a
foreign person's direct or indirect investment in the Company.
(f) Listing. The Company shall as soon as practicable secure the listing of
all of the shares of Common Stock, including the Registrable Shares, upon the
Nasdaq Small Cap or National Stock Market and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable
Shares from time to time issuable under the terms of the Agreements and the
Certificate of Incorporation.
(g) Negative Covenants. Notwithstanding any other provision of this
Agreement to the contrary, so long as at least 50% of the shares of Series C
Preferred originally purchased by NextGen Fund II, L.L.C. and NextGen SBS Fund
II, L.L.C. remain outstanding, without the prior written consent of the holders
of at least a majority of the outstanding shares of Series C Preferred, there
shall not occur:
(i) (A) the sale of all or substantially of the assets of the Company
(B) the sale of more than 50% of the outstanding equity of the
Company in a non-public sale;
(C) the sale of capital stock of the Company in a public
offering;
(D) any merger, unit exchange, consolidation or other
reorganization or business combination of the Company if, immediately after such
transaction, either (1) persons who are directors of the Company immediately
prior to such transaction do not constitute at lease a majority of the directors
of the surviving entity immediately after such transaction, or (2) persons who
hold a majority of the voting equity of the surviving entity immediately after
such transaction are not persons who held a majority of the voting equity of the
Company immediately prior to such transaction;
(ii) any acquisition by the Company of any other entity's assets or
equity, where such acquisitions exceeds $25,000 in the aggregate;
(iii) any amendment of the Company's Certificate of Incorporation or
the Bylaws including any adoption of a certificate of designation of preferred
stock;
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(iv) except for the Shares sold under this Agreement or redeemed
pursuant to the Certificate of Designations, authorization, creation, issuance,
payment of a dividend or distribution or, reclassification, repurchase or
redemption of any stock or other security of the Company, or issuance, grant or
authorization of any option, warrant or other right respecting any stock or
other security of the Company, provided, that such consent shall not be
required, subject to Section 7(g) above, for the issuance of any option or right
under any stock option or stock purchase plan duly established by the Company,
or for the purchase of any Common Stock upon the exercise of an option or right
issued under such a plan;
(v) dissolution, liquidation or suspension of all of the Company's
business, or filing of any petition, or institution of any proceeding, or the
Company being subject to any petition or proceeding filed against it that is not
dismissed within thirty (30) days after filing, under the Federal Bankruptcy
Code or under any state law relating to insolvency, receivership, reorganization
or debt adjustment; or
(vi) any increase in the number of shares authorized for issuance under
the Company's 2000 Stock Option Plan.
(h) Filing of Form 8-K. Promptly following the First Closing, the Company
shall file a Current Report on Form 8-K with the SEC describing the terms of the
transactions contemplated by the Agreements and including as exhibits to such
Current Report on Form 8-K this Agreement and the Certificate of Designations,
in the form required by the 1934 Act.
(i) Meeting of Shareholders. In the event that designees of the Purchasers
do not at any time comprise a majority of the directors of the Corporation, the
Company shall, at the request of the Purchasers, convene a meeting of
shareholders for the election of directors as soon as possible.
8. Registration Rights.
(a) Certain Definitions. As used in this Section 8 and elsewhere in this
Agreement, the following terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or
any other Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Registration Statement" means a registration statement filed
by the Company with the Commission for a public offering and sale of securities
of the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in
subsection 8(d).
"Registrable Shares" means (i) the shares of Common Stock
issued or issuable upon conversion of the Series C Preferred or upon exercise or
conversion of the Warrants, any other shares of Common Stock of the Company
issued in respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); provided, however,
that shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares upon any sale pursuant to a Registration Statement, Section
4(1) of the Securities Act or Rule 144 under the Securities Act, or any sale in
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any manner to a person or entity which, by virtue of Section 12 of this
Agreement, is not entitled to the rights provided by this Section 8. Wherever
reference is made in this Agreement to a request or consent of holders of a
certain percentage of Registrable Shares, the determination of such percentage
shall include shares of Common Stock issuable upon conversion of the Shares even
if such conversion has not yet been effected.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Shares" shall have the meaning specified in subsection 1(b).
"Shareholders" means (i) the Purchaser and any persons or
entities to whom the rights granted under this Section 8 are transferred by any
Purchaser or their respective successors or assigns pursuant to Section 10
hereof.
(b) Required Registrations.
(i) At any time after TBD November 30, 2003, a Shareholder or
Shareholders holding in the aggregate at least 50% of the Registrable Shares may
request, in writing, that the Company effect the registration on Form S-1 or
Form S-2, if applicable (or any successor form), of Registrable Shares owned by
such Shareholder or Shareholders having an aggregate offering price of at least
$3,000,000 (based on the then current public market price or fair value). If the
holders initiating the registration intend to distribute the Registrable Shares
by means of an underwriting, they shall so advise the Company in their request.
In the event such registration is underwritten, the right of other Shareholders
to participate shall be conditioned on such Shareholders' participation in such
underwriting. Upon receipt of any such request, the Company shall promptly give
written notice of such proposed registration to all Shareholders. Such
Shareholders shall have the right, by giving written notice to the Company
within 30 days after the Company provides its notice, to elect to have included
in such registration such of their Registrable Shares as such Shareholders may
request in such notice of election, subject to the approval of the underwriter
managing the offering. Thereupon, the Company shall, as expeditiously as
possible, use its best efforts to effect the registration, on Form S-1 or Form
S-2, if applicable (or any successor form), of all Registrable Shares which the
Company has been requested to so register.
(ii) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Shareholder or Shareholders holding in the aggregate at least 35%
of the Registrable Shares may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form), of Registrable Shares having
an aggregate offering price of at least $500,000 (based on the current public
market price). Upon receipt of any such request, the Company shall promptly give
written notice of such proposed registration to all Shareholders. Such
Shareholders shall have the right, by giving written notice to the Company
within 30 days after the Company provides its notice, to elect to have included
in such registration such of their Registrable Shares as such Shareholders may
request in such notice of election. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration on
Form S-3, or such successor form, of all Registrable Shares which the Company
has been requested to register.
(iii) The Company shall not be required to effect more than two
registrations pursuant to paragraph (i) but may be required to effect an
unlimited number of, registrations pursuant to paragraph (ii) above. In
addition, the Company shall not be required to effect any registration (other
than on Form S-3 or any successor form relating to secondary offerings) within
six months after the effective date of any other Registration Statement of the
Company.
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(iv) Incidental Registration. Whenever the Company proposes to file a
Registration Statement (other than pursuant to subsection 8(b)) at any time and
from time to time, it will, prior to such filing, give written notice to all
Shareholders of its intention to do so and, upon the written request of a
Shareholder or Shareholders given within 20 days after the Company provides such
notice (which request shall state the intended method of disposition of such
Registrable Shares), the Company shall use its best efforts to cause all
Registrable Shares which the Company has been requested by such Shareholder or
Shareholders to register to be registered under the Securities Act to the extent
necessary to permit their sale or other disposition in accordance with the
intended methods of distribution specified in the request of such Shareholder or
Shareholders; provided, however, that if the offering is underwritten and the
managing underwriter(s) advise the Company that, in their opinion, the inclusion
of the Registrable Shares will adversely impact the offering, then the Company
will not be required to include the Registrable Shares.
(c) Registration Procedures. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:
(i) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(ii) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for a period of not less than 120 days from the
effective date;
(iii) as expeditiously as possible furnish to each selling Shareholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling Shareholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Shareholder; and
If the Company has delivered preliminary or final prospectuses to the
selling Shareholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Shareholders and, if requested, the selling Shareholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Shareholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Shareholders shall be free to resume making offers of
the Registrable Shares.
(iv) Allocation of Expenses. The Company will pay all Registration
Expenses of all registrations under this Agreement; provided, however, that if a
registration is withdrawn at the request of the Shareholders requesting such
registration (other than as a result of material adverse information concerning
the business or financial condition of the Company which is made known to the
Shareholders after the date on which such registration was requested) and if the
requesting Shareholders elect not to have such registration counted as a
registration requested under subsection 8(b), the requesting Shareholders shall
pay the Registration Expenses of such registration pro rata in accordance with
the number of their Registrable Shares included in such registration. For
purposes of this Section, the term "Registration Expenses" shall mean all
expenses incurred by the Company in complying with this Section 8, including,
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees and disbursements of counsel for the Company and the
reasonable fees and expenses of one counsel selected by the selling Shareholders
to represent the selling Shareholders, state Blue Sky fees and expens as
expeditiously as possible use its best efforts to register or qualify the
Registrable Shares covered by the Registration Statement
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under the securities or Blue Sky laws of such states as the selling Shareholders
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Shareholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Shareholder; provided, however, that the Company shall not be
required in connection with this paragraph (iv) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
(d) es, and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discounts, selling commissions
and the fees and expenses of selling Shareholders' own counsel (other than the
counsel selected to represent all selling Shareholders).
(e) Indemnification.
(i) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, the Company will indemnify
and hold harmless the seller of such Registrable Shares, each underwriter of
such Registrable Shares, and each other person, if any, who controls such seller
or underwriter within the meaning of the Securities Act or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
such seller, underwriter or controlling person may become subject under the
Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse such seller, underwriter
and each such controlling person for any legal or any other expenses reasonably
incurred by such seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus or prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of any such seller, underwriter or controlling person
specifically for use in the preparation thereof.
(ii) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers, each underwriter (if any), and each other
seller (if any) and each person, if any, who controls the Company or any such
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company, such directors and officers, underwriter or controlling person may
become subject under the Securities Act, Exchange Act, state securities or Blue
Sky laws or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such seller, specifically for use in connection with
the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of such Shareholders
hereunder shall be limited to an amount equal to the proceeds to each
Shareholder of Registrable Shares sold as contemplated herein.
CUSIP No. 81371G 10 S 13D PAGE 26 of 62
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(iii) Each party entitled to indemnification under this subsection 8(e)
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 8. The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
(f) Indemnification with Respect to Underwritten Offering. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to subsection 8(b)(i), the Company agrees to
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwriters of such offering.
(g) Information by Holder. Each holder of Registrable Shares included in
any registration shall furnish to the Company such information regarding such
holder and the distribution proposed by such holder as the Company may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 8.
(h) "Stand-Off" Agreement. Each Shareholder, if requested by the Company
and an underwriter of Common Stock or other securities of the Company, shall
agree not to sell or otherwise transfer or dispose of any Registrable Shares or
other securities of the Company held by such Shareholder for a specified period
of time (not to exceed 180 days) following the effective date of a Registration
Statement; provided, that:
(i) such agreement shall only apply to the first two such Registration
Statements covering Common Stock of the Company to be sold on its behalf to the
public in an underwritten offering; and
(ii) all Shareholders holding not less than the number of shares of
Common Stock held by such Shareholder (including shares of Common Stock issuable
upon the conversion of Shares, or other convertible securities, or upon the
exercise of options, warrants or rights), and all officers and directors of the
Company enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the Company and
such underwriter. The Company may impose stop-transfer instructions with respect
to the Registrable Shares or other securities subject to the foregoing
restriction until the end of the stand-off period.
(i) Limitations on Subsequent Registration Rights. The Company shall
not, without the prior written consent of Shareholders holding at least a
majority of the Registrable Shares, enter into any agreement (other than this
Agreement) with any
CUSIP No. 81371G 10 S 13D PAGE 27 of 62
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holder or prospective holder of any securities of the Company which would allow
such holder or prospective holder (i) to include securities of the Company in
any registration filed under subsection 8(b) or (ii) to make a demand
registration which could result in such registration statement being declared
effective prior to the third anniversary hereof.
(j) Rule 144 Requirements. The Company agrees to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(ii) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(iii) furnish to any holder of Registrable Shares upon request a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144, and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company as such holder may reasonably request
to avail itself of any similar rule or regulation of the Commission allowing it
to sell any such securities without registration.
(k) Selection of Underwriter. In the case of any registration effected
pursuant to subsection 8(b), in which the Company is not selling securities, the
requesting Shareholders shall have the right with the approval of the Board of
Directors of the Company, which approval shall not be unreasonably withheld, to
designate the managing underwriter in any underwritten offering. The Company
shall have the right to designate the managing underwriter in all other
underwritten offerings.
9. Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent in the form attached hereto as Exhibit G (the
"Irrevocable Transfer Agent Instructions"), and any subsequent transfer agent,
to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Common Stock in such amounts as specified from
time to time by each Purchaser to the Company upon conversion of the Shares or
exercise of the Warrants. If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form (it being stipulated that an opinion of
Xxxx and Xxxx LLP shall be acceptable), to the effect that a public sale,
assignment or transfer of Securities may be made without registration under the
1933 Act or the Purchaser provides the Company with reasonable assurances
(including, if requested by the Company, delivering such reasonable assurances
to the Company's counsel in connection with such counsel rendering an opinion on
the validity of a sale by such Purchaser pursuant to Rule 144) that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the
Common Stock, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Purchaser by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 9 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 9, that the Purchasers shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss.
10. Indemnification. In consideration of each Purchaser's execution and
delivery of the Agreements and acquiring the Shares thereunder and in addition
to all of the Company's other obligations under the Agreements and the
Certificate of Designation, the Company shall defend, protect, indemnify and
hold harmless each Purchaser and each other holder of the Shares and all of
their stockholders, officers, directors, employees and direct or indirect
investors and any of the
CUSIP No. 81371G 10 S 13D PAGE 28 of 62
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foregoing persons' agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Agreements or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in the
Agreements or any other certificate, instrument or document contemplated hereby
or thereby, (c) any cause of action, suit or claim brought or made against such
Indemnitee (other than a cause of action, suit or claim which is (x) brought or
made by the Company and (y) is not a shareholder derivative suit) and arising
out of or resulting from (i) the execution, delivery, performance or enforcement
of the Agreements or any other certificate, instrument or document contemplated
hereby or thereby, (ii) any transaction financed or to be financed in whole or
in part, directly or indirectly, with the proceeds of the issuance of the Shares
or (iii) the status of such Purchaser or holder of the Shares as an investor in
the Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
11. Successors and Assigns. Except as provided in Section 12, the
provisions of this Agreement shall be binding upon, and inure to the benefit of,
the respective successors, assigns, heirs, executors and administrators of the
parties hereto.
12. Transfers of Certain Rights.
(a) Transfer. The rights granted to a Purchaser under subsections 7(c) and
7(g) and Section 8 may be transferred by such Purchaser to any person or entity
acquiring at least 20% of the outstanding Shares or Registrable Shares (as
adjusted for stock splits, stock dividends and similar recapitalizations);
provided, however, that the Company is given written notice by the transferee at
the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which such rights are being assigned
and the transfer is in compliance with the restrictions described in ss.4(e)
above.
(b) Transferees. Any transferee (other than a Purchaser) to whom rights
under subsection 7(c), subsection 7(g) or Section 8 are transferred shall, as a
condition to such transfer, deliver to the Company a written instrument by which
such transferee agrees to be bound by the obligations imposed upon Purchaser
under subsection 7(g) and Section 8, as the case may be, to the same extent as
if such transferee were a Purchaser hereunder.
(c) Subsequent Transferees. A transferee to whom rights are transferred
pursuant to this Section 12 may not again transfer such rights to any other
person or entity, other than as provided in (a) or (b) above.
(d) Equityholders. Notwithstanding anything to the contrary herein, any
Purchaser may transfer rights granted to such Purchaser under subsection 7(b),
subsection 7(e) or Section 8 to any equityholder thereof to whom Registrable
Shares are transferred and in turn to the respective partners, shareholders or
members of any of such equityholders provided such transferee is an accredited
investor within the definition set forth in Securities Act Rule 501(A), and such
transferee delivers to the Company an opinion of counsel as to the transfer of
such security under applicable state and federal securities laws (as described
in Section 8(b)(i) above) and a written instrument in accordance with
subparagraph (b) above which contains a representation that the transfer is
exempt from registration under the Securities Act and designates a person or
entity affiliated with the Purchaser (the "Designated Notice Party") to receive
notice hereunder on behalf of the transferee. In the event of such transfer,
such equityholder shall be deemed a Purchaser for purposes
CUSIP No. 81371G 10 S 13D PAGE 29 of 62
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of this Section 12 and may again transfer such rights to any other person or
entity which acquires Registrable Shares from such equityholder, in accordance
with, and subject to, the provisions of subparagraphs (a), (b) and (c) above.
13. Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.
14. Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid:
If to the Company at IXATA Group, Inc., 0000 Xxx Xxx Xxxxx Xxxxx, Xxxxx
000, Xxx Xxxxx, XX 00000, Attention: Xxxx Xxxxxxxxx, with a copy to Xxxxxxx
Xxxxxxx & Xxxxxx, 0000 Xxxx 0xx Xxxxxx, 00xx Xxxxx, Xxxxxxxxx, XX 00000,
Attention: Xxxxxxxxxxx X. Xxxxxxx.
If to a Purchaser, at his or its address set forth on Exhibit A attached
hereto, to the Designated Notice Party for a Purchaser, if any, or at such other
address or addresses as may have been furnished to the Company in writing by
such Purchaser.
Notices provided in accordance with this Section 13 shall be deemed
delivered upon personal delivery or 72 hours after deposit in the U.S. Mail.
CUSIP No. 81371G 00 X 00X PAGE 30 of 62
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15. Brokers. The Company and each Purchaser (i) represents and warrants to
the other parties hereto that other than a mutually agreed payment to BB&T for
settlement for incurred expenses and services rendered, it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement, and (ii) will indemnify and save the other parties harmless from and
against any and all claims, liabilities or obligations with respect to brokerage
or finders' fees or commissions, or consulting fees in connection with the
transactions contemplated by this Agreement asserted by any person on the basis
of any statement or representation alleged to have been made by such
indemnifying party.
16. Expenses. The Company shall pay the fees and expenses of counsel for
the Purchasers in connection with the transactions contemplated hereby, whether
or not such transaction closes. The Purchasers shall use their best efforts to
limit such amounts to $18,000.
17. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
18. Amendments and Waivers. Except as otherwise expressly set forth in this
Agreement, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of at least a majority of the Registrable Shares.
19. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
20. Headings. The headings of the sections, subsections, and paragraphs of
this Agreement have been added for convenience only and shall not be deemed to
be a part of this Agreement.
21. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision.
22. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
23. Attorney's Fees. In the event of any action to enforce the terms of
this Agreement, the prevailing party in such action shall be entitled to recover
from the defaulting party its reasonable attorney's fees and costs.
24. Publicity. the Company and each Purchaser shall have the right to
approve before issuance, any press releases or any other public statements with
respect to the transactions contemplated hereby, such consent not to be
unreasonably withheld.
[Signatures on following page]
CUSIP No. 81371G 10 S 13D PAGE 31 of 62
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the day and year first above written.
COMPANY:
IXATA GROUP, INC.
By: /s/ Xxxx Xxxxxxxxx
------------------------------
Name: Xxxx Xxxxxxxxx
Title: Chief Executive Officer
PURCHASERS:
NEXTGEN FUND II, L.L.C.
By: NEXTGEN CAPITAL L.L.C.
Managing Member
By: /s/ Xxxxx Xxxxxx
------------------------------
Xxxxx Xxxxxx
Managing Director
NEXTGEN SBS FUND II, L.L.C.
By: NEXTGEN CAPITAL, L.L.C.
Managing Member
By: /s/Xxxxx Xxxxxx
------------------------
Xxxxx Xxxxxx
Managing Director
/s/Xxxxxxx Xxxxx
------------------------
Xxxxxxx Xxxxx
CUSIP No. 81371G 00 X 00X PAGE 32 of 62
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EXHIBIT A
PURCHASERS
FIRST CLOSING
-------------
NAME SHARES PURCHASE PRICE NUMBER OF WARRANTS
---- ------ -------------- ------------------
NextGen Fund II, L.L.C. 621,277 $ 750,000 600,000
00000 Xxxx Xxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
NextGen SBS Fund II, L.L.C. 414,184 $ 500,000 400,000
00000 Xxxx Xxxxx Xxxxxx,
Xxxxx 000
Xxxxxxx, XX 00000
Xxxxxxx Xxxxx 50,000 $ 50,000 50,000
TBD 300,000 $ 300,000 300,000
SECOND CLOSING
--------------
NAME SHARES PURCHASE PRICE NUMBER OF WARRANTS
---- ------ -------------- ------------------
NextGen Fund II, L.L.C. 150,000 $150,000 150,000
00000 Xxxx Xxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
NextGen SBS Fund II, L.L.C. 100,000 $100,000 100,000
00000 Xxxx Xxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
THIRD CLOSING
-------------
NAME SHARES PURCHASE PRICE NUMBER OF WARRANTS
---- ------ -------------- ------------------
NextGen Fund II, L.L.C. 300,000 $300,000 300,000
00000 Xxxx Xxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
NextGen SBS Fund II, L.L.C. 200,000 $200,000 200,000
00000 Xxxx Xxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
CUSIP No. 81371G 00 X 00X PAGE 33 of 62
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EXHIBIT B
EXHIBIT B-1
Certificate of Designations
(Insert)
CUSIP No. 81371G 00 X 00X PAGE 34 of 62
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EXHIBIT B-2
Form of Warrant
(Insert)
CUSIP No. 81371G 00 X 00X PAGE 35 of 62
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EXHIBIT B-3
Second and Third Closing Conditions
Second Closing
The Second Closing by the Purchaser will occur within 30 days after the
following milestones have been completed by the Company and verified to the
satisfaction of the Purchasers:
1. The Company shall meet or exceed the monthly xxxxxxxx and ensure cost
management as required to meet the cash flow projections from November 2000
through February 2000 as set forth below, or an earlier period as
determined by the Company's Board of Directors;
The IXATA Group
Cash Flow Forecast
November 13, 2000 NOV-00 DEC-00 JAN-01
PROJECTED PROJECTED PROJECTED
Starting balance $(10,870) $558,173 $439,173
Projected Inflows
Investment - Equity $ 700,000 $ -- $ --
A/R $ 193,043 $175,000 $150,000
Total Inflows $ 893,043 $175,000 $150,000
Projected Outflows
Operating Expenses
Payroll $ 145,000 $145,000 $145,000
Other Payroll (401k, Commis., Cons.) $ 10,000 $ 10,000 $ 8,000
Travel & Entertainment $ 3,000 $ 3,000 $ 3,000
Rent (paid through Sept 1) $ 14,000 $ 14,000 $ 14,000
Consulting $ 3,000 $ 3,000 $ 3,000
Legal & Accting $ 10,000 $ 10,000 $ 10,000
Network & Computer $ 4,000 $ 4,000 $ 4,000
Telecommunications $ 10,000 $ 10,000 $ 5,000
Advertising/Promo $ -- $ -- $ 2,000
Insurance $ 5,000 $ 5,000 $ 5,000
Other $ 10,000 $ 10,000 $ 10,000
--------- -------- --------
Operating Expenses $ 214,000 $214,000 $209,000
Investing
Server Purchase $ -- $ -- $100,000
EQ Lease $ -- $ -- $ --
--------- -------- --------
Total Investing $ -- $ -- $100,000
Other Outflows
BB&T Line $ -- $100,000 $ --
Accrual Repayment
TNF $ -- $ 40,000 $ 5,000
Accr Xxx $ -- $ -- $ 3,000
KJK $ -- 25,000 $ 5,000
Accrued A/F Paydown $ -- $ 25,000 $ 25,000
$ -- $ -- $ --
--------- -------- --------
Total Other Outflows $ -- $190,000 $ 38,000
Total Outflows $ 214,000 $404,000 $347,000
--------------------------------------------------------------------------------
Balance-End of Period $ 668,173 $439,173 $242,173
--------------------------------------------------------------------------------
NOV-00 DEC-00 JAN-01 FEB-01
PROJECTED PROJECTED PROJECTED PROJECTED
--------------------------------------------------------------------------------
Xxxxxxxx $175,000 $150,000 $ 52,880 $ 52,880
--------------------------------------------------------------------------------
CUSIP No. 81371G 00 X 00X PAGE 36 of 62
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2. The Company shall have demonstrated adequate prospects for achieving growth
of forecasted year 2001 revenue by 100 percent vis-a-vis calendar year 2000
revenue; and
3. The Company shall have demonstrated prospects for future growth through the
successful completion of beta tests on the consortium product and other new
offerings.
Third Closing
The Third Closing by the Purchaser will occur within 60 days after the following
milestones have been completed by the Company and verified to the satisfaction
of the Purchasers:
1. The Company shall meet or exceed the following financial milestones set
forth below for the period January 1, 2001 through June 30, 2001, or an
earlier period as determined by the Company's Board of Directors;
o Total Xxxxxxxx: $502,360
o Total Operating Expenses: $1.266 million
2. The Company shall have continued to demonstrate adequate prospects for
achieving growth of forecasted year 2001 revenue by 100 percent vis-a-vis
calendar year 2000 revenue.
