EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
dated as of
November 22, 1999
by and among
XxxxxxxXxxxxxxx.xxx
as the Issuer,
and
Xxxx Capital Growth Fund II, L.P.,
as the Purchaser
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, (this "Agreement") is dated as of
November 22, 1999, between XxxxxxxXxxxxxxx.xxx (the "Company") and the Xxxx
Capital Growth Fund II, L.P. (the "Purchaser").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to the Purchaser, and the
Purchaser desires to purchase from the Company, 1,142,857 shares of the
Company's Common Stock (as defined below) (the "Initial Shares"); and
WHEREAS, in order to induce the Purchaser to enter into the transactions
described in this Agreement, the Company desires to enter into the Warrant
Agreement attached hereto as Exhibit A (the "Warrant Agreement"), pursuant to
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which the Company agrees to issue to the Purchaser warrants (the "Warrants") to
purchase 350,000 shares of the Company's Common Stock at a $0.01 per share
exercise price (the "Warrant Shares") subject to the terms and conditions of the
Warrant Agreement regarding vesting, exercising and adjustment of the Warrants;
and
WHEREAS, the Purchaser will have certain registration rights with respect
to the Initial Shares and the Warrant Shares as set forth in the Registration
Rights Agreement in the form attached hereto as Exhibit B; and
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NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
I. DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Subsidiary of the Subject Person) which is
Controlled by or is under common Control with a Controlling Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Balance Sheet Date" has the meaning set forth in Section 3.7.
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"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 3.9(b).
"Board" shall mean the Company's Board of Directors.
"Broker's Fees" has the meaning set forth in Section 8.6.
"Business Day" means a day other than a Saturday, a Sunday or a day on
which banks in Dallas, Texas are required or permitted by law (other than a
general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
"Closing Date" means the date on which all of the conditions set forth in
Sections 5.1 and 5.2 shall have been satisfied and the Initial Shares and the
Warrants issued to the Purchaser.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the voting common stock, $0.001 par value per share,
of the Company.
"Company" means XxxxxxxXxxxxxxx.xxx, a Nevada corporation, and its
successors.
"Company Corporate Documents" means the certificate of incorporation and
by-laws of the Company.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others guaranteed by such Person.
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"Directors" means the individuals then serving on the Board of Directors or
similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Reimbursement Fee" has the meaning set forth in Section 8.4.
"GAAP" has the meaning set forth in Section 1.2.
"Intellectual Property" has the meaning set forth in Section 3.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Listing Applications" has the meaning set forth in Section 3.4.
"Major Investor" means the Purchaser as long as the Purchaser and/or any
Affiliate of the Purchaser continues to own at least 650,000 Purchaser Shares.
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"Major Purchaser" means a Person to whom the Purchaser has transferred at
least 650,000 of the Purchaser Shares.
"Material Adverse Effect" means any material adverse effect on the
operations, results of operations, properties, assets or condition (financial or
otherwise) of the Company or the Company and its Subsidiaries, taken as a whole,
or on the transactions contemplated hereby or by the agreements or instruments
to be entered into in connection herewith.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System,
including the Nasdaq SmallCap Market on which the Company's stock currently
trades.
"Net Cash Proceeds" means, with respect to a Qualified Public Offering, the
total amount of cash proceeds received by the Company or any Subsidiary less
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction.
"New Securities" has the meaning set forth in Section 6.14.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of Exhibit A to the form of Warrant.
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"Officer's Certificate" shall mean a certificate executed by the President,
chief executive officer or chief financial officer of the Company in the form of
Exhibit C attached hereto.
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"Original Purchase Amount" shall mean $3,000,000, the aggregate purchase
price for the 1,142,857 Initial Shares.
"Original Share Price" means $2.625 per share of Common Stock.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated association, joint venture, joint stock company, government
(or any agency or political subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is
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SECURITIES PURCHASE AGREEMENT - Page 4
maintained, or contributed to, by any member of the ERISA group for employees of
any member of the ERISA group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA group.
"Purchaser" means Xxxx Capital Growth Fund II, L.P., a Delaware limited
partnership.
"Purchaser's Designee" has the meaning set forth in Section 6.15.
"Purchaser Shares" means collectively the Initial Shares and the Qualified
Warrant Shares.
"Qualified Public Offering" means a firm commitment underwritten public
offering of the Company's Common Stock which (i) results in Net Cash Proceeds to
the Company of not less than $20,000,000, and (ii) is offered at a per share
price equal to or greater than $2.625 per share.
"Qualified Transferee" means any Affiliate of the Purchaser (or its
Affiliates) or any Person that qualifies as a Major Purchaser.
"Qualified Warrant Shares" means, of the 350,000 Warrant Shares, the
following:
(i) all of the 100,000 Warrant Shares which are not subject to vesting as
described in the Warrant Agreement, unless the Purchaser fails to
exercise the Warrant with respect to such Warrant Shares on or before
the fifth anniversary of the Closing; and
(ii) with respect to the 250,000 Warrant Shares which are subject to
vesting as provided in the Warrant Agreement, the following:
(A) prior to the occurrence of a Calculation Event (as defined in the
Warrant Agreement), all of such Warrant Shares; and
(B) upon the occurrence of a Calculation Event, the number of Warrant
Shares which vest in connection therewith;
provided, any Warrant Shares under this clause (ii) which constitute
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Qualified Warrant Shares shall cease to be Qualified Warrant Shares if
the Purchaser fails to exercise the Warrant with respect to such
Warrant Shares on or before the fifth anniversary of the Closing.
"Registration Rights Agreement" has the meaning set forth in the recital to
this Agreement.
"Reimbursement Expense Fee" has the meaning set forth in Section 8.4.
"SEC Reports" shall have the meaning set forth in Section 3.7.
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"Securities" means the Initial Shares, the Warrants, and any Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which (x) a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person or (y) the results of operations, the assets and
the liabilities of which are consolidated with such Person under GAAP.
"Subsidiary Corporate Documents" means the certificates of incorporation
and by-laws of each Subsidiary.
"Trading Day" shall mean any Business Day in which the Nasdaq Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Warrant Agreement and
the Registration Rights Agreement.
"Warrant Agreement," "Warrant Shares" and "Warrants" have the meaning set
forth in the Recitals to this Agreement.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"). All references to "dollars," "Dollars"
or "$" are to United States dollars unless otherwise indicated.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Purchase and Sale of Common Stock Notes. Subject to the terms
and conditions set forth herein, the Company agrees to issue and sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, the Initial
Shares at $2.625 per share for an aggregate purchase price for the Initial
Shares in the amount of $3,000,000.
SECTION 2.2 Payment. On the Closing Date, subject to the satisfaction of
all terms and conditions set forth herein, the Purchaser shall deliver by wire
transfer to the Company immediately available funds in an amount equal to the
Original Purchase Amount.
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SECTION 2.3 Closing. Subject to satisfaction of the conditions set forth
in Sections 5.1 and 5.2 hereof, the Closing Date shall occur on November 22,
1999, or such other date as the parties shall mutually agree upon.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser, as of the Closing
Date, the following:
SECTION 3.1. Organization and Qualification. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted. Schedule 3.1 sets forth a list of all Subsidiaries and
the country or jurisdiction in which each is incorporated. The Company and each
of its Subsidiaries is duly qualified to conduct business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except where
such failure would not have a Material Adverse Effect.
SECTION 3.2. Authorization and Execution.
(a) The Company has all requisite corporate power and authority to
enter into and perform each Transaction Agreement and to consummate the
transactions contemplated hereby and thereby and to issue the Securities in
accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities
have been duly and validly authorized and no further consent or
authorization of the Company, its Board of Directors or its shareholders is
required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the other Transaction Agreements will
constitute, a valid and binding agreement of the Company, in each case
enforceable against the Company in accordance with its respective terms.
SECTION 3.3. Capitalization. As of the date hereof, the authorized, issued
and outstanding capital stock of the Company is as set forth on Schedule 3.3
hereto and no other shares of capital stock of the Company will be outstanding
as of the Closing Date. All of such outstanding shares of capital stock are, or
upon issuance will be, duly authorized, validly issued,
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fully paid and non-assessable. No shares of capital stock of the Company are
subject to preemptive rights or similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. Other than as set forth on Schedule 3.3 hereto, as of the
date hereof, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries are obligated to register the sale of any of its or their
securities under the Securities Act (except pursuant to the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Warrant Shares. The Company has furnished to the Purchaser true and correct
copies of the Company's Corporate Documents, and of all securities convertible
into or exercisable for Common Stock (a list of such securities, and a summary
of the material terms thereof, being attached hereto as Schedule 3.3).
SECTION 3.4. Governmental Authorization. The execution and delivery by the
Company of the Transaction Agreements does not and will not, the issuance and
sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) listing applications ("Listing Applications") to be filed with the Nasdaq
Market relating to the Initial Shares and the Warrant Shares, and (d) the filing
of a "Form D" as described in Section 7.13 below.
SECTION 3.5. Issuance of Shares. The issuance of the Initial Shares is
and, upon exercise in accordance with the terms of the Warrant Agreement
(assuming the payment of the exercise price set forth in the Warrants), the
issuance of the Warrant Shares shall be, duly and validly issued and
outstanding, fully paid and nonassessable, free and clear of any taxes, Liens
and charges with respect to issuance and shall not be subject to preemptive
rights or similar rights of any other stockholders of the Company. Assuming the
representations and warranties of the Purchaser herein are true and correct in
all material respects, each of the Securities will have been issued in material
compliance with all applicable U.S. federal and state securities laws. The
Company understands and acknowledges that, in certain circumstances, the
issuance of Warrant Shares could dilute the ownership interests of other
stockholders of the Company. The Company further acknowledges that its
obligation to issue Warrant Shares upon exercise of the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
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SECURITIES PURCHASE AGREEMENT - Page 8
SECTION 3.6. No Conflicts. The execution and delivery by the Company of
the Transaction Agreements to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each Subsidiary is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
SECTION 3.7. Financial Information and SEC Reports. Since December 1,
1996, the Company has timely filed all forms, reports and documents with the
Commission required to be filed by it under the Exchange Act through the date
hereof (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits) incorporated by reference therein, being referred to
herein collectively as the "SEC Reports"). The Company has delivered to the
Purchaser true and complete copies of the SEC Reports, except for such exhibits
and incorporated documents. Such SEC Reports, at the time filed, complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder applicable to such SEC Reports. None of
the SEC Reports, including without limitation, any financial statements or
schedules included therein, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. There
have been no material adverse changes in the Company's business, properties,
results of operations or condition (financial or otherwise) since the date of
the Company's most recent Report on Form 10-K for the fiscal year ended July 31,
1999 which have not been disclosed in the Company's SEC Reports or to the
Purchaser in writing. The audited and unaudited consolidated balance sheets of
the Company and its Subsidiaries contained in the SEC Reports, and the related
consolidated statements of income, changes in stockholders' equity and changes
in cash flows for the periods then ended, including the footnotes thereto,
except as indicated therein, (i) complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto and (ii) have been prepared in accordance
with GAAP consistently applied throughout the periods indicated, except that the
unaudited financial statements do not contain notes and may be subject to normal
audit adjustments and normal annual adjustments. Such financial statements
fairly present the financial condition of the Company and its Subsidiaries at
the dates indicated and the consolidated results of their operations and cash
flows for the periods then ended and, except as indicated therein, reflect all
claims against and all Debts and liabilities of the Company and its
Subsidiaries, fixed or contingent. Since July 31, 1999 (the "Balance Sheet
Date"), except as disclosed in the SEC Reports, there has been (x) no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations, of the Company and its
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Subsidiaries, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God,
public force or otherwise and (y) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations, of the Company and its Subsidiaries except in the
ordinary course of business; and no fact or condition exists or is contemplated
or threatened which might cause such a change in the future.
SECTION 3.8. Litigation. Except as set forth in the SEC Reports, there is
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of any
Transaction Agreements.
SECTION 3.9. Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan, (ii) failed to make any required contribution or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the
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administration of any relevant pension benefits regulatory authority or being
required to pay any taxes or penalties (in any material amounts) under any
applicable laws.
SECTION 3.10. Environmental Matters. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a Material Adverse Effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the Company
or any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
SECTION 3.11. Taxes. All United States federal, state, county,
municipality local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and each Subsidiary have been filed and all material taxes
due pursuant to such returns or pursuant to any assessment received by the
Company and each Subsidiary have been paid except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in respect
of taxes or other governmental charges have been established in accordance with
GAAP.
SECTION 3.12. Investments, Joint Ventures. Other than as set forth on
Schedule 3.1, , the Company has no Subsidiaries or other direct or indirect
Investment in any Person, and the Company is not a party to any partnership,
management, shareholders' or joint venture or similar agreement.
SECTION 3.13. Not an Investment Company. Neither the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 3.14. Full Disclosure. The information heretofore furnished by the
Company to the Purchaser for purposes of or in connection with this Agreement or
any transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to the Purchaser will not (in each
case taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
SECTION 3.15. No Solicitation; No Integration with Other Offerings. No
form of general solicitation or general advertising was used by the Company or,
to the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. The issuance
of the Securities to the Purchaser will not be integrated with any other
issuance of the Company's securities (past, current or future) which requires
stockholder approval under the rules of the Nasdaq Market.
SECTION 3.16. Permits. (a) Each of the Company and its Subsidiaries has
all material Permits; (b) all such Permits are in full force and effect, and
each of the Company and
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its Subsidiaries has fulfilled and performed all material obligations with
respect to such Permits; (c) no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination by the issuer thereof or
which results in any other material impairment of the rights of the holder of
any such Permit; and (d) the Company has no reason to believe that any
governmental body or agency is considering limiting, suspending or revoking any
such Permit.
SECTION 3.17. Leases. Except as disclosed on Schedule 3.17 hereto, neither
the Company nor any Subsidiary is a party to any capital lease obligation with a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $100,000 during the life of such lease.
SECTION 3.18. Absence of Any Undisclosed Liabilities or Capital Calls.
Except for litigation described in the SEC Reports, there are no liabilities of
the Company or any Subsidiary of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability, other than (i) those liabilities
provided for in the financial statements delivered pursuant to Section 3.7
hereof and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect. Except for payment by the
Company of approximately $55,000, no other amounts have been paid or will be
owed by the Company in connection with the settlement of that certain
consolidated class action lawsuit filed in Orange County, California Xxxxxxxxx
v. ProSoft I-Net Solutions, Inc., et al., which was settled on November 16,
1999.
SECTION 3.19. Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon the issuance and sale of the Securities and the
use of the proceeds described herein, subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act or to any federal or state statute or regulation
limiting its ability to issue and perform its obligations under any Transaction
Agreement.
SECTION 3.20. Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of the
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
SECTION 3.21. Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
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SECURITIES PURCHASE AGREEMENT - Page 12
SECTION 3.22. Title to Properties. The Company and its Subsidiaries have
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 3.7, free and clear of all Liens,
other than Liens set forth on Schedule 3.22 or in the SEC Reports.
SECTION 3.23. Eligibility to Use Form S-3. As of the date hereof, the
Company meets the "registrant eligibility" requirements set forth in the general
instructions applicable to registration statements on Form S-3 covering the
resale of the Registrable Securities.
SECTION 3.24. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP 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.
SECTION 3.25. Year 2000 Compliance.
(a) Computer and Other Systems. To the best of the Company's knowledge
after reasonable testing and inquiry, all software programs and computer
hardware that are owned, leased or licensed by the Company and each Subsidiary,
or used by third parties on behalf of the Company and each Subsidiary ("Computer
Systems"), are designated to be used prior to, during and after the calendar
year 2000 A.D., including leap years; (b) all other operational systems that use
software or equipment that are owned, leased, or licensed by the Company and
each Subsidiary, or used by third parties on behalf of the Company and each
Subsidiary ("Other Systems"), are designated to be used prior to, during and
after the calendar year 2000 A.D., including leap years; (c) the Computer
Systems and Other Systems will properly operate during each such period without
error or degradation of performance caused by a lack of Year 2000 Capabilities,
and (d) the Computer Systems and Other Systems will properly operate during each
such period without requiring intervention or modification to Date Data.
(b) Capabilities of Suppliers, Vendors and Landlords. To the best of the
Company's knowledge, the Company and each Subsidiary will not suffer a loss from
interruption or cessation of business operations, in whole or in part, as a
result of such suppliers, vendors or landlords failing to provide materials,
labor, supplies or access to leased space for the operation of the Company and
each Subsidiary as a result of such suppliers or vendors not having Year 2000
Capabilities.
(c) Definitions. For purposes of this Agreement, (x) "Year 2000
Capabilities" means the ability to: (i) manage and manipulate data involving
dates, including single century formulas and multi-century formulas, in a manner
that will not cause an abnormally ending scenario or
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SECURITIES PURCHASE AGREEMENT - Page 13
generate incorrect values or invalid results involving such dates, (ii) include
the indication of proper century dates in all date-related user interface
functions and date fields, and (iii) operate with proper century dates in date-
related software or hardware interface functions and (y) "Date Data" means any
existing data or input of data which includes an indication of or reference to
date.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
SECTION 4.1. Representations and Warranties. The Purchaser hereby
represents and warrants to the Company solely that:
(a) the Purchaser is an "accredited investor" within the meaning of
Rule 501(a)(3) under the Securities Act and the Securities to be acquired
by it pursuant to this Agreement are being acquired for its own account
and, as of the date hereof, not with a view toward, or for sale in
connection with, any distribution thereof except in compliance with
applicable United States federal and state securities law; provided that
the disposition of the Purchaser's property shall at all times be and
remain within its control;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant hereto are within the Purchaser's
partnership powers, and have been duly and validly authorized by all
requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by the
Purchaser.
(d) the execution and delivery by the Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of applicable
law or regulation, or (ii) any agreement, judgment, injunction, order,
decree or other instrument binding upon the Purchaser;
(e) the Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold
except as permitted under the Securities Act and applicable state
securities laws, pursuant to either an effective registration statement or
an exemption therefrom, and that the Securities will contain a legend to
that effect.
(f) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable principles
of general applicability;
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SECURITIES PURCHASE AGREEMENT - Page 14
(g) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Securities and the Purchaser is capable of bearing
the economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations
on transfer described herein; the Purchaser has been afforded access to
information about the Company and the financial condition, results of
operations, property, management and prospects of the Company sufficient to
enable it to evaluate its investment in the Securities; the Purchaser has
been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and
the merits and the risks of investing in the Securities; and the Purchaser
has been afforded the opportunity to obtain such additional information
which the Company possesses or can acquire that is necessary to verify the
accuracy and completeness of the information given to the Purchaser
concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall
not limit the Purchaser's ability to rely thereon;
(i) no part of the source of funds used by the Purchaser to acquire
the Securities constitutes assets allocated to any separate account
maintained by the Purchaser in which any employee benefit plan (or its
related trust) has any interest; and
(j) the Purchaser is a limited partnership formed under the laws of
the State of Delaware, is authorized and duly empowered to purchase and
hold the Securities, has its principal place of business at the address set
forth on the signature page and has not been formed for the specific
purpose of acquiring the Securities.
SECTION 4.2 Purchaser Covenants.
(a) The Purchaser agrees that, notwithstanding the Purchaser's rights
under an effective registration statement as contemplated by the
Registration Rights Agreement, it shall not be permitted to publicly sell
pursuant to such registration statement any or all of the Initial Shares
for a period of twelve months from the Closing Date.
(b) Notwithstanding anything to the contrary set forth in clause (a)
above, the Purchaser will be permitted to (i) transfer the Securities to
Affiliates, subject to compliance with all applicable securities laws, (ii)
pledge the Securities as collateral against the obligations of the
Purchaser, and (iii) transfer the Securities pursuant to any private
transaction which is in compliance with the Securities Act or exemptions
thereunder.
(c) The Purchaser acknowledges and agrees that the Company is
publicly traded and that the Purchaser may have been provided material non-
public information
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SECURITIES PURCHASE AGREEMENT - Page 15
concerning the Company. The Purchaser acknowledges that federal and state
securities laws prohibit it from trading securities of a Company about
which it has material non-public information and the Purchaser agrees to
comply with all such applicable laws.
ARTICLE V
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 5.1. Conditions Precedent to the Purchaser's Obligation to
Purchase. The obligation of the Purchaser hereunder to purchase the Initial
Shares at the Closing is subject to the satisfaction, on or before the Closing
Date of each of the following conditions, provided that these conditions are for
the Purchaser's sole benefit and may be waived by such Purchaser at any time in
its sole discretion:
(a) The Company shall have executed this Agreement, the Warrant
Agreement and the Registration Rights Agreement and delivered the same to
the Purchaser;
(b) The Company shall have delivered to the Purchaser duly executed
certificates representing the Initial Shares;
(c) The Company shall have delivered to the Purchaser the Warrants;
(d) The representations and warranties of the Company contained in
each Transaction Agreement shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made
at such time (except for representations and warranties that speak as of a
specified date) and the Company shall have performed, satisfied and
complied with all covenants, agreements and conditions required by such
Transaction Agreements to be performed, satisfied or complied with by it at
or prior to the Closing Date;
(e) The Purchaser shall have received an Officer's Certificate
executed by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by the Purchaser, including but not limited to
certificates with respect to the Company Corporate Documents, resolutions
relating to the transactions contemplated hereby and the incumbencies of
certain officers and Directors of the Company. (the form of such
certificate is attached hereto as Exhibit C);
---------
(f) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and sale of the Securities;
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SECURITIES PURCHASE AGREEMENT - Page 16
(g) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having been
taken by any competent authority that could restrain, prevent or impose any
materially adverse conditions thereon or that could seek or threaten any of
the foregoing;
(h) No law or regulation shall have been imposed or enacted that, in
the judgment of the Purchaser, could adversely affect the transactions set
forth herein or in the other Transaction Agreements, and no law or
regulation shall have been proposed that in the reasonable judgment of
Purchaser could reasonably have any such effect;
(i) The Purchaser shall have received an opinion, dated the Closing
Date, of counsel to the Company, substantially in the form attached as
Exhibit D hereto;
---------
(j) All fees and expenses due and payable by the Company on or prior
to the Closing Date shall have been paid, including but not limited to the
payment to the Purchaser of the Reimbursement Expense Fee;
(k) The Company Corporate Documents shall be in full force and effect
and no term or condition thereof shall have been amended, waived or
otherwise modified without the prior written consent of the Purchaser;
(l) There shall have occurred no change in the business, condition
(financial or otherwise), operations, performance or properties of the
Company or any Subsidiary which would have, in the aggregate, a Material
Adverse Effect since July 31, 1999;
(m) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other
transaction contemplated hereby or thereby or that could reasonably be
expected to have a Material Adverse Effect, or any material adverse effect
on the enforceability of the Transaction Agreements or the Securities or
the rights of the holders of the Securities or the Purchaser;
(n) The Purchaser shall have confirmed receipt of the Initial Shares
and the Warrants, duly executed by the Company in the denominations and
registered in the name of the Purchaser;
(o) There shall not have occurred any disruption or adverse change in
the financial or capital markets generally, or in the market for the Common
Stock (including but not limited to any suspension or delisting), which the
Purchaser reasonably deems material in connection with the purchase of the
Securities; and
(p) The Purchaser shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents as it
shall reasonably request.
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SECURITIES PURCHASE AGREEMENT - Page 17
SECTION 5.2. Conditions to the Company's Obligations. The obligations of
the Company to issue and sell the Securities to the Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to any Closing Date, of
the following conditions:
(a) The representations and warranties of the Purchaser contained
herein shall be true and correct in all material respects on the Closing
Date and the Purchaser shall have performed and complied in all material
respects with all agreements required by this Agreement to be performed or
complied with by the Purchaser at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement, the Warrant Agreement, and the Registration Rights Agreement
signed by the Purchaser; and
(d) The Company shall have received payment of the Original Purchase
Amount.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof until the
earliest of (a) the date that none of the Warrants remain outstanding and
unexercised or (b) the date that the Purchaser and/or its Affiliates no longer
qualifies as a Major Investor:
SECTION 6.1. Information. The Company will deliver to the Purchaser
promptly upon the filing thereof, copies of (i) all registration statements
(other than the exhibits thereto and any registration statements on Form S-8 or
its equivalent), and (ii) all reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Company or any Subsidiary has filed with the Commission;
SECTION 6.2. Payment of Obligations. The Company will, and will cause
each Subsidiary to, pay and discharge, at or before maturity, all their
respective material obligations, including, without limitation, tax liabilities,
except where the same may be contested in good faith by appropriate proceedings
and will maintain, in accordance with GAAP, appropriate reserves for the accrual
of any of the same.
SECTION 6.3. Maintenance of Property; Insurance.
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SECURITIES PURCHASE AGREEMENT - Page 18
(a) The Company will, and will cause each Subsidiary to, keep all
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.
(b) The Company and each Subsidiary will maintain insurance in at
least such amounts and against such risks as it has insured against as of
the Closing Date.
(c) The Company will obtain and maintain insurance to cover any
liabilities incurred by the actions of its directors and officers in an
amount not less than $5,000,000.
(d) The Company will use its best efforts to maintain life insurance,
payable to the Company, in an amount of at least $2,000,000 on the life of
each of the Company's top four executives (as designated from time to time
by the Board of Directors).
SECTION 6.4. Maintenance of Existence. The Company will, and will cause
each Subsidiary to, continue to engage in business of the same general type as
now conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
SECTION 6.5. Compliance with Laws. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a Material Adverse
Effect on the business, condition (financial or otherwise), operations,
performance, properties of the Company or such Subsidiary.
SECTION 6.6. Maintenance of Records; Inspection
(a) The Company will, and will cause each Subsidiary to, keep proper
books of record and account in which full, true and correct entries shall
be made of all dealings and transactions in relation to their respective
businesses and activities.
(b) The Company will permit, and will cause each Subsidiary to
permit, the Purchaser's Representative or an affiliate thereof, as
representatives of the Purchaser, to visit and inspect any of their
respective properties, upon reasonable prior notice and during normal
business hours, to examine and make abstracts from any of their respective
books and records and to discuss their respective affairs, finances and
accounts with their respective executive officers and independent public
accountants (and by this provision the Company authorizes its independent
public accountants to disclose and discuss with the Purchaser the affairs,
finances and accounts of the Company and its Subsidiaries), all at such
reasonable times.
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SECURITIES PURCHASE AGREEMENT - Page 19
SECTION 6.7. Investment Company Act. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECTION 6.8. Use of Proceeds.
(a) The proceeds from the issuance and sale of the Initial Shares by
the Company shall be used as set forth on Schedule 6.8 attached hereto and
for other working capital purposes.
(b) None of the proceeds from the issuance and sale of the Initial
Shares by the Company pursuant to this Agreement will be used directly or
indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" within the meaning of Regulation
G of the Board of Governors of the Federal Reserve System.
(c) None of the proceeds from the issuance and sale of the Initial
Shares by the Company pursuant to this Agreement will be used directly or
indirectly to make any principal payment on or prepay any Debt of the
Company or to settle any pending litigation in which the Company is
involved.
SECTION 6.9. Compliance with Terms and Conditions of Material Contracts.
The Company will, and will cause each Subsidiary to, comply, in all respects,
with all terms and conditions of all material contracts to which it is subject.
SECTION 6.10. Reserved Shares and Listings
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the exercise in full of the Warrants and the issuance of the
Warrant Shares, pursuant to the terms of the Warrant Agreement.
(b) The Company shall promptly file the Listing Applications and
secure the listing of the Initial Shares and Warrant Shares upon each
national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all Warrant Shares from time to time
issuable upon exercise of the Warrants. The Company will obtain and
maintain the listing and trading of its Common Stock on the Nasdaq Market,
the Nasdaq SmallCap Market, the New York Stock Exchange, Inc., or the
American Stock Exchange Inc., and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers, Inc. (the "NASD") and
such exchanges, as applicable. The Company shall promptly provide to the
Purchaser copies of any notices it receives from Nasdaq regarding the
continued eligibility of the Common Stock for listing on the Nasdaq Market.
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SECURITIES PURCHASE AGREEMENT - Page 20
SECTION 6.11. Irrevocable Instructions. Upon receipt of a Notice of
Exercise, the Company shall immediately issue irrevocable instructions to its
transfer agent to issue certificates, registered in the name of the Purchaser or
its nominee, for the Warrant Shares, in such amounts as specified from time to
time by the Purchaser to the Company upon proper exercise of the Warrants. Upon
exercise of any Warrants in accordance with their terms, the Company will, and
will use its best lawful efforts to cause its transfer agent to, issue one or
more certificates representing shares of Common Stock in such name or names and
in such denominations specified by a Purchaser in a Notice of Exercise. The
Company further warrants and agrees that no instructions other than these
instructions have been or will be given to its transfer agent. Nothing in this
Section 6.11 shall affect in any way the Purchaser's obligation to comply with
all securities laws applicable to the Purchaser upon resale of such shares of
Common Stock, including any prospectus delivery requirements.
SECTION 6.12. Maintenance of Reporting Status; Supplemental Information.
So long as any of the Securities are outstanding, the Company shall timely file
all reports required to be filed with the Commission pursuant to the Exchange
Act. The Company shall not terminate its status as an issuer required to file
reports under the Exchange Act, even if the Exchange Act or the rules and
regulations thereunder would permit such termination. If at anytime the Company
is not subject to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company will promptly furnish at its expense, upon request, for the benefit
of the holders from time to time of Securities, and prospective purchaser of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
SECTION 6.13. Form D; Blue Sky Laws. The Company agrees to file a "Form D"
with respect to the Securities as required under Regulation D of the Securities
Act and to provide a copy thereof to the Purchaser promptly after such filing.
The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the Securities for
sale to the Purchaser at the Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to each Purchaser on or prior to the Closing Date.
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SECURITIES PURCHASE AGREEMENT - Page 21
SECTION 6.14. Right of First Refusal Upon Issuance of New Securities.
(a) In the event that the Company offers to issue any of its equity
stock, or any securities exercisable or exchangeable for or convertible
into any equity security or otherwise having an equity feature, other than
(i) the issuance of any security in connection with employee/director stock
grants, employee stock options or purchase plans, (ii) the issuance of any
security upon the exercise or conversion of any outstanding convertible
securities, rights, options or warrants to acquire Common Stock of the
Company in existence as of the date hereof, or (iii) the issuance of any
security in the first Qualified Public Offering of the Company following
the Closing Date ("New Securities"), the Company hereby grants to the
Purchaser the right of first refusal to purchase a pro rata share of any
such New Securities.
(b) "Pro rata" shall mean, for purposes of this section, the ratio of
the number of shares of Common Stock owned by the Purchaser immediately
prior to the issuance of New Securities, assuming full exercise of the
Purchaser's Warrants (regardless whether these Warrants have vested or been
exercised), to the total number of shares of Common Stock outstanding
immediately prior to the issuance of New Securities, assuming full
conversion and/or exercise of all outstanding convertible securities,
rights options, and warrants to acquire Common Stock of the Company.
(c) In the event that Company proposes to undertake an issuance of New
Securities, it shall give the Purchaser written notice of its intention,
describing the type of New Securities, and their price and the general
terms upon which the Company proposes to issue the same.
(d) The Purchaser shall have ten (10) days after any such notice is
mailed or delivered to agree to purchase the Purchaser's pro rata share of
such New Securities for the price and upon the terms specified in the
notice by giving written notice to the Company and stating therein the
quantity of New Securities to be purchased.
(e) The Company's obligations under this Section 6.14 shall terminate
upon the earlier of (i) the completion of the first Qualified Public
Offering following the Closing Date, (ii) the date none of the Warrants
remain outstanding, or (iii) the date that the Purchaser and/or its
Affiliates no longer qualifies as a Major Investor.
(f) The Company's obligations to the Purchaser under this Section 6.14
are expressly transferable by the Purchaser to a Qualified Transferee.
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SECURITIES PURCHASE AGREEMENT - Page 22
SECTION 6.15. Nomination of the Purchaser's Designee to the Company's
Board of Directors.
(a) For the period beginning from the date of this Agreement and
ending on the earlier to occur of (i) the fifth anniversary of the Closing,
or (ii) the date that the Purchaser no longer qualifies as a Major
Investor, the Company agrees to use its best efforts to cause one person
designated by the Purchaser (the "Purchaser's Designee") to be elected as a
member of the Board, including, but not limited to, taking any of the
following actions: creating a vacancy on the Board, nominating the
Purchaser's Designee to the Board from time to time and at all meetings or
actions of the stockholders of the Company, and using its best efforts to
provide information to, and promote the election of the Purchaser's
Designee by, the Company's stockholders. As of the date hereof, the Company
represents and warrants that (x) its existing Board has lawfully nominated
J.R. Holland, Jr., the initial Purchaser's Designee, as a class III
director for a term expiring in 2002, such nomination to be voted upon by
the Company's shareholders at the annual meeting of the Company currently
scheduled to be held on Monday, December 13, 1999, and (y) the actions
taken by the Board in clause (x) are valid and binding and do not create or
result in a breach of the Company's Certificate of Incorporation, Bylaws or
any other material agreement of the Company.
(b) The Company shall provide notice to the Purchaser at least thirty
(30) days prior to any upcoming nomination by the Board or vote of the
Company's stockholders regarding the election of or continued service of
the members of the Board. The Purchaser may, at any time, with or without
cause, remove and replace the Purchaser's Designee with another individual
selected by the Purchaser. If the Purchaser desires to select another
Purchaser's Designee, then the Purchaser shall provide written notice to
the Company of its replacement designee, and the Company will take all
necessary action and use its best efforts to promptly cause such
replacement of the Purchaser's Designee to occur.
(c) The Company's obligations under this Section 6.15 are expressly
transferable by the Purchaser to any Affiliate, but not to any other
Person, including, without limitation, a Qualified Transferee.
ARTICLE VII
NEGATIVE COVENANTS
SECTION 7.1. Restrictions on Certain Amendments. The Company will not,
without the prior written consent of the Purchaser, (i) amend the rights and
privileges granted under the Warrants, or (ii) amend any provision of the
Company Corporate Documents so as to adversely affect the rights or privileges
granted under the Warrants.
SECTION 7.2. Board Representative. The Company will not take, or induce
or solicit any Person to take, any action inconsistent with or adverse to the
Purchaser's right to
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SECURITIES PURCHASE AGREEMENT - Page 23
appoint a representative to the Company's Board of Directors under the
provisions of Section 6.15.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Notices. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page hereof, (ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the address specified in or pursuant to this
Section.
SECTION 8.2. No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing
and is signed by the Company and the Purchaser, or the Purchaser's
permitted successors or assigns.
SECTION 8.3. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Purchaser,
its Affiliates, and each Person, if any, who controls the Purchaser, or any
of its Affiliates, within the meaning of the Securities Act or the Exchange
Act (each, a "Controlling Person"), and the respective partners, agents,
employees, officers and Directors of the Purchaser, their Affiliates and
any such Controlling Person (each an "Indemnified Party" and collectively,
the "Indemnified Parties"), from and against any and all losses, claims,
damages, liabilities and expenses (including, without limitation and as
incurred, reasonable costs of investigating, preparing or defending any
such claim or action, whether or not such Indemnified Party is a party
thereto, provided that the Company shall not be obligated to advance such
costs to any Indemnified Party other than the Purchaser unless it has
received from such Indemnified Party an undertaking to repay to the Company
the costs so advanced if it should be determined by final judgment of a
court of competent jurisdiction that such Indemnified Party was not
entitled to indemnification hereunder with respect to such costs) which may
be incurred by such Indemnified Party in
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SECURITIES PURCHASE AGREEMENT - Page 24
connection with any investigative, administrative or judicial proceeding
brought or threatened that relates to or arises out of, or is in connection
with any activities contemplated by any Transaction Agreement; provided
--------
that the Company will not be responsible for any claims, liabilities
losses, damages or expenses that are determined by final judgment of a
court of competent jurisdiction to result from such Indemnified Party's
gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in
writing and the Company, at its option, may, assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Company shall not affect any obligations the
Company may have to such Indemnified Party under this Agreement or
otherwise unless the Company would suffer a Material Adverse Effect as a
result of such failure. Such Indemnified Party shall have the right to
employ separate counsel in such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Party, unless: (i) the Company has failed to assume the
defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different
from or additional to those available to the Company, in which case, if
such Indemnified Party notifies the Company in writing that it elects to
employ separate counsel at the expense of the Company, the Company shall
not have the right to assume the defense of such action or proceeding on
behalf of such Indemnified Party, provided, however, that the Company shall
-------- -------
not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be responsible hereunder for the reasonable fees and expenses of more than
one such firm of separate counsel, in addition to any local counsel, which
counsel shall be designated by the Purchaser. The Company shall not be
liable for any settlement of any such action effected without the written
consent of the Company (which shall not be unreasonably withheld) and the
Company agrees to indemnify and hold harmless each Indemnified Party from
and against any loss or liability by reason of settlement of any action
effected with the consent of the Company. In addition, the Company will
not, without the prior written consent of the Purchaser, settle or
compromise or consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action, claim, suit or proceeding in
respect to which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Party is a party thereto) unless such
settlement, compromise, consent or termination includes an express
unconditional release of the Purchaser and the other Indemnified Parties,
satisfactory in form and substance to the Purchaser, from all liability
arising out of such action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to
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SECURITIES PURCHASE AGREEMENT - Page 25
hold an Indemnified Party harmless, then in lieu of indemnifying such
Indemnified Party, the Company shall contribute to the amount paid or
payable by such Indemnified Party as a result of such claims, liabilities,
losses, damages, or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and
by the Purchaser on the other from the transactions contemplated by this
Agreement or (ii) if the allocation provided by clause (i) is not permitted
under applicable law, in such proportion as is appropriate to reflect not
only the relative benefits received by the Company on the one hand and the
Purchaser on the other, but also the relative fault of the Company and the
Purchaser as well as any other relevant equitable considerations. It is
hereby further agreed that the relative benefits to the Company on the one
hand and the Purchaser on the other with respect to the transactions
contemplated hereby shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of material fact or
the omission or alleged omission to state a material fact related to
information supplied by the Company or by the Purchaser and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 8.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise, (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and (iii) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of
the Purchaser or any other Indemnified Party.
SECTION 8.4. Expenses: Documentary Taxes. At or promptly following the
Closing, the Company agrees to pay to the Purchaser the reasonable out-of-pocket
expenses of the Purchaser, including attorneys' fees incurred in connection with
the preparation and consummation the contemplated Transaction Agreements and
related disclosure reports required to be filed by the Purchaser or J.R.
Holland, Jr. with the Securities and Exchange Commission as a result of the
acquisition by Purchaser of the Securities, up to a maximum of $30,000 (the
"Expense Reimbursement Fee"). If the Transaction Agreements are not consummated
because the Purchaser has determined during its due-diligence review that the
historical performance, future projects, or any information of the Company is
significantly different from that presented to the Purchaser by the Company, the
Company agrees to pay to the Purchaser the Expense Reimbursement Fee, calculated
through the date the Purchaser made the determination not to consummate the
Transaction Agreements.
SECTION 8.5. Successors and Assigns. This Agreement shall be binding upon
the Company and upon the Purchaser and their respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
--------
obligations under this Agreement to any other Person without the prior written
consent of the Purchaser. All provisions hereunder purporting to give rights to
Purchaser and their affiliates or to holders of Securities are for the
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SECURITIES PURCHASE AGREEMENT - Page 26
express benefit of such Persons and their successors and assigns, except where
transfer of the Purchaser's rights hereunder are expressly limited to certain
transferees.
SECTION 8.6. Brokers. The Company represents and warrants that other than
the individuals or entities and their corresponding fees as set forth on
Schedule 8.6 hereof, it has not employed any broker, finder, financial advisor
or investment banker who would be entitled to any brokerage, finder's or other
fee or commission payable by the Company or the Purchaser in connection with the
sale of the Securities ("Broker's Fees"). The Company acknowledges that payment
of any Broker's Fees is the Company's sole obligation and hereby indemnifies and
holds the Purchaser harmless for any claim that the Purchaser is in any way
obligated to pay any amount of such Broker's Fees.
SECTION 8.7. Texas Law; Submission to Jurisdiction; Waiver of Jury Trial;
Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS. EACH PARTY HERETO HEREBY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS AND OF ANY TEXAS STATE COURT SITTING IN DALLAS FOR PURPOSES OF
ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 8.8. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated unless a failure of consideration
would result thereby.
SECTION 8.9 Survival. All provisions contained in this Agreement (unless
specifically noted to the contrary) shall survive the issuance of the Initial
Shares and the Warrants and shall remain operative and in full force and effect
until twelve months after all of the Warrants shall have been exercised or have
expired.
SECTION 8.10. Counterparts. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
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SECURITIES PURCHASE AGREEMENT - Page 27
SECTION 8.11. Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Purchaser is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to ever other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by any of the Transaction
Documents or by law may be exercised from time to time, and as often as shall be
deemed expedient, by the Purchaser.
[Signature page follows]
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SECURITIES PURCHASE AGREEMENT - Page 28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
XXXXXXXXXXXXXXX.XXX
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Address: 0000 Xxx Xxxxx Xxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn: Chief Executive Officer
XXXX CAPITAL GROWTH FUND II, L.P.
By: XXXX CAPITAL GROWTH, L.P.
its general partner
By: XXXX CAPITAL
MANAGEMENT, L.L.C., its
general partner
By: _________________________________
Name: J.R. Holland, Jr.
Title: President
Address: 0000 Xxx Xxxxxx
0000 Xxxxxxxxxxxx Xxxxx
Xxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn.: Xxxxxx X. Xxxxxx, Esq.
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SECURITIES PURCHASE AGREEMENT
EXHIBITS
Exhibit A Warrant Agreement
Exhibit B Registration Rights Agreement
Exhibit C Officer's Certificate
Exhibit D Opinion of Counsel
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SECURITIES PURCHASE AGREEMENT
SCHEDULES
Schedule 3.1 Subsidiaries
Schedule 3.3 Convertible Securities
Schedule 3.17 Leases
Schedule 3.22 Liens
Schedule 6.8 Use of Proceeds
Schedule 8.6 Broker's Fees
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SECURITIES PURCHASE AGREEMENT