Exhibit 4.2
PURCHASE AGREEMENT
DATED AS OF NOVEMBER 1, 2004
BY AND BETWEEN
ZIX CORPORATION
AND
AMULET LIMITED
-----------------------------------
CONVERTIBLE NOTE DUE 2005-2008
AND
COMMON STOCK PURCHASE WARRANT
ZIX CORPORATION
PURCHASE AGREEMENT
CONVERTIBLE NOTE DUE 2005-2008
AND
COMMON STOCK PURCHASE WARRANT
TABLE OF CONTENTS
PAGE
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1. Definitions.................................................................................... 1
2. Purchases and Sales of the Note and Warrant.................................................... 9
2.1 Purchase and Sale.................................................................. 9
2.2 Closing............................................................................ 9
3. Representations and Warranties of the Company.................................................. 10
3.1 Organization, Good Standing and Qualification...................................... 10
3.2 Authorization...................................................................... 11
3.3 Capitalization..................................................................... 11
3.4 Valid Issuance, Enforceable Obligation............................................. 12
3.5 Consents........................................................................... 12
3.6 Delivery of SEC Filings; Business; Non-Public Information.......................... 12
3.7 Use of Proceeds.................................................................... 13
3.8 No Material Adverse Change......................................................... 13
3.9 Registration Statements............................................................ 14
3.10 Form S-3 Eligibility............................................................... 14
3.11 No Conflict, Breach, Violation or Default.......................................... 14
3.12 Tax Matters........................................................................ 15
3.13 Title to Properties................................................................ 15
3.14 Certificates, Licenses, Authorizations and Permits................................. 16
3.15 No Labor Disputes.................................................................. 16
3.16 Intellectual Property.............................................................. 16
3.17 Environmental Matters.............................................................. 17
3.18 Litigation......................................................................... 17
3.19 Financial Statements............................................................... 17
3.20 Insurance Coverage................................................................. 18
3.21 Compliance with Nasdaq Continued Listing Requirements.............................. 18
3.22 Acknowledgement of Potential Dilution.............................................. 18
3.23 Brokers and Finders................................................................ 18
3.24 No Directed Selling Efforts or General Solicitation................................ 18
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3.25 No Integrated Offering............................................................. 18
3.26 Concerning the Collateral.......................................................... 19
3.27 Disclosures........................................................................ 19
3.28 Absence of Rights Agreement........................................................ 19
4. Representations and Warranties of the Purchaser................................................ 19
4.1 Purchase Entirely for Own Account.................................................. 19
4.2 Investment Experience.............................................................. 19
4.3 Disclosure of Information.......................................................... 20
4.4 Restricted Securities.............................................................. 20
4.5 Accredited Investor................................................................ 20
4.6 No General Solicitation............................................................ 20
4.7 Residency of Purchaser............................................................. 20
4.8 Brokers and Finders................................................................ 20
4.9 Authorization...................................................................... 20
4.10 Risk Factors....................................................................... 21
4.11 Reliance........................................................................... 21
4.12 Absence of Certain Transactions.................................................... 21
4.13 Survival........................................................................... 21
5. Registration Rights Agreement and Security Agreement........................................... 21
6. Certain Covenants of the Company and the Purchaser............................................. 21
6.1 Rule 144........................................................................... 21
6.2 Limitation on Certain Transactions................................................. 22
6.3 Right of the Purchasers to Participate in Future Transactions...................... 23
6.4 Reports and Information............................................................ 25
6.5 Press Releases..................................................................... 27
6.6 No Conflicting Agreements.......................................................... 27
6.7 Insurance.......................................................................... 27
6.8 Compliance with Laws............................................................... 27
6.9 Listing of Underlying Shares and Warrant Shares and Related Matters................ 27
6.10 Form 8-K........................................................................... 28
6.11 Legends............................................................................ 28
6.12 Limitation on Certain Actions...................................................... 29
6.13 Best Efforts....................................................................... 29
6.14 Debt Obligation.................................................................... 29
6.15 Security Agreement; Financing Statements, Etc...................................... 30
6.16 Maximum Share Amount; Stockholder Approval; Mandatory Redemption................... 30
7. Conditions to Closing.......................................................................... 33
7.1 Conditions to the Company's Obligations to Issue and Sell.......................... 33
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7.2 Conditions to the Purchaser's Obligations to Purchase.............................. 33
8. Miscellaneous.................................................................................. 35
8.1 Successors and Assigns............................................................. 35
8.2 Counterparts....................................................................... 36
8.3 Titles and Subtitles............................................................... 36
8.4 Notices............................................................................ 36
8.5 Expenses........................................................................... 36
8.6 Amendments and Waivers............................................................. 37
8.7 Severability....................................................................... 37
8.8 Entire Agreement................................................................... 37
8.9 Further Assurances................................................................. 37
8.10 Applicable Law..................................................................... 37
8.11 Remedies........................................................................... 37
8.12 Jurisdiction....................................................................... 38
8.13 Survival........................................................................... 38
8.14 Construction; Purchaser Status..................................................... 38
8.15 Termination........................................................................ 39
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Security Agreement
Exhibit E - Form of Opinion of Legal Counsel to the Company to Be
Delivered on Closing Date
Exhibit F - Form of Opinion of Senior Vice President and General Counsel
of the Company to Be Delivered on Closing Date
Exhibit G - Form of Press Release
SCHEDULES
Schedule 3.1 List of Subsidiaries
Schedule 3.3 Capitalization
Schedule 3.11 Notices of Certain Violations and Breaches
Schedule 3.13 Title Exceptions and Encumbrances
Schedule 3.3 Litigation
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT, dated as of November 1, 2004 (this
"Agreement"), by and between ZIX CORPORATION, a Texas corporation (the
"Company"), and AMULET LIMITED (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Purchaser wishes to purchase from the Company, and the
Company wishes to sell and issue to the Purchaser, upon the terms and subject to
the conditions of this Agreement, for the Purchase Price (i) a Note (such
capitalized term and all other capitalized terms used herein having the
respective meanings provided herein) in principal amount set forth on the
signature pages hereto and (ii) a Warrant initially entitling the holder to
purchase the number of shares of Common Stock set forth on the signature pages
hereto;
WHEREAS, at or before the Closing, the parties hereto are executing
and delivering, one to the other, the Registration Rights Agreement, pursuant to
which, among other things, the Company will agree to provide certain
registration rights under the 1933 Act, and the rules and regulations
promulgated thereunder, and applicable state securities laws for the resale of
the shares of Common Stock issuable upon conversion of, or otherwise issued in
exchange for or respect of, the Note and issuable upon exercise of the Warrant;
and
WHEREAS, at or before the Closing, the Company and the Collateral
Agent shall execute and deliver, one to the other, a Security Agreement, in the
form referred to herein, which provides, among other things, for the grant to
the Collateral Agent for the ratable benefit of the holders from time to time of
the Note and the Other Notes of a first priority security interest in certain
collateral, upon the terms and with the effect as provided therein;
NOW THEREFORE, in consideration of the premises and the mutual
covenants made herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
1.1 As used in this Agreement, the terms "Agreement", "Company" and
"Purchaser" shall have the respective meanings assigned to such terms in the
introductory paragraph of this Agreement.
1.2 All the agreements or instruments herein defined shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Agreement.
1.3 The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject Person. For purposes
of this definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"AMEX" means the American Stock Exchange, Inc.
"Approved Markets" means Nasdaq, the NYSE and the AMEX.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or a day
on which commercial banks in The City of New York or Dallas, Texas are
authorized or required by law or executive order to remain closed.
"Closing" means the closing of the purchase and sale of the Note and
Warrant on the Closing Date.
"Closing Date" means 10:00 a.m., New York City time, the date that
is one Business Days after the date this Agreement is executed and delivered by
the parties hereto, or such other time or date as mutually agreed by the parties
hereto.
"Closing Location" means the Law Offices of Xxxxx X Xxxxx, Penthouse
Suite, 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx.
"Collateral" shall have the meaning to be provided or provided in
the Security Agreement.
"Collateral Agent" means Law Offices of Xxxxx X Xxxxx, as collateral
agent under the Security Agreement and from time to time its duly appointed and
acting successor or successors.
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"Common Stock" means the Common Stock, $0.01 par value, of the
Company.
"Common Stock Equivalent" means any warrant, option, subscription or
purchase right with respect to shares of Common Stock, any security convertible
into, exchangeable for, or otherwise entitling the holder thereof to acquire,
shares of Common Stock or any warrant, option, subscription or purchase right
with respect to any such convertible, exchangeable or other security.
"Default Interest" shall have the meaning to be provided or provided
in the Note.
"Encumbrances" means all mortgages, deeds of trust, claims, security
interests, liens, pledges, leases, subleases, charges, escrows, options,
proxies, rights of occupancy, rights of first refusal, preemptive rights,
covenants, conditional limitations, hypothecations, prior assignments,
easements, title retention agreements, indentures, security agreements or any
other encumbrances of any kind.
"Environmental Laws" shall have the meaning provided in Section
3.17.
"Event of Default" shall have the meaning to be provided or provided
in the Note.
"Excluded Shares" shall have the meaning provided in Section 6.3(b).
"Generally Accepted Accounting Principles" means, for any Person,
the United States generally accepted accounting principles and practices applied
by such Person from time to time in the preparation of its audited financial
statements.
"Intellectual Property" means all franchises, patents, trademarks,
service marks, tradenames (whether registered or unregistered), copyrights,
corporate names, licenses, trade secrets, proprietary software or hardware,
proprietary technology, technical information, discoveries, designs and other
proprietary rights, whether or not patentable, and confidential information
(including, without limitation, know-how, processes and technology) used in the
conduct of the business of the Company or any Subsidiary, or in which the
Company or any Subsidiary has an interest.
"Majority Holders" shall have the meaning to be provided or provided
in the Note.
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"Margin Stock" shall have the meaning provided in Regulation U of
the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221).
"Material Adverse Effect" means a material adverse effect on (i) the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole;
(ii) the validity or enforceability of, or the ability of the Company to perform
its obligations under, the Transaction Documents; (iii) the rights and remedies
of the Purchaser under the terms of the Transaction Documents; or (iv) the
Collateral being provided pursuant to the Security Agreement or the first
priority perfected security interest in the Collateral being granted to the
Collateral Agent pursuant to the Security Agreement.
"Maximum Share Amount" means 6,862,270 shares of Common Stock, which
amount constitutes 19.9 percent of the shares of Common Stock outstanding on the
date of this Agreement and is subject to equitable adjustment from time to time
for stock splits, stock dividends, combinations, capital reorganizations and
similar events relating to the Common Stock occurring after the date of this
Agreement, less (i) 166,667 shares of Common Stock underlying the Placement
Agent Warrants (subject to adjustments only for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the date of this Agreement) and (ii) such number of shares
of Common Stock as may be issued or issuable in a transaction required by Nasdaq
to be integrated with that contemplated by this Agreement and the Other Purchase
Agreement (without in any way limiting the Purchaser's rights under Section
6.2).
"Maximum Share Amount Deficiency" means that the Purchaser's share
of the Maximum Share Amount that has been allocated to it in accordance with
Section 6.16(a) constitutes less than 110 percent of the sum of (1) the number
of Underlying Shares and Warrant Shares issued or issuable to the Purchaser,
assuming conversion or exercise in full of the amounts of the Note, the Warrant
and the Redemption Warrant at the time outstanding and held by it and determined
without regard to any limitation on conversion or exercise contained in the
Transaction Documents, plus (2) the number of Underlying Shares theretofore
issued to the Purchaser in lieu of cash payment of interest on the Note.
"Maximum Share Amount Notice" means a notice given by reason of, and
stating, the fact that a Maximum Share Amount Deficiency has occurred.
"Maximum Share Amount Notice Date" means, with respect to any
Maximum Share Amount Deficiency, the earlier of the date (1) the Company or the
Purchaser gave, or (2) the Company was required to give, a Maximum Share Amount
Notice with respect to such Maximum Share Amount Deficiency.
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"Maximum Share Amount Redemption Price" means:
(1) with respect to redemption of the Note or any portion thereof
pursuant to Section 6.16, an amount in cash equal to the greater of (A)
125% of the sum of (i) the outstanding principal amount of the Note that
the Purchaser has elected to be so redeemed plus (ii) accrued and unpaid
interest on such principal amount to the applicable redemption date plus
(iii) accrued and unpaid Default Interest, if any, thereon at the rate
provided in the Note to the date of such redemption and (B) the product
obtained by multiplying (x) the arithmetic average of the daily VWAPs of
the Common Stock for the five consecutive Trading Days ending on the
Trading Day immediately preceding the date on which the Purchaser gives
the applicable Maximum Share Amount Redemption Notice to the Company times
(y) the number of shares of Common Stock which would be issuable upon
conversion, in accordance with Section 6 of the Note, of the principal
amount of the Note to be redeemed pursuant to Section 6.16 by reason of
the exercise of the Purchaser's right to require such redemption
(determined without regard to any limitation on conversion contained in
the Transaction Documents) if such conversion were made on the date the
Purchaser gives the applicable Maximum Share Amount Redemption Notice to
the Company; or
(2) with respect to the redemption of the Warrant or the Redemption
Warrant or any portion thereof pursuant to Section 6.16, an amount in cash
equal to the "net issuance value" thereof or of the portion thereof to be
so redeemed, determined as provided in Section 2(b) thereof, on the date
the Purchaser gives the applicable Maximum Share Amount Redemption Notice,
and determined without regard to any limitation on exercise thereof
contained in the Transaction Documents.
"Maximum Share Amount Redemption Date" means each date on which the
Company is required to redeem all or any portion of the Note, the Warrant or the
Redemption Warrant as provided in Section 6.16.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Nasdaq" means the Nasdaq National Market.
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"Note" means Convertible Note due 2005-2008 in the principal amount
set forth on the signature page hereto and in the form attached as EXHIBIT A
issuable or issued by the Company.
"NYSE" means the New York Stock Exchange, Inc.
"Offering" means the offering that is the subject of this Agreement.
"Optional Redemption Consideration" shall have the meaning to be
provided or provided in the Note.
"Other Notes" means the Convertible Notes due 2005-2008 issued by
the Company pursuant to the Other Purchase Agreements.
"Other Purchase Agreements" means the several Purchase Agreements,
dated as of the date hereof, between the Company and the purchasers parties
thereto pursuant to which the Company is issuing other Convertible Notes due
2005-2008 and Common Stock Purchase Warrants.
"Person" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.
"Placement Agent Warrants" means the common stock purchase warrants
to be issued to the placement agent in connection with the transactions
contemplated by this Agreement.
"Principal Market" shall have the meaning to be provided or provided
in the Note.
"Pro Rata Share" means with respect to each capital raising
transaction to which Section 6.3 applies an amount equal to the product obtained
by multiplying (x) an amount equal to 33 1/3 percent of the securities being
issued in such capital raising transaction times (y) a fraction of which the
numerator is the original principal amount of the Note and the denominator is
the sum of (i) the original principal amount of the Note plus (ii) the aggregate
original principal amount of the Other Notes.
"Purchase Price" means the amount shown on the signature pages to
this Agreement as the Purchaser's Purchase Price.
"Purchaser Share Notice" shall have the meaning provided in Section
6.11.
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"Redemption Warrant" means the Common Stock Purchase Warrant
issuable or issued by the Company in the form attached as EXHIBIT F to the Note.
"Registration Rights Agreement" means the Registration Rights
Agreement by and between the Company and the Purchaser in the form attached as
EXHIBIT C.
"Registration Statement" shall have the meaning provided in the
Registration Rights Agreement.
"Regulation D" means Regulation D adopted by the SEC under the 1933
Act.
"Repurchase Event" shall have the meaning to be provided or provided
in the Note.
"Restricted Ownership Percentage" shall have the meaning provided in
Section 6.3(b).
"SEC" means the U.S. Securities and Exchange Commission.
"SEC Filings" means the 2003 10-K and all other reports filed by the
Company pursuant to Section 13 or 15(d) of the 1934 Act since December 31, 2003
and on or before the date of this Agreement.
"Securities" means the Note, the Underlying Shares, the Warrant, the
Redemption Warrant and the Warrant Shares.
"Security Agreement" means the Security Agreement between the
Company and the Collateral Agent in the form attached as EXHIBIT D.
"Stockholder Approval" means approval by the Company's stockholders
of issuance of the Underlying Shares and the Warrant Shares and the
corresponding shares issuable in respect of the Other Notes and the common stock
purchase warrants issued or issuable in connection with or upon redemption of
the Other Notes, which approval shall meet the requirements of Rule 4350(i) of
the Nasdaq.
"Stockholder Meeting" shall have the meaning provided in Section
6.16(b).
"Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having ordinary
voting power to
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elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Company.
"Tender Offer" shall have the meaning to be provided or provided in
the Note.
"Trading Day" shall have the meaning to be provided or provided in
the Note.
"Transaction Documents" means this Agreement, the Registration
Rights Agreement, the Note, the Warrant, the Redemption Warrant, the Security
Agreement and the other agreements, instruments and documents contemplated
hereby or thereby.
"Transaction Shares" means the Underlying Shares, the Warrant Shares
and any shares of Common Stock issued or issuable upon conversion of the Other
Notes, in lieu of payment of cash interest on the Other Notes or upon exercise
of or otherwise pursuant to the Common Stock Purchase Warrant issuable or issued
pursuant to the Other Purchase Agreements or the Common Stock Purchase Warrants
issued or issuable upon redemption of Other Notes.
"2003 10-K" means the Company's Annual Report on Form 10-K for the
year ended December 31, 2003, as filed as the SEC, as amended to the date of
this Agreement.
"Underlying Shares" means the shares of Common Stock issued or
issuable upon conversion of the Note or issuable or issued in lieu of payment of
cash interest on the Note.
"Variable Rate Transaction" means a transaction in which the Company
issues or sells any Common Stock or Common Stock Equivalent (a) that is
convertible into, exchangeable or exercisable for, or includes the right to
receive additional shares of Common Stock either (x) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the Common Stock at any time after the
initial issuance of such Common Stock or Common Stock Equivalent, or (y) with a
fixed conversion, exercise, exchange or purchase price that is subject to being
reset at some future date after the initial issuance of such Common Stock or
Common Stock Equivalent or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock (but excluding customary stock split, reverse stock split,
stock dividend and other anti-dilution provisions substantially similar to those
set forth in clauses (1) through (7) of Section 6(c) of the Note), or (b)
pursuant to an "equity line" structure in which one or more Persons commits to
provide capital to the Company by the purchase of
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securities of the Company from time to time, whether at specified times, times
determined by the Company or by such Person(s) or by mutual agreement between
the Company and such Person(s), at prices based on the market prices of the
Common Stock at or near the time of each purchase, which securities are
registered for sale or resale pursuant to the 1933 Act.
"VWAP" of any security on any Trading Day means the volume-weighted
average price of such security on such Trading Day on the Principal Market, as
reported by Bloomberg Financial, L.P. (based on a Trading Day from 9:30 a.m.,
Eastern Time, to 4:00 p.m., Eastern Time, using the AQR Function, for such
Trading Day; provided, however, that during any period the VWAP is being
determined, the VWAP shall be subject to equitable adjustments from time to time
on terms consistent with Section 6(c) of the Note and otherwise reasonably
acceptable to the Majority Holders for (i) stock splits, (ii) stock dividends,
(iii) combinations, (iv) capital reorganizations, (v) issuance to all holders of
Common Stock of rights or warrants to purchase shares of Common Stock, (vi)
distribution by the Corporation to all holders of Common Stock of evidences of
indebtedness of the Corporation or cash (other than regular quarterly cash
dividends), (vii) Tender Offers by the Corporation or any Subsidiary for, or
other repurchases of shares of, Common Stock in one or more transactions which,
individually or in the aggregate, result in the purchase of more than ten
percent of the Common Stock outstanding, and (viii) similar events relating to
the Common Stock, in each case which occur, or with respect to which the "ex"
date occurs, during such period.
"Warrant" means the Company's Common Stock Purchase Warrant in the
form attached hereto as EXHIBIT B.
"Warrant Shares" means the shares of Common Stock issuable or issued
upon exercise of or otherwise pursuant to the Warrant or the Redemption Warrant.
2. PURCHASES AND SALES OF THE NOTE AND WARRANT.
2.1 PURCHASE AND SALE. Upon the terms and subject to the conditions
of this Agreement, the Purchaser hereby agrees to purchase from the Company, and
the Company hereby agrees to sell to the Purchaser, on the Closing Date, the
Note and the Warrant for the Purchase Price. The Closing shall be held at the
Closing Location.
2.2 CLOSING. (a) On the Closing Date, upon the terms and subject to
the conditions provided in this Agreement, the Company shall deliver or cause to
be delivered to the Purchaser the following:
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(1) the Note, duly executed by the Company, registered in the name
of the Purchaser, and
(2) the Warrant, duly executed by the Company, registered in the
name of the Purchaser.
(b) At the Closing, upon the terms and subject to the conditions
provided in this Agreement, the Purchaser shall deliver or cause to be delivered
to the Company an amount equal to the Purchase Price, by wire transfer of
immediately available funds as follow:
(1) an amount equal to 50 percent of the Purchase Price shall be
transferred to such account as shall be specified by the Company to the
Purchaser prior to the Closing Date; and
(2) an amount equal to 50 percent of the Purchase Price shall be
transferred to the account established by the Collateral Agent pursuant to
Section 3(a) of the Security Agreement.
The transfer of the amount referred to in immediately preceding clause (2) to
such account by the Purchaser shall be for the convenience of the Company, and
such amount shall be deemed for all purposes to have been paid to the Company as
part of the Purchase Price and immediately thereafter deposited by the Company
with the Collateral Agent as Collateral pursuant to the Security Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and covenants and agrees with, the Purchaser that:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company and
each Subsidiary is a corporation duly incorporated, validly existing and
subsisting and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted and to own its properties. The Company and each
Subsidiary is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property makes such qualification or licensing necessary
unless the failure to so qualify could not be reasonably likely to have a
Material Adverse Effect. The Company has no Subsidiaries other than those listed
in Exhibit 21 to the 2003 10-K and has no investment in any other Person except
such investments as would be classified as current assets on a balance sheet of
the Company, prepared in accordance with Generally Accepted Accounting
Principles.
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3.2 AUTHORIZATION. The Company has full corporate power and
authority and has taken all requisite action on the part of the Company, its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of the Transaction Documents, (ii) authorization of the
performance of all obligations of the Company under the Transaction Documents,
and (iii) the authorization, issuance (or reservation for issuance) and delivery
of the Securities. The Transaction Documents constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability, relating to or affecting
creditors' rights generally.
3.3 CAPITALIZATION. Set forth on SCHEDULE 3.3 hereto is (a) the
authorized capital stock of the Company on the date hereof; (b) the number of
shares of capital stock issued and outstanding on the date hereof; (c) the
number of shares of capital stock issuable pursuant to the Company's stock
option, stock purchase, stock award and similar plans; and (d) the number of
shares of capital stock issuable and reserved for issuance pursuant to all
Common Stock Equivalents outstanding or which the Company has agreed to issue
(other than the Note, the Other Notes, the Warrant, the Warrants issuable
pursuant to the Other Purchase Agreements, the Redemption Warrant and the Common
Stock Purchase Warrants that may be issued upon redemption of the Other Notes
pursuant to Section 2(b) thereof). All of the issued and outstanding shares of
the Company's capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights. Except as set forth in
Section 6.3 of this Agreement and the Other Purchase Agreements, no Person is
entitled to preemptive or similar statutory or contractual rights with respect
to any securities of the Company. Except as set forth on SCHEDULE 3.3 or in the
SEC filings, there are no outstanding Common Stock Equivalents or other rights,
agreements or arrangements of any character under which the Company is or may be
obligated to issue any Common Stock Equivalents or other equity securities of
any kind, and except as contemplated by this Agreement and the Other Purchase
Agreements, the Company has no plans or proposals, and is not currently in
negotiations, for the issuance of any Common Stock Equivalents or capital stock
of any kind. The Company has no knowledge of any voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among any of the security holders of the Company relating to the
securities of the Company held by them. Except as set forth on SCHEDULE 3.3,
except in connection with the Other Purchase Agreements and except for
registration rights relating to registration statements on file with the SEC as
of the date of this Agreement, the Company has not granted any Person the right
(which is now outstanding or effective) to require the Company to register any
securities of the Company under the 1933 Act, whether on a demand basis or in
connection with the registration of securities of the Company for its own
account or for the account of any other Person.
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3.4 VALID ISSUANCE, ENFORCEABLE OBLIGATION. The aggregate number of
shares of Common Stock issued is 34,483,770, outstanding is 32,169,896 and
reserved for issuance is 11,449,982. The Company does not have any obligation to
issue shares of Common Stock for which it has not reserved the number of shares
of Common Stock it may obligated to issue. The Note, the Warrant and the
Redemption Warrant are duly authorized by all necessary actions, corporate or
otherwise, on the part of the Company; the Underlying Shares and the Warrant
Shares have been duly authorized and when issued in accordance herewith and with
the terms of the Note, the Warrant and the Redemption Warrant, will be validly
issued, fully paid, non-assessable and free and clear of all Encumbrances and
restrictions, except for restrictions on transfer imposed by applicable
securities laws; and the Note and the Warrant, when issued in accordance with
this Agreement, and the Redemption Warrant, when issued in accordance with the
Note, will be free and clear of all Encumbrances and restrictions, except for
restrictions on transfer imposed by applicable securities laws and the
requirements for transfer set forth in this Agreement and the other Transaction
Documents.
3.5 CONSENTS. The execution, delivery and performance by the Company
of the Transaction Documents and the offer, issuance and sale of the Securities
require no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than filings that have been or will
be made pursuant to applicable state securities laws and the requirements of the
Nasdaq and other than the filing of a Form D by the Company with the SEC, each
of which the Company undertakes to file within the applicable time periods, and
other than the filing of UCC financing statements relating to the Security
Agreement, which the Company shall file prior to the Closing.
3.6 DELIVERY OF SEC FILINGS; BUSINESS; NON-PUBLIC INFORMATION. The
Company has timely filed all material reports and other documents required to be
filed with the SEC pursuant to the 1934 Act since December 31, 2002. At their
respective times of filing with the SEC, the SEC Filings complied in all
material respects with the requirements of the 1934 Act and did not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading, in any such case that has not been
corrected in a subsequent filing by the Company with the SEC under the 1934 Act
made prior to the date of this Agreement. The Company and the Subsidiaries are
engaged only in the business described in the SEC Filings, and the SEC Filings
contain a complete and accurate description of the business of the Company and
the Subsidiaries in all material respects. The Company has not provided to any
Purchaser (i) any information required to be filed or disclosed under the 1934
Act that has not been so filed or disclosed or (ii) any material non-public
information concerning the Company and the Subsidiaries.
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3.7 USE OF PROCEEDS. The proceeds of the sale of the Note and the
Warrant hereunder and of the exercise of the Warrant and the Redemption Warrant
shall be used by the Company for working capital and general corporate purposes.
None of such proceeds will be used, directly or indirectly (A) to make any loan
to or investment in any other Person or (B) for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any Margin Stock or for the
purpose of maintaining, reducing or retiring any indebtedness which was
originally incurred to purchase or carry any stock that is currently a Margin
Stock or for any other purpose which might constitute the transactions
contemplated by this Agreement a "purpose credit" within the meaning of such
Regulation U of the Board of Governors of the Federal Reserve System; and
neither the Company nor any agent acting on its behalf has taken or will take
any action which might cause this Agreement or the transactions contemplated
hereby to violate Regulation T, Regulation U or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the 1934 Act, in
each case as in effect now or as the same may hereafter be in effect.
3.8 NO MATERIAL ADVERSE CHANGE. Since the filing of the 2003 Form
10-K with the SEC, and except as otherwise identified and described in the SEC
Filings subsequently filed by the Company with the SEC pursuant to the 1934 Act,
there has not been:
(i) any material change in the consolidated assets,
liabilities, financial condition or operating results of the Company and
the Subsidiaries from that reflected in the financial statements included
in the 2003 10-K, except changes in the ordinary course of business which
have not had, in the aggregate, a Material Adverse Effect;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock
of the Company, or any redemption or repurchase of any securities of the
Company or any Subsidiary;
(iii) any material damage, destruction or loss, whether or not
covered by insurance, to any assets or properties of the Company or any
Subsidiary;
(iv) any waiver by the Company or any Subsidiary of a material
right or of a material debt owed to it which waiver is adverse to the
Company or any Subsidiary;
(v) any satisfaction or discharge of any Encumbrance or
payment of any obligation by the Company or any Subsidiary, except in the
ordinary course of business and which is not material to the assets,
properties, prospects, financial condition, operating results or business
of the
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Company and the Subsidiaries taken as a whole (as such business is
presently conducted and the Company has publicly disclosed it is proposed
to be conducted);
(vi) any material change or amendment to a material contract
or arrangement by which the Company or any Subsidiary or any of their
respective assets or properties is bound or subject;
(vii) any material labor difficulties or labor union
organizing activities with respect to employees of or contract workers for
the Company or any Subsidiary;
(viii) any transaction entered into by the Company or any
Subsidiary other than in the ordinary course of business; or
(ix) any other event or condition of any character that could
be reasonably likely to have a Material Adverse Effect.
3.9 REGISTRATION STATEMENTS. During the preceding two years, each
registration statement and any amendment thereto filed by the Company pursuant
to the 1933 Act, as of the date such registration statement or amendment became
effective, complied as to form in all material respects with the 1933 Act, and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading; and each prospectus or supplement filed pursuant to Rule
424 under the 1933 Act, as of its issue date and as of the closing of any sale
of securities pursuant thereto did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
3.10 FORM S-3 ELIGIBILITY. The Company is currently eligible to
register the resale of its Common Stock in a secondary offering on a
registration statement on Form S-3 under the 1933 Act, and the Company shall use
its best efforts to maintain such eligibility at least until the Registration
Statement is ordered effective by the SEC.
3.11 NO CONFLICT, BREACH, VIOLATION OR DEFAULT. (a) The execution,
delivery and performance of the Transaction Documents by the Company and the
issuance and sale of the Securities will not conflict with or result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge, security
interest or encumbrance (other than pursuant to the Security Agreement) under
(i) the Company's Certificate of Incorporation (including any articles of
amendment or
-14-
articles designating series of shares) or the Company's Bylaws, (ii) any
statute, rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company or any
Subsidiary or any of their respective assets or properties, or (iii) any
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or to which any of the properties
of the Company or any Subsidiary is subject.
(b) The Company and each Subsidiary (i) is not in violation of any
statute, rule or regulation applicable to the Company or any Subsidiary or its
assets, (ii) is not in violation of any judgment, order or decree applicable to
the Company or any Subsidiary or any of their respective assets, and (iii) is
not in breach or violation of any agreement, note or instrument to which it or
its assets are a party or are bound or subject, except for breaches or
violations which, individually or in aggregate, could not reasonably be likely
to have a Material Adverse Effect. Except as set forth in SCHEDULE 3.18, to the
best of the Company's knowledge, neither the Company nor any Subsidiary has
received notice from any Person of any claim or investigation that, if adversely
determined, would render the representations or warranties in the preceding
sentence untrue or incomplete.
3.12 TAX MATTERS. The Company and the Subsidiaries have timely
prepared and filed all tax returns required to have been filed by the Company
with all appropriate governmental agencies and timely paid all taxes owed by
them, except where failure to make such payment would not have a Material
Adverse Effect. The charges, accruals and reserves on the books of the Company
and the Subsidiaries in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company or any Subsidiary nor, to the knowledge of the Company, any basis for
the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any foreign, U.S. federal, state, or local taxing authority,
except such as are not material. All material taxes and other assessments and
levies that the Company or any Subsidiary is required to withhold or to collect
for payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due. There are no tax liens or claims
pending or, to the Company's knowledge, threatened against the Company or any
Subsidiary or any of their respective assets or property which if adversely
decided, would have a Material Adverse Effect. There are no outstanding tax
sharing agreements or other such arrangements between the Company or any
Subsidiary and any other Person.
3.13 TITLE TO PROPERTIES. Except as disclosed on Schedule 3.13, the
Company and each Subsidiary has good and marketable title to all real properties
and all other properties and assets owned by it, in each case free from
Encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by
-15-
the Company or such Subsidiary; and except as disclosed in the SEC Filings, the
Company and each Subsidiary holds any leased real or personal property under
valid and enforceable leases with no exceptions that would materially interfere
with the use made or currently planned to be made thereof by the Company or such
Subsidiary.
3.14 CERTIFICATES, LICENSES, AUTHORIZATIONS AND PERMITS. The Company
and each Subsidiary possesses adequate certificates, licenses, authorizations or
permits issued by appropriate governmental agencies or bodies necessary to
conduct the business now operated by it except for those which, if not possessed
by the Company or such Subsidiary, individually or in the aggregate could not be
reasonably likely to have a Material Adverse Effect, and has not received any
notice of proceedings relating to the revocation or modification of any such
certificate, license, authorization or permit that, if determined adversely to
the Company or any Subsidiary, could individually or in the aggregate be
reasonably likely to have a Material Adverse Effect.
3.15 NO LABOR DISPUTES. No material labor dispute with the employees
of or contract workers for the Company or any Subsidiary exists or, to the
knowledge of the Company, is imminent.
3.16 INTELLECTUAL PROPERTY. (1) The Company and each Subsidiary
holds all Intellectual Property that it owns free and clear of all Encumbrances
and restrictions on use or transfer, whether or not recorded, and has sole title
to and ownership of or has the full, exclusive (subject to the rights of its
licensees) right to use in its field of business such Intellectual Property; and
the Company and each Subsidiary holds all Intellectual Property that it uses but
does not own under valid licenses from others; (2) the use of the Intellectual
Property by the Company or any Subsidiary does not, to the knowledge of the
Company, violate or infringe on the rights of any other Person; (3) except as
set forth on SCHEDULE 3.16, neither the Company nor any Subsidiary has received
any notice of any conflict between the asserted rights of others and the Company
or any Subsidiary with respect to any Intellectual Property; (4) the Company and
each Subsidiary has used its commercially reasonable best efforts to protect its
rights in and to all Intellectual Property used by it in its business or in
which it has an interest; (5) the Company and each Subsidiary are in compliance
with all material terms and conditions of its agreements relating to the
Intellectual Property; (6) except as set forth on SCHEDULE 3.16, neither the
Company nor any Subsidiary is, or since December 31, 2001 has been, a defendant
in any action, suit, investigation or proceeding relating to infringement or
misappropriation by the Company or any Subsidiary of any Intellectual Property
nor has the Company or any Subsidiary been notified of any alleged claim of
infringement or misappropriation by the Company or any Subsidiary of any
Intellectual Property; (7) to the knowledge of the Company, none of the products
or services the Company and the Subsidiaries are researching,
-16-
developing, propose to research and develop, make, have made, use, or sell,
infringes or misappropriates any Intellectual Property right of any third party;
(8) none of the trademarks and service marks used by the Company or any
Subsidiary, to the knowledge of the Company, infringes the trademark or service
xxxx rights of any third party; and (9) to the Company's knowledge none of the
material processes and formulae, research and development results and other
know-how relating to the Company's or the Subsidiaries' respective businesses,
the value of which to the Company or any Subsidiary is contingent upon
maintenance of the confidentiality thereof, has been disclosed to any Person
other than Persons bound by written confidentiality agreements.
3.17 ENVIRONMENTAL MATTERS. Neither the Company nor any Subsidiary
is in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), does not own or operate
any real property contaminated with any substance that is subject to any
Environmental Laws, is not liable for any off-site disposal or contamination
pursuant to any Environmental Laws, and is not subject to any claim relating to
any Environmental Laws, which violation, contamination, liability or claim could
individually or in the aggregate be reasonably likely to have a Material Adverse
Effect; and neither the Company nor any Subsidiary is aware of any pending
investigation that might lead to such a claim.
3.18 LITIGATION. Except as set forth on SCHEDULE 3.18, there are no
pending actions, suits or proceedings against or affecting the Company or any
Subsidiary or any of their respective properties that, if determined adversely
to the Company or such Subsidiary, would individually or in the aggregate have a
Material Adverse Effect, or which are otherwise material in the context of the
sale of the Securities; and to the Company's knowledge, no such actions, suits
or proceedings are threatened or contemplated. SCHEDULE 3.18 sets forth a list
of all actions pending on threatened by or on behalf of shareholders of the
Company.
3.19 FINANCIAL STATEMENTS. The consolidated financial statements
included in each SEC Filing present fairly and accurately in all material
respects the consolidated financial position of the Company and the Subsidiaries
as of the dates reported and the consolidated results of operations, changes in
stockholders' equity and cash flows for the periods reported, all in conformity
with Generally Accepted Accounting Principles applied on a consistent basis and
in conformity with the rules and regulations of the SEC under the 1934 Act
applicable to the Company, subject, in the case of unaudited financial
statements, to (1) normal recurring year-end adjustments, all of which that are
necessary for a fair presentation of such financial statements have been
included, and (2) the absence of all required notes
-17-
thereto. Except as set forth in the consolidated financial statements of the
Company included in the SEC Filings filed prior to the date hereof or on
SCHEDULE 3.18, neither the Company nor any Subsidiary has any liabilities,
contingent or otherwise, except those which individually or in the aggregate are
not material to the financial condition or operating results of the Company and
the Subsidiaries, taken as a whole.
3.20 INSURANCE COVERAGE. The Company and each Subsidiary maintains
in full force and effect insurance coverage, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.
3.21 COMPLIANCE WITH NASDAQ CONTINUED LISTING REQUIREMENTS. The
Company is in compliance with all applicable Nasdaq continued listing
requirements, except where failure to comply would not result in de-listing from
or the imposition of restrictions or limitations by Nasdaq, and is in good
standing on such market. There are no proceedings pending or to the Company's
knowledge threatened against the Company relating to the continued listing of
the Company's Common Stock on Nasdaq and the Company has not received any notice
of, nor to the knowledge of the Company is there any basis for, the suspension
of trading of the Common Stock on, or delisting of the Common Stock from,
Nasdaq.
3.22 ACKNOWLEDGEMENT OF POTENTIAL DILUTION. The Company understands
that the number of shares of Common Stock issuable pursuant to the Note, the
Warrant, the Redemption Warrant, the Other Notes and the other securities
issuable pursuant to the Other Purchase Agreements or the Other Notes may be
substantial and that such issuance may have a dilutive effect on the Company's
equity capitalization.
3.23 BROKERS AND FINDERS. The Purchaser shall have no liability or
responsibility for the payment of any commission or finder's fee to any third
party in connection with or resulting from this Agreement or the transactions
contemplated by this Agreement by reason of any agreement of or action taken by
the Company.
3.24 NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION.
Notwithstanding anything contained on any schedule hereto, neither the Company
nor any Person acting on its behalf has conducted any general solicitation or
general advertising (as those terms are used in Regulation D) in connection with
the offer or sale of any of the Securities.
3.25 NO INTEGRATED OFFERING. Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly,
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made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would (1) adversely affect reliance by the
Company on Section 4(2) of the 1933 Act and Regulation D for the exemption from
registration under the 1933 Act for the transactions contemplated hereby or
would require registration of the offer and sale of the Note, the Warrant, the
Redemption Warrant, the Underlying Shares or the Warrant Shares to the Purchaser
under the 1933 Act; or (2) require the integration of the offering of the
Securities with any other offering of securities for purposes of determining the
need to obtain stockholder approval of the transactions contemplated hereby
under the rules of Nasdaq.
3.26 CONCERNING THE COLLATERAL. Upon execution and delivery of the
Security Agreement by the Company and the Collateral Agent and completion of the
filings referred to in Schedule I to EXHIBIT D to this Agreement, the Collateral
Agent will have a first priority perfected security interest in the Collateral
for the ratable benefit of the holders of the Note and the Other Notes.
3.27 DISCLOSURES. For purposes of this Agreement and the
transactions contemplated hereby, none of the representations or warranties made
by the Company under any of the Transaction Documents and no written information
furnished by the Company pursuant hereto, or in any other document, certificate
or written statement furnished by the Company to the Purchaser or any authorized
representative of the Purchaser, pursuant to the Transaction Documents or in
connection therewith, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which they were made,
not misleading.
3.28 ABSENCE OF 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 of control in the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company that:
4.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Securities to be acquired
by the Purchaser pursuant to this Agreement will be acquired for the Purchaser's
own account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of applicable securities laws, and
the Purchaser has no present intention of selling, granting any participation
in, or otherwise distributing the same in violation of applicable securities
laws.
4.2 INVESTMENT EXPERIENCE. The Purchaser acknowledges that it can
bear the economic risk and complete loss of its investment in the Securities and
has such knowledge of and experience with securities and financial or business
-19-
matters that it is capable of evaluating the merits and risks of the purchase of
the Note and Warrant and any conversion or exercise thereof into Underlying
Shares or Warrant Shares; provided, that, nothing herein shall limit the
provisions of Section 6.1.
4.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity
to receive documents related to the Company and to ask questions of and receive
answers from the Company regarding the terms and conditions of the offering of
the Securities; provided however, that neither such inquiries nor any other
investigation conducted by the Purchaser shall modify, amend, limit or otherwise
affect the Purchaser's right to rely on the Company's representations and
warranties contained in the Transaction Documents or made pursuant to the
Transaction Documents.
4.4 RESTRICTED SECURITIES. The Purchaser understands that the Note,
the Warrant, the Redemption Warrant and the Warrant Shares, and the Underlying
Shares acquired upon conversion of or in payment of interest on the Note prior
to the date that is two years after the Closing Date, are or will be
characterized as "restricted securities" under the U.S. 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 regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.
4.5 ACCREDITED INVESTOR. The Purchaser is an "accredited investor"
as defined in Rule 501(a) of Regulation D.
4.6 NO GENERAL SOLICITATION. The Purchaser did not learn of the
offering of the Note and Warrant through any public advertising or general
solicitation (as these terms are used in Regulation D).
4.7 RESIDENCY OF PURCHASER. The Purchaser is a resident of the state
or other jurisdiction indicated below the Purchaser's name on the signature
pages to this Agreement.
4.8 BROKERS AND FINDERS. The Company shall have no liability or
responsibility for the payment of any commission or finder's fee to any third
party in connection with or resulting from this Agreement or the transactions
contemplated by this Agreement by reason of any agreement of the Purchaser; and
the Purchaser has not engaged any such broker or finder in connection with the
negotiation, execution and delivery of this Agreement.
4.9 AUTHORIZATION. The Purchaser has full corporate power and
authority and has taken all requisite action on the part of the Purchaser, its
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partners, officers, directors and stockholders necessary for (i) the
authorization, execution and delivery of the Transaction Documents and (ii)
authorization of the performance of all obligations of the Purchaser under the
Transaction Documents. The Transaction Documents constitute the legal, valid and
binding obligations of the Purchaser, enforceable against the Purchaser in
accordance with their terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability, relating to or affecting
creditors' rights generally.
4.10 RISK FACTORS. Without limiting any of the Purchaser's other
representations and warranties hereunder, the Purchaser acknowledges that the
Purchaser has reviewed and is aware of the risk factors described in the SEC
Filings.
4.11 RELIANCE. The Purchaser has consulted its own financial, legal
and tax advisors with respect to the economic, legal and tax consequences of an
investment in the Note and Warrant and has not relied on the SEC Filings or the
Company, its officers, directors or professional advisors as to such
consequences.
4.12 ABSENCE OF CERTAIN TRANSACTIONS. From the date the Purchaser
first learned of the offering of the Notes and Warrants to the day prior to
execution and delivery of this Agreement, the Purchaser has not made any short
sales of the Common Stock.
4.13 SURVIVAL. The Purchaser acknowledges that the representations,
warranties and agreements made by the Purchaser herein shall survive the
execution and delivery of this Agreement and the purchase of the Note and
Warrant.
5. REGISTRATION RIGHTS AGREEMENT AND SECURITY AGREEMENT. The Company
acknowledges and agrees that the Company's execution and delivery of, and full
performance of its obligations under, the Registration Rights Agreement and the
Security Agreement are a material inducement to the Purchaser to execute and
deliver this Agreement and purchase and pay for the Note and Warrant. The
Company agrees to execute and deliver to the Purchaser the Registration Rights
Agreement and to execute and deliver to the Collateral Agent the Security
Agreement, in each such case at or before the Closing.
6. CERTAIN COVENANTS OF THE COMPANY AND THE PURCHASER.
6.1 RULE 144. The Company acknowledges that, for purposes of
determining the holding period under Rule 144 for Underlying Shares issued upon
conversion of, or in lieu of cash payment of interest on, the Note, the holding
period of such Underlying Shares shall be tacked to the holding period of the
Note and for purposes of determining the holding period under Rule 144 for the
Redemption
-21-
Warrant, the holding period of the Redemption Warrant may be tacked to the
holding period of the Note. The Company agrees not to take a position contrary
thereto unless the SEC or its staff by rule or interpretation changes its rules
and interpretations thereof in effect on the date of this Agreement or such
rules or interpretations are held invalid or incorrect by a court of competent
jurisdiction. Nothing in this Section 6.1 shall affect the requirement in
Section 6.11 for delivery of an opinion of counsel as and when required thereby.
6.2 LIMITATION ON CERTAIN TRANSACTIONS.
(a) Beginning as of the date of this Agreement and until the
effective date of the Registration Statement as contemplated by the Registration
Rights Agreement, without the prior written consent of the Purchaser (which
consent may be withheld in the Purchaser's sole discretion), the Company shall
not issue or sell or agree to issue or sell any securities in a capital raising
transaction, unless such securities will not be, and are not, registered for
sale or resale under the 1933 Act until on or after the effective date of the
Registration Statement, provided that the limitation of this Section 6.2(a)
shall not apply to securities issued pursuant to the Company's duly adopted
employee or director bona fide share and option plans or pursuant to exercise or
conversion of Common Stock Equivalents that are outstanding on the date of this
Agreement.
(b) So long as the Note remains outstanding, without the prior
written consent of the registered holder of the Note (which consent may be
withheld in such holder's sole discretion), the Company shall not issue or sell,
or agree to issue or sell, any securities in a Variable Rate Transaction.
(c) If the Company proposes to make an offering of its equity or
debt securities within six months after the Closing Date, other than any
offering under the 1933 Act that constitutes a public offering that is exempt
from the requirement for stockholder approval under Rule 4350(i) of Nasdaq, the
Company shall not make such offering unless prior thereto, the Company shall
have satisfied the requirements of one of the following and shall have furnished
to the Purchaser a certificate setting forth a brief statement of the relevant
facts, confirming that the Company has satisfied the requirements of this
Section 6.2(c) in connection therewith and identifying the clause below that has
been satisfied:
(1) the Company shall first disclose the terms and conditions and
other relevant facts of such proposed transaction and the Offering to
Nasdaq and Nasdaq shall have confirmed that such transaction will not be
integrated with the Offering for purposes of Rule 4350(i) of Nasdaq rules;
or
(2) the Company shall first disclose the terms and conditions and
other relevant facts of such proposed transaction and the Offering to
Nasdaq
-22-
and Nasdaq shall have confirmed that, although such transaction and the
Offering may be integrated for purposes of Rule 4350(i) of the Nasdaq
rules, the Offering and such transaction will not, when taken together
with one another and any other transaction required to be integrated
herewith or therewith, constitute a sale of Common Stock, or Common Stock
Equivalents convertible or exercisable, at a price less than the greater
of book value or market value for purposes of Rule 4350(i).
If the Company is unable to obtain such assurance, the Company shall not make
the offering of such securities unless prior to issuance of such securities the
Company shall have obtained stockholder approval therefor that meets the
requirements of Rule 4350(i).
(d) If the Company fails to comply with this Section 6.2, then, in
addition to any other rights and remedies of the Purchaser, at the election of
the Purchaser, the Company shall redeem within five days after such election
all, or such portion as specified in writing to the Company by such Purchaser,
of the Note for the Optional Redemption Consideration, for which purpose the
cash portion of the Optional Redemption Consideration shall be computed as 120%
of the principal amount of the Note or portion thereof so specified by the
Purchaser to be redeemed and otherwise as if such redemption were made under
Section 2(b) of the Note.
6.3 RIGHT OF THE PURCHASERS TO PARTICIPATE IN FUTURE TRANSACTIONS.
(a) RIGHT TO PARTICIPATE. The Purchaser will have a right to
participate, on the terms and conditions set forth in this Section 6.3, in all
sales by the Company of any of the Company's securities in a capital raising
transaction that occur within two years after the Closing Date, other than any
such sale that is a public offering underwritten on a firm commitment basis and
registered with the SEC under the 1933 Act; provided, however, that if the only
Persons eligible to purchase securities in a particular such transaction are
"accredited investors," as defined in Regulation D, then the Purchaser must be
an accredited investor in order to purchase securities in such transactions. For
any such transaction during such period, the Company shall give ten Business
Days advance written notice to the Purchaser prior to any offer or sale of any
of the Company's securities in such transaction by providing to the Purchaser a
term sheet which (1) contains all significant business terms of such proposed
transaction, (2) is sufficiently detailed so as to reasonably permit the
Purchaser the opportunity to determine whether or not to exercise its rights
under this Section 6.3 and (3) is at least as detailed as the term sheet or
summary of such transaction as the Company shall furnish to any offeree or
broker in such transaction. The Purchaser shall have the right to participate in
such proposed transaction and to purchase its Pro Rata Share of such securities
which are the subject of such proposed transaction for the same
-23-
consideration and on the same terms and conditions as contemplated for sales to
third parties in such transaction (or such lesser portion thereof as specified
by the Purchaser). If the Purchaser elects to exercise its rights hereunder it
must deliver written notice to the Company within five Business Days following
receipt from the Company of the notice and term sheet meeting the requirements
of this Section 6.3, which notice from the Purchaser shall be conditional upon
(1) the Purchaser's receipt of satisfactory definitive documents for such
transaction from the Company if the Company has not furnished final definitive
documents for such transaction to the Purchaser at or before the time the
Company gives such notice of such transaction to the Purchaser, and (2) the
satisfaction of the other conditions precedent to the obligations of purchasers
generally in such transaction to complete such transaction. If, subsequent to
the Company giving notice to the Purchaser hereunder but prior to the Purchaser
exercising its right to participate (or the expiration of the five Business Day
period without response from the Purchaser or the rejection of such offer for
such financing by the Purchaser), the terms and conditions of the proposed sales
to third parties in such transaction are changed from those disclosed in the
term sheet provided to the Purchaser, the Company shall be required to provide a
new notice and term sheet meeting the requirements of this Section 6.3,
reflecting such revised terms, to the Purchaser hereunder and the Purchaser
shall have the right, which must be exercised within five Business Days of such
new notice and such revised term sheet, to exercise its rights to purchase the
securities on such changed terms and conditions and otherwise as provided
hereunder. If the Purchaser does not exercise its rights hereunder with respect
to a proposed transaction within the period or periods provided, or
affirmatively declines to engage in such proposed transaction with the Company,
then the Company may proceed with such proposed transaction on the same terms
and conditions as noticed to the Purchaser (assuming the Purchaser has consented
to the transaction, if required, pursuant to Section 6.2 and such transaction
does not violate any other term or provision of the Transaction Documents) with
the Purchaser if it has elected to participate in such proposed transaction,
provided that if such proposed transaction is not consummated within 75 days
following the Company's notice hereunder, then the rights hereunder shall again
be afforded to the Purchaser for such proposed transaction. The rights and
obligations of this Section 6.3 shall in no way limit or restrict the other
rights of the Purchaser pursuant to this Section 6.
(b) LIMITATION ON RIGHT OF FIRST REFUSAL. Notwithstanding anything
to the contrary contained herein, the number of shares of Common Stock that may
be acquired directly or through acquisition of Common Stock Equivalents by the
Purchaser pursuant to any transaction to which this Section 6.3 applies shall
not exceed a number that, when added to the total number of shares of Common
Stock deemed beneficially owned by the Purchaser (other than by virtue of the
ownership of securities or rights to acquire securities (including the Note, the
Warrant and the Redemption Warrant) that have limitations on the Purchaser's
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right to convert, exercise or purchase similar to the limitation set forth
herein (the "Excluded Shares")), together with all shares of Common Stock deemed
beneficially owned at such time (other than by virtue of ownership of Excluded
Shares) by Persons whose beneficial ownership of Common Stock would be
aggregated with the beneficial ownership of the Purchaser for purposes of
determining whether a group exists or for purposes of determining the
Purchaser's beneficial ownership in either case for purposes of Section 13(d) of
the 1934 Act and Regulation 13D-G thereunder, would result in beneficial
ownership by the Purchaser or such group of more than 4.9% of the shares of the
Company's Common Stock (the "Restricted Ownership Percentage"), computed in
accordance with Regulation 13D-G. The Purchaser shall have the right at any time
and from time to time to reduce its Restricted Ownership Percentage immediately
upon notice to the Company in the event and only to the extent that Section
13(d) or 16 of the 1934 Act or the rules promulgated thereunder (or any
successor statute or rules) is changed to reduce the beneficial ownership
percentage threshold thereunder from 5% or 10%, respectively. If the Purchaser
is unable by reason of the Restricted Ownership Percentage to acquire the full
amount of securities which the Purchaser would otherwise be entitled to acquire
pursuant to this Section 6.3 then (1) the Company shall include in the terms of
the securities which the Purchaser is entitled to purchase under this Section
6.3 a provision comparable to Section 6(h) of the Note and (2) if,
notwithstanding the inclusion of the provision required by the immediately
preceding clause (1), the Purchaser remains unable to acquire the full amount of
securities which the Purchaser would otherwise be entitled to acquire under this
Section 6.3, and thereafter, at any time until the date that is 90 days after
the latest closing of the sale of securities in such transaction by the Company
to Persons other than (x) the Purchaser and (y) any Person who is entitled to
purchase securities in such transaction pursuant to Section 6.3 of the Other
Purchase Agreements, the Purchaser could acquire such securities without
exceeding its Restricted Ownership Percentage, then the Purchaser shall be
entitled to acquire such securities at such time. The Company will provide
notice to the Purchaser of the date of such latest closing of the sale of
securities in such transaction within five Business Days after such closing.
(c) RIGHT APPLICABLE TO SUCCESSIVE TRANSACTIONS. The rights of the
Purchaser under this Section 6.3 shall apply to all capital raising transactions
described in Section 6.3(a) that occur during the period specified in Section
6.3(a).
6.4 REPORTS AND INFORMATION. For so long as the Purchaser
beneficially owns any of the Securities, the Company will furnish to the
Purchaser the following reports and information, each of which shall be provided
to the Purchaser by e-mail (at such address as specified in writing by the
Purchaser for such purpose) or reputable overnight courier:
(a) QUARTERLY FINANCIAL INFORMATION. In the absence of a Quarterly
Report on Form 10-Q filed with the SEC for any of the Company's first
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three fiscal quarters in any fiscal year, within five days after the due date
(determined without regard to any permitted extensions) for filing such report
with the SEC for such fiscal quarter consolidated balance sheets of the Company
as at the end of each of the Company's first three fiscal quarters and the
related consolidated statements of operations, stockholders' equity and cash
flows for such period and for the portion of the Company's fiscal year ended on
the last day of such quarter, all in reasonable detail and certified by the
principal financial officer of the Company to have been prepared in accordance
with Generally Accepted Accounting Principles consistently applied, subject to
(1) normal recurring year-end adjustments, all of which that are necessary for a
fair presentation of such financial statements shall be included in such
financial statements, and (2) the absence of all required notes.
(b) ANNUAL FINANCIAL INFORMATION. In the absence of an Annual Report
on Form 10-K timely filed with the SEC for a particular fiscal year, within 15
days after the due date (determined without regard to any permitted extensions)
for filing such report with the SEC for such fiscal year a consolidated balance
sheet of the Company as at the end of each fiscal year and the related
consolidated statements of earnings, stockholders' equity and cash flows for
such year, prepared in accordance with Generally Accepted Accounting Principles,
consistently applied, and accompanied by the report on such consolidated
financial statements of the Company's independent certified public accountant.
(c) OTHER INFORMATION. Such other information relating to the
Company and the Subsidiaries as from time to time may reasonably be requested by
the Purchaser provided the Company or its Subsidiary has such information
available to it in the ordinary course of its business, and further provided
that the Company, solely in its own discretion, determines that such information
is not confidential in nature and disclosure to the Purchaser would not be
harmful to the Company or its Subsidiary or violate applicable law.
(d) LIMITATION ON MATERIAL NON-PUBLIC INFORMATION. Notwithstanding
anything to the contrary contained in this Section 6.4(d), the Company shall not
disclose material nonpublic information to the Purchaser, or to advisors to or
representatives of the Purchaser, unless prior to disclosure of such information
the Company identifies such information as being material nonpublic information
and provides the Purchaser, such advisors and representatives with the
opportunity to accept or refuse to accept such material nonpublic information
for review. The Company may, as a condition to disclosing any material nonpublic
information hereunder, require the Purchaser's advisors and representatives to
enter into a confidentiality agreement (including an acknowledgement by such
advisors and representatives as to their legal obligations regarding trading in
Common Stock during such period of time as they are in possession of material
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nonpublic information) in form reasonably satisfactory to the Company and the
Purchaser.
(e) RULE 144. The Company agrees to make publicly available on a
timely basis the information required by Rule 144(c) under the 1933 Act.
6.5 PRESS RELEASES. Any press release or other publicity concerning
this Agreement or the transactions contemplated by this Agreement shall be
submitted to the Purchaser for comment at least two Business Days prior to
issuance, unless the release is required to be issued within a shorter period of
time by law or pursuant to the rules of the Nasdaq or other securities exchange
or market which at the time constitutes the principal market for the Common
Stock. The Company shall, contemporaneously with the Closing on the Closing Date
or as promptly as possible thereafter on the Closing Date, issue a press
release, in the form of EXHIBIT G hereto, concerning the transactions
contemplated hereby which press release shall be issued during trading hours on
the Nasdaq. The Company's other press releases and other public information, to
the extent concerning the Transaction Documents, shall contain such information
as reasonably requested by the Purchaser and be reasonably approved by the
Purchaser prior to issuance.
6.6 NO CONFLICTING AGREEMENTS. The Company will not take any action,
enter into any agreement or make any commitment that would conflict or interfere
in any material respect with the obligations to the Purchaser under the
Transaction Documents.
6.7 INSURANCE. For so long as the Purchaser beneficially owns any of
the Securities, the Company shall, and shall cause each Subsidiary to, have in
full force and effect (a) insurance that the Company reasonably believes to be
adequate on all assets and activities of a type customarily insured by companies
comparably situated to the Company and the Subsidiaries, covering property
damage and loss of income by fire or other casualty, and (b) insurance that the
Company reasonably believes to be adequate to protect against all liabilities,
claims and risks against which it is customary for companies similarly situated
as the Company and the Subsidiaries to insure.
6.8 COMPLIANCE WITH LAWS. So long as the Purchaser beneficially owns
any Securities, the Company will use reasonable efforts to comply with all
applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance (in one instance or in the
aggregate) could not be reasonably likely to have a Material Adverse Effect.
6.9 LISTING OF UNDERLYING SHARES AND WARRANT SHARES AND RELATED
MATTERS. The Company agrees to obtain the listing of the Underlying Shares and
Warrant Shares on Nasdaq not later than the Closing Date (or such
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earlier date as required by Nasdaq) and, to the extent necessary, to take such
action to cause the Underlying Shares and the Warrant Shares to continue to be
listed on the Nasdaq. The Company agrees that if the Company applies to have its
Common Stock or other securities traded on any other principal stock exchange or
market, it will include in such application the Underlying Shares and Warrant
Shares and will take such other action as is necessary to cause such Common
Stock to be so listed. For so long as any of the Note, the Warrant or the
Redemption Warrant remains outstanding and for a period of at least 30 days
immediately thereafter, the Company will use its best efforts to continue the
listing and trading of its Common Stock on at least one of the Approved Markets,
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such exchange or market, as applicable,
to ensure the continued eligibility for trading of the Common Stock thereon.
6.10 FORM 8-K. Within two Business Days after the Closing Date, the
Company will publicly report the issue and sale of the Note and Warrant and the
securities issued pursuant to the Other Purchase Agreements by filing with the
SEC a Current Report on Form 8-K under the 1934 Act which report shall describe
the material terms and include copies of the Transaction Documents as exhibits
to such report.
6.11 LEGENDS. Until registered for resale pursuant to the
Registration Rights Agreement or, in the absence of such registration, until
sales under Rule 144(k) under the 1933 Act are permitted, certificates
evidencing the Underlying Shares and the Warrant Shares may bear the following
legend:
"The shares represented by this certificate may not be transferred without
(i) an opinion of counsel reasonably satisfactory to the corporation that
such transfer may lawfully be made without registration under the
Securities Act of 1933 or qualification under applicable state securities
laws; or (ii) such registration or qualification."
and such legend as may be required by the authorities of any state in connection
with the qualification of the Underlying Shares and the Warrant Shares for sale,
or exemption therefrom, in such state. Upon registration for resale pursuant to
the Registration Rights Agreement or, in the absence of such registration, upon
Rule 144(k) under the 1933 Act becoming available and delivery by the Purchaser
of the opinion of counsel (who may be counsel for the holder of such shares)
referred to in the form of legend set forth above in this Section 6.11, the
Company shall promptly (but in no event later than five Business Days after
surrender of the legended certificates to the Company) cause certificates
evidencing the Underlying Shares and Warrant Shares previously issued to be
replaced with certificates which do not bear the restrictive legends specified
above in this Section 6.11, and all Underlying Shares and Warrant Shares
subsequently issued shall not bear the restrictive legend specified above in
this Section 6.11. If the Purchaser notifies the Company
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that, within three Business Days after surrender of such legended certificates,
the Purchaser has not received such certificates without such restrictive
legends (each, a "Purchaser Share Notice"), and the Purchaser does not receive
such certificates without such restrictive legends within two Business Days
after giving a particular Purchaser Share Notice, then the Company shall pay
partial liquidated damages to the Purchaser in cash on demand, calculated at the
rate of 2% per month of the original Purchase Price of the Note in respect of
which such Underlying Shares are issuable or issued, and the purchase price paid
upon exercise of the Warrant in respect of which such Warrant shares are
issuable or issued, and in any such case for which the certificates have not
been provided in compliance with the above, for each day so long as the Company
fails to provide such certificates. Notwithstanding the foregoing the Company
shall not be liable to the Purchaser for such partial liquidated damages to the
extent the failure of the Company to deliver or to cause to be delivered the
unlegended securities results from fire, flood, storm, earthquake, shipwreck,
strike, war, acts of terrorism, crash involving facilities of a common carrier,
acts of God, or any similar event outside the control of the Company (it being
understood that the action or failure to act of the Company's Transfer Agent
shall not be deemed an event outside the control of the Company except to the
extent resulting from fire, flood, storm, earthquake, shipwreck, strike, war,
acts of terrorism, crash involving facilities of a common carrier, acts of God,
or any similar event outside the control of such Transfer Agent or the
bankruptcy, liquidation or reorganization of such Transfer Agent under any
bankruptcy, insolvency or other similar law). The Purchaser agrees that any sale
by the Purchaser of Underlying Shares and Warrant Shares pursuant to the
Registration Statement shall be made by the Purchaser in compliance with the
prospectus delivery requirements of the 1933 Act and in accordance with the plan
of distribution set forth in the Registration Statement and related prospectus,
as amended and supplemented from time to time.
6.12 LIMITATION ON CERTAIN ACTIONS. From the date of execution and
delivery of this Agreement by the parties hereto to the date of issuance of the
Note, the Company (1) shall comply with Section 4 of the Note as if the Note
were outstanding, (2) shall not take any action which, if the Note were
outstanding, (A) would constitute an Event of Default or, with the giving of
notice or the passage of time or both, would constitute an Event of Default or
(B) would constitute a Repurchase Event or, with the giving of notice or the
passage of time or both, would constitute a Repurchase Event.
6.13 BEST EFFORTS. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
sell and purchase the Note and Warrant set forth in Section 7.1 or 7.2, as the
case may be, of this Agreement on or before the Closing Date.
6.14 DEBT OBLIGATION. So long as any portion of the Note is
outstanding, the Company shall cause its books and records to reflect the Note
as a
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debt of the Company in its unpaid principal amount, shall cause its financial
statements to reflect the Note as a debt of the Company in such amount as shall
be the greatest amount permitted in accordance with Generally Accepted
Accounting Principles and as a valid senior debt obligation of the Company for
money borrowed that is secured by the Collateral (unless all Collateral shall
have been released pursuant to the Security Agreement and the security interest
thereunder shall have terminated).
6.15 SECURITY AGREEMENT; FINANCING STATEMENTS, ETC. The Company
agrees to execute and deliver to the Collateral Agent at or before the Closing
the Security Agreement in the form attached hereto as EXHIBIT D. The Company
shall prepare and at or before the Closing file with the appropriate officials,
Uniform Commercial Code financing statements on Form UCC-1 relating to the
Collateral in which the Company is granting a security interest to the
Collateral Agent for the benefit of the holders of the Note and the Other Notes
pursuant to the Security Agreement. Prior to the Closing, the Company shall
provide to the Purchaser evidence of such filings and customary search reports
of the relevant Uniform Commercial Code filing offices.
6.16 MAXIMUM SHARE AMOUNT; STOCKHOLDER APPROVAL; MANDATORY
REDEMPTION. (a) Notwithstanding any other provision in the Transaction
Documents, unless (x) the Stockholder Approval shall have been obtained, (y)
Nasdaq shall have determined that the 20% limitation in Rule 4350(i) of Nasdaq
is inapplicable to the Note, the Warrant and the Redemption Warrant or (z)
Nasdaq shall have waived the requirements of Rule 4350(i) with respect to the
Note, the Warrant and the Redemption Warrant, the Company shall not be required
to issue more than the Maximum Share Amount as Transaction Shares, subject to
the requirements of this Section 6.16. The Maximum Share Amount shall be
allocated immediately after the Closing among the Purchaser and the purchasers
under the Other Purchase Agreements pro rata based on the original principal
amount of the Note and the Other Notes. So long as the Purchaser has not
transferred the Note, the Warrant or the Redemption Warrant, the Purchaser may
treat its portion of the Maximum Share Amount as available for issuance of
Underlying Shares or Warrant Shares as it determines in its sole discretion. If
the Note, the Warrant or the Redemption Warrant is surrendered for transfer in
whole or in part to another Person, in connection therewith the Purchaser shall
specify by notice to the Company the portion of the remaining amount of the
Purchaser's share of the Maximum Share Amount to be allocated to the holder of
such transferred Note, Warrant or Redemption Warrant, and the Company may
require such transferee to acknowledge the same in writing as a condition
precedent to such transfer. If the Purchaser no longer holds any Note, Warrant
or Redemption Warrant by reason of its conversion and exercise in full of all
such instruments held by it or if a particular purchaser under any other
Purchase Agreement no longer holds any Other Note, common stock purchase warrant
issued pursuant to such
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Other Purchase Agreement or common stock purchase warrant issued upon redemption
of such Other Note by reason of its conversion and exercise in full of all such
instruments held by it, or if any Person who holds any such instrument issued
upon transfer or split-up of any thereof shall no longer hold any such
instrument by reason of its conversion and exercise in full of all such
instruments held by it, then in each such case any portion of the Maximum Share
Amount allocated to the Purchaser, such other purchaser or such Person, as the
case may be, and unused by it shall be re-allocated among all remaining holders
of such instruments pro rata in proportion to their respective shares of the
Maximum Share Amount remaining unused immediately before such re-allocation.
(b) The Company shall promptly, but in no event later than five
Business Days, after the occurrence of a Maximum Share Amount Deficiency give a
Maximum Share Amount Notice to the Purchaser, and the Purchaser may at any time
after the occurrence of a Maximum Share Amount Deficiency give a Maximum Share
Amount Notice to the Company, in either case if at any time there shall be a
Maximum Share Amount Deficiency. If the Company shall have given or been
required to give a Maximum Share Amount Notice, or if the Purchaser shall have
given a Maximum Share Amount Notice, then the Company shall seek, and use its
best efforts to obtain, on or before the date which is 60 days after the
applicable Maximum Share Amount Notice Date, the Stockholder Approval. If
required by this Section to seek the Stockholder Approval, the Company shall
call a Stockholder Meeting to be held within 60 days after the applicable
Maximum Share Amount Notice Date, shall prepare and file with the SEC as
promptly as practical, but in no event later than 15 days after the applicable
Maximum Share Amount Notice Date, preliminary proxy materials that meet the
requirements of Section 14 of the 1934 Act and the SEC's rules and regulations
thereunder and which shall set forth a proposal to seek the Stockholder
Approval, and the Board of Directors shall recommend approval thereof by the
Company's stockholders. The Company shall mail and distribute its proxy
materials for the Stockholder Meeting to its stockholders at least 30 days prior
to the date of the Stockholder Meeting, shall actively solicit proxies to vote
for the Stockholder Approval and, prior to mailing such proxy materials to its
stockholders, shall retain a proxy solicitation firm of recognized national
standing to assist in the solicitation. The Company shall provide the Purchaser
an opportunity to review and comment on such proxy materials by providing (which
may be by e-mail) copies of such proxy materials and any revised preliminary
proxy materials to the Purchaser a reasonable period of time prior to their
filing with the SEC. The Company shall provide (which may be by e-mail) the
Purchaser copies of all correspondence from or to the SEC or its staff
concerning the proxy materials for the Stockholder Meeting promptly after the
same is sent or received by the Company and summaries of any comments of the SEC
staff which the Company receives orally promptly after receiving such oral
comments. The Company shall furnish (which may be by e-mail) to the Purchaser
and its legal counsel a copy of its definitive proxy materials for the
Stockholder
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Meeting and any amendments or supplements thereto promptly after the same are
first used, mailed to stockholders or filed with the SEC, shall inform the
Purchaser of the progress of solicitation of proxies for such meeting and shall
inform the Purchaser of any adjournment of the Stockholder Meeting and shall
report the result of the vote of stockholders on such proposition at the
conclusion of the Stockholder Meeting. If the Company shall have failed to
obtain the Stockholders Approval within 60 days after the applicable Maximum
Share Amount Notice Date, or if the sum of (1) the number of Underlying Shares
and Warrant Shares issued or issuable to the Purchaser upon conversion or
exercise of the Note, the Warrant and the Redemption Warrant, assuming
conversion in full of the Note, the Warrant and the Redemption Warrant, if any,
outstanding at such time and held by the Purchaser, determined without regard to
any limitation on conversion or exercise contained in the Transaction documents,
plus (2) the number of Underlying Shares theretofore issued to the Purchaser in
lieu of cash payment of interest on the Note shall exceed the Purchaser's share
of the Maximum Share Amount, then until the Company obtains the Stockholder
Approval or such excess no longer exists, the Purchaser shall have the right,
exercisable by giving a Maximum Share Amount Redemption Notice (which notice may
be contained in a Maximum Share Amount Notice given by the Purchaser) to the
Company, to require the Company to redeem all, or from time to time any part, as
specified in such Maximum Share Amount Redemption Notice, of the portion of the
Purchaser's outstanding Note, Warrant or Redemption Warrant (which, if
applicable, shall be all of the Purchaser's outstanding Note, Warrant or
Redemption Warrant) as shall not, on the Business Day prior to the date of such
redemption, be convertible into or exercisable for shares of Common Stock by
reason of the limitation imposed by the portion of the Maximum Share Amount
allocated to the Purchaser (determined without regard to any limitation on
conversion or exercise contained in the Transaction Documents), within ten
Business Days after the Purchaser so notifies the Company, at the applicable
Maximum Share Amount Redemption Price.
(c) Nothing in this Section 6.16 shall relieve the Company of its
obligation to pay the principal of and interest on and all other amounts due in
respect of the Note and the other Transaction Documents as and when required by
the terms hereof and thereof. Notwithstanding the giving of any Maximum Share
Amount Notice, the giving or the absence of any Maximum Share Amount Redemption
Notice by the Purchaser or any redemption of the Note, the Warrant or the
Redemption Warrant, or any portion thereof, held by the Purchaser pursuant to
this Section, thereafter the provisions of this Section shall continue to be
applicable on any subsequent occasion. The Company shall not take any action
that would result in a Maximum Share Amount Deficiency. The Company shall limit
the portion of the Maximum Share Amount available to the holder of the Placement
Agent Warrants to 166,667 shares of Common Stock subject to adjustments only for
stock splits, stock dividends, combinations, capital reorganizations and similar
events relating to the Common Stock occurring after the date of this Agreement.
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(d) On each Maximum Share Amount Redemption Date, the Company shall
make payment in immediately available funds of the applicable Maximum Share
Amount Redemption Price to the Purchaser of the Note, Warrant and Redemption
Warrant (or portion(s) thereof) to be redeemed to or upon the order of the
Purchaser as specified by the Purchaser to the Company at least one Business Day
prior to such Maximum Share Amount Redemption Date. Upon redemption of less than
all of the outstanding principal amount of the Note or unexercised portion of
the Warrant or the Redemption Warrant, promptly, but in no event later than
three Trading Days after surrender of the certificate therefor to the Company,
the Company shall issue and deliver to the Purchaser a replacement certificate
for the portion of the Note, the Warrant or the Redemption Warrant, as the case
may be, evidenced by the certificate so surrendered which has not been redeemed.
7. CONDITIONS TO CLOSING.
7.1 CONDITIONS TO THE COMPANY'S OBLIGATIONS TO ISSUE AND SELL. The
Company's obligation to issue and sell the Note and the Warrant to the Purchaser
is conditioned upon satisfaction of the following conditions precedent on the
Closing Date (any or all of which may be waived by the Company in its sole
discretion):
(a) The closings under the Other Purchase Agreements shall have
occurred;
(b) No legal action, suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions contemplated by
this Agreement; and
(c) The representations and warranties of the Purchaser contained in
this Agreement shall have been true and correct on the date of this Agreement
and the representations and warranties of the Purchaser contained in the
Transaction Documents shall be true and correct on the Closing Date as if given
on and as of the Closing Date (except for representations given as of a specific
date, which representations shall be true and correct as of such date), and on
or before the Closing Date the Purchaser shall have performed all covenants and
agreements of the Purchaser contained herein or in any of the other Transaction
Documents required to be performed by the Purchaser on or before the Closing
Date.
7.2 CONDITIONS TO THE PURCHASER'S OBLIGATIONS TO PURCHASE. The
Purchaser's obligation to purchase the Note and Warrant is conditioned upon
satisfaction of the following conditions precedent on the Closing Date (any or
all of which may be waived by the Purchaser in its sole discretion):
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(a) The closings under the Other Purchase Agreements shall have
occurred;
(b) No legal action, suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions contemplated by
this Agreement;
(c) The representations and warranties of the Company contained in
this Agreement shall have been true and correct on the date of this Agreement
and the representations and warranties of the Company contained in the
Transaction Documents shall be true and correct on the Closing Date as if given
on and as of the Closing Date (except for representations given as of a specific
date, which representations shall be true and correct as of such date), and on
or before the Closing Date the Company shall have performed all covenants and
agreements of the Company contained herein or in any of the other Transaction
Documents required to be performed by the Company on or before the Closing Date;
(d) No event which, if the Note were outstanding, would constitute
an Event of Default or Repurchase Event or which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default or Repurchase
Event shall have occurred and be continuing;
(e) The Collateral Agent shall have executed and delivered to the
Company the Security Agreement and a copy thereof, duly executed and delivered
by the Company and the Collateral Agent, shall have been furnished to the
Purchaser;
(f) Nothing shall have come to the Purchaser's attention that
renders the search reports of the relevant Uniform Commercial Code filing
offices previously provided by the Company inaccurate or incomplete;
(g) All filings of financing statements necessary or appropriate
under the Uniform Commercial Code in connection with the Security Agreement
shall have been made, and the Purchaser shall have received satisfactory
evidence of such filings;
(h) The Company shall have delivered to the Purchaser a certificate,
dated the Closing Date, duly executed by its Chief Executive Officer or Chief
Financial Officer, to the effect set forth in subparagraphs (a), (b), (c) and
(d) of this Section 7.2;
(i) The Company shall have delivered to the Purchaser a certificate,
dated the Closing Date, of the Secretary of the Company certifying (A) the
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Certificate of Incorporation and By-Laws of the Company as in effect on the
Closing Date, (B) all resolutions of the Board of Directors (and committees
thereof) of the Company relating to this Agreement and the other Transaction
Documents and the transactions contemplated hereby and thereby, (C) the due
election or appointment, incumbency and specimen signature of each officer of
the Company who executes any Transaction Document, with provisions for
counter-certification of the election or appointment, incumbency and signature
of the Secretary of the Company by another officer of the Company;
(j) The Purchaser shall have received an opinion of Xxxx Xxxxxxx &
Xxxxxx LLP, counsel for the Company, dated the Closing Date, addressed to the
Purchaser, substantially in the form attached as EXHIBIT E and otherwise in
form, scope and substance reasonably satisfactory to the Purchaser;
(k) The Purchaser shall have received an opinion of the Senior Vice
President and General Counsel of the Company, dated the Closing Date, addressed
to the Purchaser, substantially in the form attached as EXHIBIT F and otherwise
in form, scope and substance reasonably satisfactory to the Purchaser; and
(l) On the Closing Date, (i) trading in securities on the NYSE, the
AMEX or Nasdaq shall not have been suspended or materially limited and (ii) a
general moratorium on commercial banking activities in the State of New York or
the State of Texas shall not have been declared by either federal or state
authorities, nor shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity or crisis of such
magnitude in its effect on, or any material adverse change in any United States
financial market which, in each case, in the good faith judgment of the
Purchaser, makes it impracticable or inadvisable to purchase the Note and
Warrant.
8. MISCELLANEOUS.
8.1 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
the Company. This Agreement may not be assigned by the Purchaser prior to the
Closing without the prior written consent of the Company, which consent may not
be unreasonably withheld or delayed. After the Closing, (1) without the prior
written consent of the Company, but after notice given to the Company, the
Purchaser may assign its rights and delegate its duties hereunder in whole or in
part to an Affiliate or an investment fund for which the investment advisor is
the same as, or is an Affiliate of, the Purchaser's investment advisor or (2)
subject to and upon compliance with the assignment and transfer provisions, if
any, of the Securities, to any transferee of Securities from the Purchaser;
provided, however, that in no event may the Purchaser transfer or assign
pursuant to this clause (2) its rights under Section 6.3 without the prior
written consent of the Company, which consent the Company may withhold in its
sole discretion. The terms and conditions
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of this Agreement shall inure to the benefit of and be binding upon the
respective successors and permitted assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and permitted assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
8.2 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.3 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.4 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given only upon delivery to each party to be notified by (i)
personal delivery, (ii) telephone line facsimile transmission, upon receipt of
confirmation of complete transmittal, or (iii) a recognized overnight air
courier, addressed to the party to be notified at the address as follows, or at
such other address as such party may designate by ten days' advance written
notice to the other party:
If to the Company:
Zix Corporation
0000 X. Xxxxxxx Xxxxxx
Xxxxx 0000, XX 36
Xxxxxx, Xxxxx 00000
Attention: Chief Financial Officer
Telephone: (000) 000-0000
Fax: (000) 000-0000
If to the Purchaser:
to the address set forth on the signature pages hereto.
8.5 EXPENSES. The parties hereto shall pay their own costs and
expenses in connection herewith, except that the Company shall pay or reimburse
the Purchaser, at or before the Closing, for its legal and due diligence
expenses
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incurred in connection herewith to the extent not previously paid or deposited
with the Purchaser's legal counsel; provided, however, in no event shall the
Company be required to pay more than $40,000 towards such expenses of the
Purchaser. The Company shall pay all fees and expenses of all finders, brokers,
placement agents in connection with the transactions contemplated by this
Agreement pursuant to any separate agreement between one or more such parties
and the Company.
8.6 AMENDMENTS AND WAIVERS. 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), only with the written consent of the Company and the Purchaser;
provided, however, that any such amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Securities purchased
under this Agreement at the time outstanding, each future holder of all such
securities, and the Company.
8.7 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
8.8 ENTIRE AGREEMENT. This Agreement, including the Exhibits and
Schedules hereto, the other Transaction Documents and other documents
contemplated hereby and thereby constitute the entire agreement among the
parties hereof with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof and thereof and
there are no representations or warranties, written or oral, by either party in
connection with this Agreement except as set forth herein and therein.
8.9 FURTHER ASSURANCES. The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
8.10 APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of laws.
8.11 REMEDIES.
(a) The Purchaser shall be entitled to specific performance of the
Company's obligations under the Transaction Documents.
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(b) The Company on the one hand and the Purchaser on the other hand
shall indemnify the other and hold it harmless from any loss, cost, expense or
fees (including reasonable attorneys' fees and expenses) arising out of any
breach of any of its representations, warranties, covenants or agreements in any
of the Transaction Documents, or arising out of the enforcement of this Section
8.11.
8.12 JURISDICTION. The parties hereby agree that all actions or
proceedings arising directly or indirectly from or in connection with this
Agreement shall be litigated only in the Supreme Court of the State of New York
or the United States District Court for the Southern District of New York
located in New York County, New York. The Company consents and submits to the
jurisdiction and venue of the foregoing courts and consents that any process or
notice of motion or other application to either of said courts or a judge
thereof may be served on the Company inside or outside the State of New York or
the Southern District of New York (but with respect to any party hereto, such
consent shall not be deemed a general consent to jurisdiction and service for
any third parties) by registered mail, return receipt requested, directed to the
Company at its address provided in or pursuant to this Agreement (and service so
made shall be deemed complete three days after the same has been posted as
aforesaid) or by personal service or in such other manner as may be permissible
under the rules of said courts. The Company hereby waives any right to object to
a proceeding in such courts based on inconvenience of the forum and waives and
right to a jury trial in connection with any litigation pursuant to this
Agreement.
8.13 SURVIVAL. The respective representations, warranties, covenants
and agreements of the Company and the Purchaser contained in this Agreement and
the documents delivered in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Transaction Documents and
the Closing and delivery of and payment for the Note and issuance of the
Warrant, and shall remain in full force and effect regardless of any
investigation made by or on behalf of the Purchaser or any Person controlling or
acting on behalf of the Purchaser or by the Company or any Person controlling or
acting on behalf of the Company.
8.14 CONSTRUCTION; PURCHASER STATUS. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party. The Purchaser is not acting as part of a "group" (as that term is
used in Section 13(d) of the 0000 Xxx) in negotiating and entering into this
Agreement or purchasing the Note and the Warrant or acquiring, disposing of or
voting any of the Underlying Shares or the Warrant Shares. The Company hereby
confirms that it understands and agrees that the Purchaser is not acting as part
of any such group.
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8.15 TERMINATION. If the conditions precedent set forth in Section
7.2 are not satisfied, or waived by the Purchaser in its sole discretion, by
10:45 a.m., Eastern Standard Time, on Tuesday, November 2, 2004, the Purchaser
shall have no further obligation to complete the Closing of the purchase of the
Note and the Warrant and shall have no further liability to the Company under
this Agreement, or otherwise, relating to the transactions contemplated hereby.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties have caused this Purchase Agreement
to be duly executed by their respective officers or other representatives
thereunto duly authorized as of the date first above written.
ZIX CORPORATION
By: /s/ Xxxx Xxxxxx
-------------------------
Name: Xxxx Xxxxxx
Title: CFO
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AMULET LIMITED
BY AMARANTH ADVISORS L.L.C.,
ITS
TRADING ADVISOR
By: /s/ Xxxx Xxxxxxx svc
--------------------------------
Name: Xxxx X. Xxxxxxx
Title: Authorized Signatory
Purchase Price: $10,000,000.00
Number of Warrant Shares: 500,000
Initial Conversion Price of Note: $6.00
Initial Exercise Price of Warrant: $6.00
Purchaser's Residence: Cayman Islands
Address for Notices:
Amulet Limited
c/o Dundee Leeds Management Services
(Cayman) Ltd.
0xx Xxxxx, Xxxxxxxxxx Xxxxxx
28 North Church Street
Xxxxxx Town, Grand Cayman
Cayman Islands
with mandatory copies to:
Amulet Limited
c/o Amaranth Advisors L.L.C.
Attention: General Counsel
Xxx Xxxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxx 00000
Facsimile: (000) 000-0000
Email: XxxxxXxxxxxx@xxxxxxxxxxx.xxx
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