NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (the "Agreement") is entered into as of April
5, 1999, by and among Xxxxxx.xxx, Inc., a Delaware corporation (the "Company"),
and the purchaser whose name appears on the signature line below (the
"Purchaser"; and collectively with all other such purchasers of the Company's
Convertible Notes in the transaction of which this Agreement is a part, the
"Purchasers").
WHEREAS, the Company wishes to issue and sell an aggregate of up to
$45,500,000 principal amount of its 11% Senior Convertible Discount Notes, the
proceeds from which will be used for general corporate purposes;
WHEREAS, the Purchaser wishes to purchase certain of such notes on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
THE CONVERTIBLE NOTES
Section 1.1 ISSUANCE OF THE CONVERTIBLE NOTES. Subject to the terms and
conditions set forth in this Agreement, the Company will duly authorize the
issuance and sale of its 11% Senior Convertible Discount Notes due April 5, 2004
in substantially the form of EXHIBIT A hereto (such notes, together with any
notes that may be issued hereunder in substitution or exchange therefor, are
collectively referred to herein as the "CONVERTIBLE NOTES" and each such note is
individually referred to herein as a "CONVERTIBLE NOTE"). The terms and
conditions of the Convertible Notes are incorporated herein by reference.
Section 1.2 DESCRIPTION OF THE CONVERTIBLE NOTES. The Convertible Notes
shall provide as follows:
(a) All principal, plus all accrued but unpaid interest and penalties,
shall be due and payable on April 5, 2004 (the "Maturity Date").
(b) Each Convertible Note will be issued at substantial discount from its
principal amount for a price equal to its Purchase Price on the date of purchase
(the "Issue Date"). Cash interest will not accrue on the Convertible Notes
prior to April 5, 2001. Thereafter, interest on the Convertible Notes will
accrue at the rate of 11% per annum payable semi-annually in arrears commencing
on October 5, 2001, and thereafter on April 5 and October 5 of each year and on
the Maturity Date, and thereafter, on demand. Interest on the Convertible Notes
shall be computed on the basis of a 360-day year of twelve 30-day months.
(c) As provided for and on the terms and conditions set forth in the
Convertible Notes, the Convertible Notes may be converted at any time at the
option of the holder, unless previously redeemed, into shares (the "Conversion
Shares") of the Company's common stock, par value $0.001 per share (the "Common
Stock").
(d) The Convertible Notes may not be redeemed or prepaid in whole or in
part prior to the second anniversary of the Issue Date. Thereafter, the
outstanding principal amount of the Convertible Notes may be prepaid in whole or
in part at any time as provided and on the terms and conditions set forth in the
Convertible Notes.
Section 1.3 SALE AND DELIVERY OF THE CONVERTIBLE NOTES. Subject to the
terms and conditions set forth herein, the Company hereby agrees to sell to
Purchaser, and Purchaser hereby agrees to purchase from the Company, the face
principal amount of the Convertible Notes set forth opposite the name of
Purchaser under the heading "Principal Amount of Notes" on SCHEDULE I, at a
purchase price equal to the purchase price set forth under the heading "Purchase
Price" on Schedule I (the "Purchase Price"). The Convertible Notes delivered to
the Purchaser on the Closing Date will be delivered in the form of a single
registered Convertible Note registered in the name of the Purchaser or in the
name of such nominee or in such other denominations (not less than $100,000 in
principal amount) as the Purchaser may specify no later than two business days
prior to the Closing Date and in substantially the form attached hereto as
Exhibit A.
Section 1.4 CLOSING. The closing of the transactions contemplated by
this Agreement shall take place at the offices of Xxxxxx & Xxxxxx LLP, One
Battery Park Plaza, New York, New York, on April 5, 1999, or at such other
location, date and time as may be agreed upon between the Purchasers and the
Company (such closing being called the "Closing" and such date and time being
called the "Closing Date"). At the Closing, the Company shall issue and deliver
to the Purchaser the Convertible Notes, the opinion of the Company's counsel set
forth in Section 5.2, the certificate of the Company's Chief Executive or Chief
Operating Officer set forth in Sections 5.3 and 5.4, and the documents set forth
in Section 5.7. At the Closing, as payment in full for the Convertible Notes
being purchased by it and against delivery of such Convertible Notes, the
Purchaser shall deliver to the Company an amount equal to the Purchase Price of
the Convertible Notes being purchased by the Purchaser as set forth on Schedule
I. Payment of the Purchase Price shall be made in immediately available United
States funds by wire transfer to the account of the Company.
Section 1.5 PREPAYMENTS AT PURCHASER'S OPTION FOLLOWING CHANGE IN
CONTROL. In the event that any Change in Control of the Company occurs, the
Company shall promptly (but in any event not later than 10 days after the
occurrence of such Change in Control) notify each Holder of such Change in
Control by telecopy or other similar electronic device (i) describing, in
reasonable detail, the facts and circumstances which resulted in such Change in
Control, and (ii) providing a means whereby the Convertible Notes held by any
Holder will be prepaid in connection with such Change in Control if such Holder
so elects. The Company will also
2
provide such further information relating to such Change in Control as any
Holder may reasonably request. In connection with any Change in Control, each
Holder shall have the right (whether or not notice is given by the Company),
exercisable by written notice given to the Company, not later than 30 days after
receipt by such Holder of the original notice of such Change in Control, to
elect to require the Company to prepay the Convertible Notes held by such
Holder. In the event any Holder elects to require the Company to prepay the
Convertible Notes held by such Holder, the Company shall so prepay, on a date
specified by the Company (which date shall be not less than 30 days nor more
than 60 days after the giving by such Holder of the notice of its election as
provided in this Section 1.5), all of the Convertible Notes held by such Holder
(i) in the case of any such prepayment on or prior to the second anniversary of
the Issue Date, the face principal amount of such Convertible Notes, and (ii) in
the case of any prepayment after the second anniversary of the Issue Date, the
face principal amount of such Convertible Notes together with all accrued and
unpaid interest thereon to the prepayment date, and a premium equal to the
premium which would have been payable pursuant to Section 3 of such Convertible
Note if such Convertible Note were prepaid at the option of the Company on such
prepayment date. Such notice of prepayment having been so given, the aggregate
principal amount of Convertible Notes to be prepaid, together with the premium,
if any, and all accrued and unpaid interest thereon to the prepayment date,
shall become due and payable on the date so specified. Immediately upon receipt
by the Company of a notice from any Holder that such Holder elects to have the
Convertible Notes held by such Holder prepaid as provided in this Section 1.5,
the Company will notify each other Holder of receipt of such notice by telecopy
or other similar electronic device.
ARTICLE II
REGISTRATION RIGHTS
Section 2.1 CERTAIN DEFINITIONS. As used herein, the following
capitalized terms shall have the following meanings:
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as shall be in effect from time to time.
"FORM S-1" shall mean the form so designated, promulgated by the SEC for
registration of securities under the Securities Act, and any forms succeeding to
the functions of such form.
"FORM S-3" shall mean the form so designated, promulgated by the SEC for
"shelf" and certain other registrations of securities under the Securities Act,
and any forms succeeding to the functions of such form.
"HOLDER" shall mean the Purchasers and any other holder of all or part of
the Convertible Notes or the Registrable Shares.
3
"HOLDER INFORMATION" shall have the meaning set forth in Section 2.5.
"REGISTER," "REGISTERED" and "REGISTRATION" shall refer to a registration
effected by the filing of a registration statement (the "REGISTRATION
STATEMENT") in compliance with the Securities Act and the declaration or
ordering by the SEC of the effectiveness of such registration statement.
"REGISTRABLE SHARES" shall mean the Conversion Shares, the Warrant Shares
(as that term is defined in that certain Warrant to Purchase Common Stock, dated
of even date with the Convertible Notes, issued by the Company in favor of U.S.
Bancorp Libra and its designees in connection with its services as placement
agent of the Convertible Notes) and any other securities into which the
Conversion Shares or the Warrant Shares are exchanged or converted.
"Registration Expenses" shall have the meaning set forth in Section 2.6.
"SEC" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act or the Exchange Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
similar successor federal statute and the rules and regulations thereunder, all
as shall be in effect from time to time.
Section 2.2 REGISTRATION OF REGISTRABLE SHARES. On or before the date
which is six months following the Closing, the Company shall use its best
efforts to have the Registration Statement with respect to resales of the
Registrable Shares by the Holders on Form S-3 (if available) or Form S-1 (if
Form S-3 is not available) declared effective by the SEC, and maintain the
effectiveness of the Registration Statement through and until the date which is
the earliest of (a) the date on which all Registrable Shares are sold by the
Holders via the Registration Statement, (b) the date on which all Registrable
Shares are freely saleable by all Holders under Rule 144(k) (or its then
equivalent) without limits as to volume or otherwise, or (c) April 5, 2004,
such date to be extended 1.5 days for each day after the effectiveness of the
Registration Statement on which any Holder is unable to sell Registrable Shares
because of any Suspension (as herein defined), delisting, suspension of trading,
blackout or similar event; PROVIDED, HOWEVER, that after the date set forth in
clause (b) above, the Company is required to maintain the effectiveness of the
Registration Statement only as to those Registrable Shares that are not freely
tradeable as set forth in clause (b). The Company's obligations with respect to
the Registration Statement will not be deemed to have been satisfied unless the
Registration Statement has been declared effective by the SEC and the Company
has complied in all material respects with its obligations under this Article
with respect thereto; provided, however, that if after it has been declared
effective, the offering of Registrable Shares pursuant to the Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, in connection
with any notice given pursuant to the last paragraph of Section 2.5 hereof, or
by any voluntary action of the Company resulting in any
4
Purchaser not being able to offer and sell any Registrable Shares (a
"SUSPENSION"), the Registration Statement will be deemed not to have become
effective during the period of such Suspension until the offering of Registrable
Shares pursuant to the Registration Statement may legally resume.
Section 2.3 CASH PAYMENTS. If (i) the Registration Statement does not
become effective by October 5, 1999; (ii) at any time after October 5, 1999 (a)
the Company does not have sufficient authorized shares of Common Stock to permit
conversion of all of the then outstanding Convertible Notes, (b) the Company
fails for any reason to honor a request for conversion of any of the Convertible
Notes, or (c) the shares of Common Stock of the Company are delisted from any
securities exchange on which such shares are listed or lose eligibility for
inclusion in the NASDAQ National Market or NASDAQ SmallCap Market or the NASD
"bulletin board," and as a result thereof the Company's Common Stock is not
listed on any national securities exchange or eligible for inclusion in the
NASDAQ National Market or NASDAQ SmallCap Market or the NASD "bulletin board";
or (iii) a Suspension is in effect for a cumulative period in excess of 60 days;
then the Company shall pay, in addition to any other remedies available at law
or in equity, (i) to each Holder of the Convertible Notes, a cash payment equal
to 3% of the principal amount of the then outstanding Convertible Notes held by
such Holder and (ii) to each Holder of the Conversion Shares, for each
Conversion Share, a cash payment equal to 3% of the principal amount of the
Convertible Note from which such Conversion Share was converted for each 30-day
period thereafter, pro rated as to any period of less than 30 days. Cash
payments under this Section 2.3 shall be due at the end of each relevant 30-day
period or pro rated period. Notwithstanding anything herein to the contrary:
(x) the cumulative cash payments under this Section 2.3 (which, for the
avoidance of doubt, are in addition to any remedy whether at law or in equity to
which any Holder is entitled other than pursuant to this Section 2.3) shall not
exceed 18% of the principal amount of the Convertible Notes; (y) no cash
payments shall be required (1) pursuant to clause (ii)(a) or (ii)(b) above with
respect to any issued and outstanding Conversion Share; (2) pursuant to clause
(ii)(c) or (iii) above with respect to any Conversion Share that has been sold
by the Holder; and (3) pursuant to clause (iii) above with respect to any
Conversion Share that is freely tradeable by the Holder under Rule 144(k) (or
its then equivalent) or any Convertible Note which, if converted, would yield
Conversion Shares which are freely tradeable under Rule 144(k) (or its then
equivalent).
Section 2.4 HOLDBACK AGREEMENT. If any registration of Registrable
Shares shall be in connection with an underwritten public offering (PROVIDED,
HOWEVER, that nothing herein shall be construed to require or obligate the
Company to undertake any underwritten public offering of the Registrable
Shares), the Company agrees (A) not to effect any public sale or distribution of
any of its equity securities or of any security convertible into or exchangeable
or exercisable for any equity security of the Company (other than any such sale
or distribution of such securities in connection with any merger or
consolidation by the Company or any affiliate of the Company or the acquisition
by the Company or an affiliate of the Company of the shares or substantially all
the assets of any other Person or in connection with an employee stock ownership
or other benefit plan) during the 10 days prior to, and during the 180-day
period (or such lesser period as
5
may be agreed upon between such holders and the managing underwriter of such
offering) which begins on, the effective date of such registration statement
(except as part of such registration), and (B) that any agreement entered into
after the date hereof pursuant to which the Company issues or agrees to issue
any privately placed equity securities shall contain a provision under which the
holders of such securities agree not to effect any public sale or distribution
of any such securities during the period and in the manner referred to in the
foregoing clause (A), including a private placement pursuant to Rule 144A under
the Securities Act (or any successor provision) or otherwise and any sale
pursuant to Rule 144 under the Securities Act (except as part of such
registration, if permitted).
Section 2.5 REGISTRATION PROCEDURES. In satisfaction of its obligations
under this Article, the Company will as expeditiously as possible:
(a) Prepare and file with the SEC the Registration Statement on Form S-3
(if available) or Form S-1 (if Form S-3 is not available) and which form shall
be available for the sale of the Registrable Shares in accordance with the
intended methods of distribution thereof, and use its best efforts to cause such
registration statement to become and remain effective as provided in Section 2.2
hereof, PROVIDED that before filing with the SEC a registration statement or
prospectus or any amendments or supplements thereto, the Company will
(A) furnish to one counsel selected by the holders of a majority of the
Registrable Shares copies of all such documents proposed to be filed for said
counsel's review and comment, and (B) notify each holder of Registrable Shares
of any stop order issued or threatened by the SEC and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered;
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for the period set forth
in Section 2.2, and comply with the provisions of the Securities Act with
respect to the disposition of all of the Registrable Shares covered by the
Registration Statement in accordance with the intended method of disposition set
forth in the Registration Statement for such period;
(c) furnish to the Holders such number of copies of the Registration
Statement and the prospectus included therein (including each preliminary
prospectus) as such Holders reasonably may request in order to facilitate the
public sale or other disposition of the securities covered by the Registration
Statement;
(d) use its best efforts to register or qualify the Holders' Registrable
Shares covered by the Registration Statement under the securities or "blue sky"
laws of such jurisdictions as the Holders or, in the case of an underwritten
public offering, the managing underwriter reasonably shall request, PROVIDED,
HOWEVER, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction when
it is not so qualified or to consent to general service of process in any such
jurisdiction;
6
(e) use its best efforts to cause the Registrable Shares covered by the
Registration Statement to be listed on any securities exchange or accepted for
quotation on any facility of the National Association of Securities Dealers,
Inc. or stock exchange on which the Company's Common Stock is then quoted or
listed;
(f) use its best efforts to cause the Registrable Shares covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the holder or holders thereof
to consummate the disposition of such Registrable Shares;
(g) immediately notify each Holder at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event of which the Company has knowledge as a result of which the
prospectus contained in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statement therein not
misleading in light of the circumstances then existing, and the Company will
promptly prepare and furnish to such Holder a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Shares, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading;
(h) furnish an opinion of counsel representing the Company for the
purposes of such registration, dated the effective date of the Registration
Statement, addressed to the Holders, stating that the Registration Statement has
become effective under the Securities Act and that (A) to the knowledge of such
counsel, no stop order suspending the effectiveness thereof has been issued and
no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the Registration Statement, the
related prospectus and each amendment or supplement thereof comply as to form in
all material respects with the requirements of the Securities Act (except that
such counsel need not express any opinion as to financial statements contained
therein), and (C) such counsel examined the Registration Statement and any
amendment thereof or supplement thereto and has participated in conferences with
officers and other representatives of the Company, representatives of the
Purchasers, counsel to the Purchasers (selected pursuant to Section 2.5(a)
hereof) and representatives of the independent certified public accountants of
the Company, at which the contents of the Registration Statement and any
amendment thereof or supplement thereto and related matters were discussed and,
although such counsel has not independently verified and is not passing upon and
assumes no responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and prospectus included
therein, nothing has come to such counsel's attention that has caused such
counsel to believe that the Registration Statement, on the effective date
thereof, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading, or that the prospectus on the date thereof or
on the date of such opinion, contained or contains an untrue statement of
material fact or omitted or omits to state a material
7
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that such
counsel will express no view with respect to the financial statements contained
therein);
(i) make available for inspection by the Holders and any attorney,
accountant or other agent retained by the Holders, during business hours upon
reasonable notice, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
Holder, attorney, accountant or agent in connection with the Registration
Statement;
(j) use its best efforts to obtain a "cold comfort" letter from the
Company's appointed auditors in customary form and covering such matters of the
type customarily covered by "cold comfort" letters as the Holders of a majority
in interest of the Registrable Shares being sold reasonably request, subject to
the Holders making all representations and warranties reasonably required by
such auditors; and
(k) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC.
In connection with each registration hereunder, each Holder will furnish to
the Company in writing such information regarding such Holder as the Company may
require in connection with the preparation of the Registration Statement (the
"HOLDER INFORMATION") of such Holder. The Company will include the Holder
Information in the prospectus without alteration and will not file a
Registration Statement over the reasonable objection of any Holder; provided
that (i) such objection must be made in writing to the Company, state with
specificity such Holder's grounds for objection to the Registration Statement
and identify what changes to the Registration Statement would cause such Holder
to remove its objection; (ii) such Holder shall negotiate openly and in good
faith with the Company to remove such objection for a period of 10 days after
notifying the Company of its objection; and (iii) the Company shall not be
required to pay any penalties to any Holder pursuant to Section 2.3 for such
10-day period. In connection with a registration hereunder, if a Holder shall
distribute a prospectus of the Company in compliance with applicable securities
laws and if the Company provides the Holder with a written prospectus for
distribution in connection with such registration and thereafter the Company
delivers a written notice to the Holder in accordance with this Agreement
requesting that the Holder refrain from further distribution of such prospectus
because such prospectus contains an untrue statement of material fact or omits
to state a material fact required to be stated therein or necessary to make the
statement therein not misleading, then the Holder will not thereafter further
distribute such prospectus. In the event that the Company shall give such
notice, a Suspension shall be deemed to exist for the period from and including
the date of the giving of such notice to and including the date when each holder
of Registrable Shares covered by the Registration Statement shall have received
the copies of the supplemented or amended prospectus contemplated by Section
2.5(f) hereof.
8
Section 2.6 REGISTRATION EXPENSES. The Company will pay all
Registration Expenses in connection with the Registration Statement under this
Article. "REGISTRATION EXPENSES" shall mean all expenses incurred in connection
with a registration hereunder or otherwise incurred by the Company in complying
with this Article, including, without limitation, all registration and filing
fees, listing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and disbursements of
counsel referred to in Section 2.5(a), fees and expenses (including counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars and costs of insurance if any, but
excluding underwriting discounts and selling commissions applicable to the sale
of the Registrable Shares.
Section 2.7 INDEMNIFICATION.
(a) In the event of a registration of any Registrable Shares under
the Securities Act pursuant to this Article, the Company will indemnify and hold
harmless, to the full extent permitted by law, each Holder, their respective
directors and officers, parents, subsidiaries, general partners, limited
partners and managing directors, each Person, if any, who controls the Holder
within the meaning of the Securities Act, each underwriter of such Registrable
Shares thereunder and each other Person, if any, who controls the underwriter
within the meaning of the Securities Act (and directors, officers, parents,
subsidiaries, controlling Persons, partners and managing directors of any of the
foregoing), against any losses, claims, damages, liabilities and expenses
(including any amounts paid in any settlement effected with the Company's
consent, which consent will not be unreasonably withheld, and also including the
costs of enforcement of this Agreement and the Convertible Notes), to which such
Holder, director, officer, general or limited partner, managing director,
underwriter or controlling Person may become subject under the Securities Act,
United States state securities "blue sky" laws, common law or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
or expenses arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Shares were registered under the Securities Act
pursuant to this Article, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, or arise out of any violation or alleged violation by the Company of
any United States federal, state or common law rule or regulation applicable to
the Company and relating to action required of or inaction by the Company in
connection with any such registration, and will reimburse each Holder, and each
such director, officer, parent, subsidiary, general partner, limited partner or
managing director, each such underwriter and each such controlling Person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
PROVIDED, HOWEVER, that the Company will not be liable in any such case to such
Holder if and only to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission made in reliance
upon and in conformity with the Holder Information pertaining to and provided by
such Holder in writing specifically for use in the
9
Registration Statement or prospectus. The indemnity provided for herein shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Holder or any such director, officer, general partner, limited
partner, managing director, underwriter or controlling Person and shall survive
the transfer of such Registrable Shares by such Holder.
(b) In the event of a registration of any Registrable Shares under
the Securities Act pursuant to this Article, each Holder will indemnify and hold
harmless the Company, each Person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
Registration Statement, each director of the Company, each underwriter of such
Registrable Shares, each Person, if any, who controls any underwriter within the
meaning of the Securities Act, and each other Holder against any losses,
claims, damages or liabilities to which the Company or such officer, director,
underwriter, controlling Person or Holder may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities or actions in respect thereof arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement under which such Registrable Shares were registered
under the Securities Act pursuant to this Article, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, directors, underwriter, controlling Person and Holder for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, PROVIDED HOWEVER,
that each Holder will be liable hereunder (i) in any such case if and only to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or omission made in reliance upon and in
conformity with the Holder Information pertaining to such Holder, as such,
furnished in writing to the Company by such Holder specifically for use in the
Registration Statement or prospectus, and (ii) in any event in no greater amount
than the net proceeds received by such Holder from its sale of Registrable
Shares pursuant to such Registration Statement or prospectus. The indemnity
provided for herein shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director, officer,
general partner, limited partner, managing director, underwriter, controlling
Person or other Holder and shall survive the transfer of such Registrable Shares
by the indemnifying Holder.
(c) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the omission so
to notify the indemnifying party shall not relieve the indemnifying party from
any liability which it may have to such indemnified party other than as provided
in this Section and shall only relieve the indemnifying party from any liability
which it may have to such indemnified party under this Section if and to the
extent the indemnifying party is materially prejudiced by such omission. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof,
10
unless such indemnified party shall have been advised by counsel that a conflict
of interest between such indemnified party and indemnifying parties may exist in
respect of such claim, the indemnifying party shall be entitled to participate
in and, to the extent it shall so desire, to assume and undertake the defense
thereof with counsel reasonably satisfactory to such indemnified party, and,
after notice from the indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, the indemnifying party
shall not be liable to such indemnified party under this Section for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof, PROVIDED, HOWEVER, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have been advised by counsel that there may be
reasonable defenses available to the indemnified party which are different from
or in addition to those available to the indemnifying party such that the
interests of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party shall have the right
to select one separate counsel and to assume such legal defenses and otherwise
to participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred. In no event shall an
indemnifying party be liable for any settlement reached without its consent,
which consent shall not be unreasonably withheld (such settlement must include
general releases). No indemnifying party will consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel in any single jurisdiction for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels as may be reasonably
necessary. Notwithstanding anything to the contrary set forth herein, and
without limiting any of the rights set forth above, in any event any party will
have the right to retain, at its own expense, counsel with respect to the
defense of a claim.
(d) Indemnification similar to that specified in the preceding
subsections of this Section 2.7 (with appropriate modifications) shall be given
by the Company and each Holder, to the full extent permitted by applicable law,
with respect to any required registration or other qualification of securities
under any United States federal or state law or regulation or governmental
authority other than the Securities Act.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Section 2.7
is for any reason held to be unenforceable although applicable in accordance
with its terms, then, and in each such case, the Company and the Holders will
contribute to the aggregate losses, claims, damages, liabilities and expense to
which they may be subject in such proportion as is appropriate to reflect the
relative fault of the Company, on the one hand, and the Holders, on the other,
with respect to the
11
statements or omissions that resulted in such loss, liability, claim, damage or
expense, or action in respect thereof, as well as any other relevant equitable
considerations. The relative fault of the Company, each Holder and the other
indemnified and indemnifying parties shall be determined by reference to, among
other things, whether any action in question, including any untrue or allegedly
untrue statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
parties, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The Company and the Holders
agree that it would not be just and equitable if contribution pursuant to this
Section 2.7 were to be determined by pro rata allocation or by any other method
of allocation that does not take into account the equitable considerations
referred to herein. Notwithstanding anything to the contrary contained herein,
the Company and the Holders agree that (A) any contribution required to be made
by a Holder pursuant to this Section 2.7 shall not exceed the net proceeds from
the offering of Registrable Shares received by such Holder with respect to such
offering; and (B) no Person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any Person or entity who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 2.7, each Person, if any, who
controls a Holder or an underwriter within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as such Holder or
underwriter, and each director of the Company, each officer of the Company who
signed the registration statement, and each Person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as the Company.
Section 2.8 REPORTS UNDER THE SECURITIES ACT AND THE EXCHANGE ACT. With
a view to making available to the Holders the benefits of any rule or regulation
of the SEC that may at any time permit the Holders to sell securities of the
Company to the public pursuant to a registration on Form S-3 or otherwise, the
Company agrees to file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act.
Section 2.9 LOCK-UP RESTRICTIONS. Purchasers acknowledge that the
Company is contemplating proceeding in 1999 with an underwritten offering of its
Common Stock, solely for the account of the Company and certain holders (other
than officers, directors or employees of the Company or affiliates of such
Persons or Persons whose holdings are under applicable SEC rules attributed to
any of the foregoing) of existing stock purchase warrants as disclosed pursuant
to Section 3.4 hereof (the "Stock Offering"). Purchasers agree that between the
time of execution of any underwriting agreement for the Stock Offering until the
expiration of such period as the underwriters in the Stock Offering shall
require (such period not to exceed 180 days or to continue after March 31,
2000), they will not sell, pledge or otherwise transfer without the consent of
such underwriters any of the Convertible Notes or Conversion Shares except to
transferees who agree in writing to be bound by such restrictions (the "Lock-Up
Restrictions"); provided, however, that no Purchaser shall be bound by any
Lock-Up Restrictions unless all then officers, directors and affiliates (within
the meaning of the Securities Act) of the Company
12
(within the meaning of the Securities Act), and Persons whose holdings are under
applicable SEC rules attributed to any of the foregoing, contemporaneously agree
in writing to be bound by such Lock-Up Restrictions for a period extending for
30 days beyond the period that the Purchaser is bound by the Lock-Up
Restrictions. The Company's obligations to register the Registrable Shares
under this Article II shall not be applicable to any subsequent holder of
Convertible Notes who does not agree in writing to be bound by this Section 2.9.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as set
forth in this Agreement, the Form 10-K (as defined below), the Financial
Statements (as defined below) or the Disclosure Schedule delivered to the
Purchasers:
Section 3.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER.
(a) The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware, and each Subsidiary is
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its organization, and the Company and each Subsidiary is duly
licensed or qualified to transact business in all jurisdictions in which the
nature of the business transacted by the Company or such Subsidiary or the
character of the properties owned or leased thereby requires that the Company or
such Subsidiary qualify to do business as a foreign corporation, except where
the failure to be so licensed or qualified would not have a Material Adverse
Effect. The Company and each Subsidiary has the corporate power and authority
to own and hold its properties and to carry on its business as now conducted and
as proposed to be conducted. The Company has the corporate power and authority
to execute, deliver and perform this Agreement, to issue, sell and deliver the
Convertible Notes and to issue and deliver the Conversion Shares.
(b) The subsidiaries of the Company are set forth on SCHEDULE 3.1(b) of
the Disclosure Schedule. The Company owns 100% of the issued and outstanding
common stock of each Subsidiary, and no Subsidiary has any equity interests, or
options, warrants or convertible securities therefor, other than such common
stock. Other than such Subsidiaries, the Company does not own of record or
beneficially, directly, (i) any shares of capital stock or securities
convertible into capital stock of any other corporation or, (ii) any
participating interest in any partnership, joint venture or other non-corporate
business enterprise and does not control, directly or indirectly, any other
entity.
13
Section 3.2 AUTHORIZATION OF AGREEMENTS, ETC.
(a) The execution and delivery by the Company of this Agreement, the
performance by the Company of its obligations hereunder, the issuance, sale and
delivery of the Convertible Notes and the issuance and delivery of the
Conversion Shares have been duly authorized by all requisite corporate action
and will not violate (i) any provision of any law, order of any court or other
agency of government applicable to the Company, the Certificate of Incorporation
of the Company (the "Charter"), or the By-Laws of the Company, as amended, or
(ii) any provision of any indenture, agreement or other instrument to which the
Company or any of its properties or assets is bound, or (iii) conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument, or (iv) result
in the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Company, which in the cases of clauses (ii), (iii) and (iv) would have a
Material Adverse Effect.
(b) The Conversion Shares have been duly authorized, reserved for issuance
upon conversion of the Convertible Notes and, when so issued, will be validly
issued, fully paid and nonassessable shares of Common Stock with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances. Neither the issuance,
sale or delivery of the Convertible Notes nor the issuance or delivery of the
Conversion Shares is subject to any preemptive right of stockholders of the
Company or to any right of first refusal or other right in favor of any person.
Section 3.3 VALIDITY. This Agreement and the Convertible Notes (on
delivery at the Closing) have been (or, in the case of the Convertible Notes,
will be on delivery at the Closing) duly executed and delivered by the Company
and constitute the legal, valid and binding obligations of the Company,
enforceable in accordance with their terms, subject to laws of general
application from time to time in effect affecting creditors' rights and the
exercise of judicial discretion in accordance with general equitable principles.
Section 3.4 AUTHORIZED CAPITAL STOCK. The authorized capital stock of
the Company consists of 50,000,000 shares of the Common Stock and 1,000,000
shares of preferred stock (the "PREFERRED STOCK"). The Company has authorized
the creation of a series of 400,000 shares of Preferred Stock designated "Series
A Convertible Preferred Stock" out of the 1,000,000 shares of authorized
Preferred Stock. As of March 31, 1999 there were outstanding 14,314,731 shares
of Common Stock, 1,051,100 shares of Series A Convertible Preferred Stock,
warrants to purchase 7,536,514 shares of Common Stock and options to purchase
1,956,596 shares of Common Stock. Since March 31, 1999, the Company has not
issued any securities other than pursuant to the exercise of rights under
options, warrants, or convertible securities existing prior to March 31, 1999.
The designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of authorized capital stock of
the Company are as set forth in the Charter, a copy of which is attached hereto
as EXHIBIT B. No subscription, warrant, option, convertible security, or other
right (contingent or other) to purchase or otherwise acquire from
14
the Company any equity securities of the Company is authorized or outstanding
and there is no commitment by the Company to issue shares, subscriptions,
warrants, options, convertible securities, or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or
asset. Except as provided for in the Charter or as set forth in SCHEDULE 3.4 of
the Disclosure Schedule, the Company has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution thereof.
Section 3.5 COMPANY FORM 10-K. The Company has delivered to Purchaser a
copy of the Company's draft Form 10-KSB for the year ended December 31, 1998
substantially in the form expected to be filed with the SEC on or about April
15, 1999 (the "Form 10-K"). The Form 10-K does not contain any misstatements of
material fact or fail to state any material fact necessary to make the
statements therein not misleading. The financial statements included in the
Form 10-K (the "Financial Statements") comply as to form with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto. The financial statements included in the Form 10-K have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto). The balance sheets contained in the Form 10-K present fairly
the financial condition of the Company and the Subsidiaries on a consolidated
basis as of the dates thereof. The income statements contained in the Form 10-K
present fairly the results of the operations of the Company and the Subsidiaries
on a consolidated basis for the periods covered thereby and do not contain any
items of special or nonrecurring income, except as specifically set forth
therein. Since December 31, 1998 (i) there has not been any change in the
business, financial condition, operations or accounting procedures of the
Company, except changes in the ordinary course of business which do not
individually or in the aggregate constitute a Material Adverse Effect, and (ii)
the Company and its Subsidiaries have not incurred any Indebtedness for Borrowed
Money, directly or indirectly, actual or contingent.
Section 3.6 SEC REPORTING. Since January 1, 1998, to the date hereof,
the Company has filed its annual reports on Form 10-KSB, quarterly reports on
Form 10-QSB and current reports on Form 8-K (the "SEC Documents"), which are all
the documents (other than preliminary material) that the Company was required to
file with the SEC since such date. As of their respective dates, none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and no material event has occurred which could make any of
the disclosures contained therein misleading other than as disclosed in later
filed SEC Documents or in the Form 10-K. The financial statements of the
Company included in the SEC Documents have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited financial statements, as may be permitted by Form 10-QSB of
the SEC) and such statements together with the notes thereto fairly present
(subject in the case of unaudited financial statements, only to normal recurring
year-end audit adjustments) the consolidated financial
15
position of the Company and its consolidated Subsidiaries as at the dates
thereof and the consolidated results of their operations and changes in
financial position for the periods then ended.
Section 3.7 CERTAIN EVENTS. The Company has not, and no Subsidiary has,
(i) issued any stock, bond or other corporate security, (ii) borrowed any amount
or incurred or become subject to any material liability (absolute, accrued or
contingent), except current liabilities incurred and liabilities under contracts
entered into in the ordinary course of business, (iii) discharged or satisfied
any lien or encumbrance or incurred or paid any obligation or liability
(absolute, accrued or contingent) other than current liabilities incurred in the
ordinary course of business, (iv) declared or made any payment or distribution
to stockholders or purchased or redeemed any shares of its capital stock or
other security, (v) mortgaged, pledged or subjected to lien any of its assets,
tangible or intangible, other than liens for current real property taxes not yet
due and payable, (vi) sold, assigned or transferred any of its material tangible
assets except in the ordinary course of business, or canceled any material debt
or claim, (vii) sold, assigned, transferred or granted any license with respect
to any patent, trademark, trade name, service xxxx, copyright, trade secret or
other intangible asset, (viii) suffered any material loss of property or waived
any material right of substantial value whether or not in the ordinary course of
business, (ix) made any change in officer compensation except in the ordinary
course of business and consistent with past practices, (x) made any material
change in the manner of business or operations of the Company, (xi) entered into
any material transaction except in the ordinary course of business or as
otherwise, contemplated hereby, or (xii) entered into any material commitment
(contingent or otherwise) to do any of the foregoing.
Section 3.8 GOVERNMENTAL APPROVALS. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article IV, no
registration or filing with, or consent or approval of or other action by, any
federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the issuance, sale and delivery of the Convertible Notes or,
upon conversion thereof, the issuance and delivery of the Conversion Shares,
other than the filing of notices prior or subsequent to the Closing that may be
required pursuant to federal and state securities laws in connection with the
sale of the Convertible Notes.
Section 3.9 LITIGATION; COMPLIANCE WITH LAW. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the Company's knowledge,
threatened against the Company or any Subsidiary, at law or in equity to
restrain, prohibit, restrict or delay the transactions contemplated by this
Agreement before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) outstanding or unsatisfied judgment for money damages or otherwise
against the Company or any Subsidiary, (iii) action, suit, claim, proceeding or
investigation pending or, to the Company's knowledge, threatened against the
Company or any Subsidiary, which, if determined adversely to the Company or such
Subsidiary, would have a Material Adverse Effect, (iv) arbitration proceeding
relating to the Company or any Subsidiary pending under collective
16
bargaining agreements or otherwise, or (v) governmental inquiry pending, or to
the Company's knowledge, threatened against the Company or any Subsidiary
(including without limitation any inquiry as to the qualifications of the
Company or any Subsidiary to hold or receive any governmental license or
permit). Neither the Company nor any Subsidiary is in default with respect to
any order, writ, injunction or decree known to or served upon the Company or any
Subsidiary of any court or of any federal, state, municipal, or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. There is no action or suit by the Company or any
Subsidiary pending or contemplated against others. The Company and each
Subsidiary has complied in all material respects with all laws, rules,
regulations, and orders applicable to its business, operations, properties,
assets, products and services, and the Company and each Subsidiary has all
material governmental permits, licenses and other authorizations required to
conduct its business as conducted and as proposed to be conducted. There is no
existing law, rule, regulation or order, and the Company has no knowledge of any
proposed law, rule, regulation or order, whether federal or state, which would
prohibit or restrict the Company or any Subsidiary from, or otherwise materially
adversely affect the Company or any Subsidiary in, conducting its business in
any jurisdiction in which it is now conducting business or in which it proposes
to conduct business.
Section 3.10 TITLE TO PROPERTIES. The Company and each Subsidiary has
good and marketable title to its properties and assets reflected in the balance
sheet that is part of the Financial Statements or thereafter acquired (other
than properties and assets disposed of in the ordinary course of business since
the date of the Balance Sheet) and all such properties and assets are free and
clear of mortgages, pledges, security interests, Liens, charges, claims,
restrictions and other encumbrances, except for liens for or current taxes not
yet due and payable and minor imperfections of title, if any, not material in
nature or amount and not materially distracting from the value or impairing the
use of the property subject thereto or impairing the operations or proposed
operations of the Company or any Subsidiary. Such assets are suitable for the
purposes for which they are used by the Company and each Subsidiary.
Section 3.11 LEASEHOLD INTERESTS. Each lease or agreement to which the
Company or any Subsidiary is a party under which it is a lessee of any property,
real or personal, is a valid and subsisting agreement without any default of the
Company or such Subsidiary thereunder and, to the Company's or such Subsidiary's
knowledge, without any default thereunder of another party thereto. No event
has occurred and is continuing which, with notice or lapse of time or both,
would constitute a default or event of default by the Company or any Subsidiary
under any such lease agreement or, to the Company's or any Subsidiary's
knowledge, by any other party thereto. The Company's and each Subsidiary's
possession of such property has not been disturbed and, to the Company's and
each Subsidiary's knowledge, no claim has been asserted against the Company or
any Subsidiary adverse to its rights in such leasehold interests. Neither the
Company nor any Subsidiary has assigned, transferred, conveyed or mortgaged any
interest in any such lease or agreement. Such properties are suitable for the
purposes for which they are used by the Company and each Subsidiary.
17
Section 3.12 TAXES. The Company and each Subsidiary has filed all tax
returns, federal, state, county and local, required to be filed by it, and the
Company and each Subsidiary has paid, or made adequate provision for the payment
of, all taxes shown to be due and payable including without limitation all taxes
which the Company or such Subsidiary is obligated to withhold from amounts owing
to employees, creditors and third parties. The Company reasonably believes that
it has established adequate reserves for all taxes accrued but not yet payable.
The tax returns of the Company and each Subsidiary have never been audited by
the Internal Revenue Service or any other taxing authority. No deficiency
assessment with respect to or proposed adjustment of the Company's or any
Subsidiary's federal, state, county or local taxes is pending or, to the
Company's knowledge, threatened. There is no tax lien, whether imposed by any
federal, state, county or local-taxing authority, outstanding against the
assets, properties or business of the Company or any Subsidiary. Neither the
Company nor any Subsidiary nor, to the Company's knowledge, any of the
stockholders thereof has ever filed (a) an election pursuant to Section 1362 of
the Internal Revenue Code of 1986, as amended (the "Code"), that the Company or
such Subsidiary be taxed as a S corporation or (b) consent pursuant to Section
341(f) of the Code relating to collapsible corporations.
Section 3.13 OTHER AGREEMENTS. Neither the Company nor any Subsidiary is
a party to or otherwise bound by any written or oral:
(i) contract or agreement which is not terminable on less than
ninety (90) days notice, without cost or other liability to the Company or any
Subsidiary (except for contracts which, in the aggregate, are not material to
the business of the Company or any Subsidary);
(ii) contract which entitles any customer to a rebate or right of
set-off, or which varies in any material respect from the Company's or any
Subsidiary's standard contracts;
(iii) contract with any labor union (and, to the knowledge of the
Company and each Subsidiary, no organizational effort is being made with respect
to any of its employees);
(iv) contract or other commitment with any supplier of goods or
services containing any provision permitting any party other than the Company or
Subsidiary to renegotiate the price or other terms, or containing any pay-back
or other similar provision upon the occurrence of a failure by the Company or
any Subsidiary to meet its obligations under the contract when due or the
occurrence of any other event;
(v) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(vi) contract for the employment of any officer, employee or
other person (whether of a legally binding nature of informal understandings) on
a full-time or consulting
18
basis which is not terminable on notice without cost or other liability to the
Company or Subsidiary, except normal severance arrangements and accrued vacation
pay;
(vii) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, contract or understanding
pursuant to which benefits are provided to any employee of the Company or any
Subsidiary (other than group insurance plans applicable to employees generally);
(viii) guaranty of any obligation for borrowed money or otherwise;
(ix) voting trust or agreement, stockholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of the Company or any Subsidiary;
(x) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company or any
Subsidiary has advanced or agreed to advance money or has agreed to lease an
property as lessee or lessor;
(xi) agreement or obligation (contingent or otherwise) to issue,
sell or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its property;
(xii) agreement under which it has granted any person any
registration rights;
(xiii) agreement under which it has limited or restricted its right
to compete with any person in any respect; or
(xiv) contract or group of related contracts with the same party
involving more than $100,000 or continuing over a period of more than twelve
months from the date or dates thereof (including renewals or extensions optional
with another party), which contract or group of contracts is not terminable by
the Company without penalty upon notice of thirty (30) days or less.
The Company and each Subsidiary, and to the Company's and each Subsidiary's
knowledge, each other party thereto have in all material respects performed all
the obligations required to be performed by them to date, have received no
notice of default and are not in default (with due notice or lapse of time, or
both) under any material lease, agreement or contract now in effect to which the
Company or any Subsidiary is a party or by which it or its property may be
bound. Neither the Company nor any Subsidiary has any present expectation or
intention of not fully performing all its obligations under each such material
lease, contract or other agreement, and neither the Company nor any Subsidiary
has knowledge of any breach or anticipated breach by the other party to any
material contract or commitment to which the
19
Company or any Subsidiary is a party. The Company and each Subsidiary is in
compliance with all of the terms and provisions of its Charter and Bylaws.
Section 3.14 PATENTS, TRADEMARKS, ETC. Set forth in Schedule 3.14 is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service xxxx applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Company and
each Subsidiary, or of which the Company or any Subsidiary is a licensor or
licensee or in which the Company or any Subsidiary has any right, and in each
case a brief description of the nature of such right. The Company and each
Subsidiary currently has all licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks, service xxxx
applications, trade names, copyrights, manufacturing processes, formulae, trade
secrets and know how (collectively, "Intellectual Property") which the Company
or any Subsidiary presently believes are necessary or desirable to the conduct
of its business as conducted and proposed to be conducted, and no claim is
pending or, to the Company's or any Subsidiary's knowledge, threatened, to the
effect that the operations of the Company or any Subsidiary infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property. No claim is pending or, to the Company's or any Subsidiary's
knowledge, threatened, to the effect that any such Intellectual Property owned
or licensed by the Company or any Subsidiary, or which the Company or any
Subsidiary otherwise has the right to use, is invalid or unenforceable by the
Company or such Subsidiary. To the Company's knowledge, all technical
information developed by and belonging to the Company and each Subsidiary which
has not been patented has been kept confidential. Neither the Company nor any
Subsidiary has granted or assigned to any other person or entity any right to
manufacture, have manufactured, assemble or sell the products or proposed
products or to provide the services or proposed services of the Company or any
Subsidiary.
Section 3.15 LOANS AND ADVANCES. Neither the Company nor any Subsidiary
has any outstanding loans or advances to any person and is not obligated to make
any such loans or advances, except, in each case, for advances to employees of
the Company in respect of relocation costs or reimbursable business expenses
anticipated to be incurred by them in connection with their performance of
services for the Company.
Section 3.16 ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS OF OTHER
PERSONS. Neither the Company nor and Subsidiary has assumed, guaranteed,
endorsed or otherwise become directly or contingently liable on any indebtedness
or any other obligation of any other person (including, without limitation,
liability by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply finds to or otherwise invest in the debtor, or
otherwise to assure the creditor against loss), except for guaranties by
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business.
Section 3.17 MATERIAL CUSTOMERS AND SUPPLIERS. No customer or supplier
which is material to the Company or any Subsidiary has terminated, materially
reduced or threatened to
20
terminate or materially reduce its purchases from or provision of products or
services to the Company or any Subsidiary, as the case may be.
Section 3.18 DISCLOSURE. The Company's representations and warranties in
this Agreement and in the Schedules and Exhibits to this Agreement do not
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
Section 3.19 OFFERING OF THE CONVERTIBLE NOTES. Except for U.S. Bancorp
Libra, a division of U.S. Bancorp Investments, Inc. ("U.S. Bancorp Libra"),
which the Company has engaged as its exclusive financial advisor and placement
agent with respect to the Convertible Notes, neither the Company nor any person
authorized or employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Convertible Notes or any security of
the Company similar to the Convertible Notes has offered the Convertible Notes
or any such similar security for sale to, or solicited any offer to buy the
Convertible Notes or any such similar security from, or otherwise approached or
negotiated with respect thereto with, any person or persons, and neither the
Company nor any person acting on its behalf has taken or will take any other
action (including, without limitation, any offer, issuance or sale of any
security of the Company under circumstances which might require the integration
of such security with the Convertible Notes under the Securities Act), in either
case so as to subject the offering, issuance or sale of the Convertible Notes to
the registration provisions of the Securities Act.
Section 3.20 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement, except for the Company's agreement
with U.S. Bancorp Libra.
Section 3.21 SOLVENCY. The Company is not entering into any of the
transactions contemplated hereby, nor does the Company intend to make any
transfer or incur any obligations hereunder, with actual intent to hinder, delay
or defraud either present or future creditors. On the Closing Date, after
giving effect to the consummation of the transactions contemplated hereby and
the use of the proceeds of the issuance and sale of the Convertible Notes for
the purposes described herein, (i) without prejudice to the Company's
representation contained in Section 3.9 hereof, the Company expects the cash
available to the Company and the Subsidiaries on a consolidated basis, after
taking into account all other anticipated uses of the cash of the Company and
the subsidiaries, will be sufficient to satisfy all final judgments for money
damages which have been docketed against the Company and the Subsidiaries or
which may be rendered against the Company and the Subsidiaries in any action in
which the Company or any Subsidiary is a defendant (taking into account the
reasonably anticipated maximum amount of any such judgment and the earliest time
at which such judgment might be entered); (ii) the sum of the present fair
saleable value of the assets of the Company and the Subsidiaries on a
consolidated basis will exceed the probable liability of the Company and the
Subsidiaries on their debts; (iii) the Company and the Subsidiaries on a
consolidated basis will not have incurred or intend to incur, or believed that
they will have incurred, debts beyond their ability to pay such debts as
21
such debts mature (taking into account the timing and amounts of cash to be
received by the Company from any source, and the amounts to be payable on or in
respect of debts of the Company and the Subsidiaries); and (iv) the Company and
the Subsidiaries on a consolidated basis will have sufficient capital with which
to conduct their present and proposed businesses and the property of the Company
and the Subsidiaries does not constitute unreasonably small capital with which
to conduct their present or proposed businesses. For purposes of this Section
3.21 "debt" means any liability on a claim, and "claim" means (1) any right to
payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed (other than those
being disputed in good faith), undisputed, legal, equitable, secured or
unsecured, or (2) any right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable secured,
or unsecured.
Section 3.22 TRANSACTIONS WITH AFFILIATES. No director, officer,
employee or stockholder of the Company or any Subsidiary, or, to the Company's
or any Subsidiary's knowledge, any member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person,
or, to the Company's or any Subsidiary's knowledge, any member of the family of
any such person, has a substantial interest or is an officer, director, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof, is a
party to any transaction with the Company or any Subsidiary, including any
contract, agreement or other arrangement providing for the employment of
furnishing the services by, rental of real or personal property from or
otherwise requiring payments to any such person or firm.
Section 3.23 EMPLOYEES. No officer or key employee of the Company or any
Subsidiary has advised the Company or such Subsidiary (orally or in writing)
that he intends to terminate employment with the Company or such Subsidiary. To
the Company's and each Subsidiary's knowledge, the Company and each Subsidiary
has complied in all material respects with all applicable laws relating to the
employment of labor, including provisions relating to wages, hours, equal
opportunity, collective bargaining and the payment of Social Security and other
taxes and the Employee Retirement Income Security Act of 1974, as amended.
Section 3.24 YEAR 2000 PROBLEM. The Company and each Subsidiary is
taking all action necessary to mitigate the risk that computer applications used
by the Company or any Subsidiary may be unable to recognize and properly perform
date-sensitive functions involving dates prior to, during and after the year
2000 (the "Year 2000 problem"). The Company believes that the Year 2000 Problem
will not have a Material Adverse Effect.
Section 3.25 MARGIN REGULATIONS. Neither the Company nor any Subsidiary
is engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation T, U or X of the Board
of Governors of the Federal Reserve System) and no proceeds of the Convertible
Notes will be used in a manner that would violate, or result in a violation of,
such Regulation T, U or X.
22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
The Purchaser represents and warrants to the Company, for itself only,
that:
(a) It is an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act and was not organized for the specific
purpose of acquiring the Convertible Notes;
(b) It has sufficient knowledge and experience in investing in companies
similar to the Company in terms of the Company's stage of development so as to
be able to evaluate the risks and merits of its investment in the Company and it
is able to financially bear the risks thereof;
(c) It has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(d) The Convertible Notes being purchased by it are being acquired for its
own account and not with a view to or for sale in connection with any
distribution thereof;
(e) It understands that (i) the Convertible Notes and the Conversion
Shares have not been registered under the Securities Act, (ii) the Convertible
Notes and, upon conversion thereof, the Conversion Shares must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration, (iii) the Convertible Notes
and the Conversion Shares will bear a legend to such effect and (iv) the Company
will make a notation on its transfer books to such effect;
(f) It has no present need for liquidity in connection with its purchase
of the Convertible Notes;
(g) The purchase of the Convertible Notes is consistent with the general
investment objectives of the Purchaser, and that it understands that the
purchase of the Convertible Notes involves a high degree of risk in view of the
fact that, among other things, the Company has a limited operating history and
its capital stock trades on the NASD "bulletin board" and accordingly there
might not be a consistent market for trades in such stock;
(h) If the Purchaser is a corporation, partnership, trust or other entity,
(i) the individual executing this Agreement on its behalf has been duly
authorized to execute and deliver this Agreement, (ii) the signature of such
individual is binding upon such partnership, corporation, trust and other
entity, (iii) the Purchaser is duly organized, validly existing and in good
standing in its jurisdiction of incorporation or organization and has all
requisite power and
23
authority to execute and deliver this Agreement, and (iv) the execution and
delivery of this Agreement and the purchase of the Convertible Notes hereunder
will not result in the violation of, constitute a breach or default under, or
conflict with, any term or provision of the charter, bylaws or other governing
document of the Purchaser or, to its knowledge, constitute a material breach or
default under any agreement, judgment, decree, order, statute or regulation by
which it is bound or applicable to it;
(i) This Agreement constitutes the legal, valid and binding obligation of
the Purchaser, enforceable in accordance with its terms, subject to laws of
general application from time to time in effect affecting creditors' rights and
the exercise of judicial discretion in accordance with general equitable
principles; and
(j) It has no contract, arrangement or understanding with any broker,
finder or similar agent with respect to the transactions contemplated by this
Agreement.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of the Purchaser to purchase and pay for the Convertible
Notes to be purchased by it on the Closing Date is subject to the satisfaction
or waiver, on or before such Closing Date, of the following conditions:
Section 5.1 DUE DILIGENCE. The Purchasers shall have completed their
due diligence review of the Company in all aspects satisfactory to the
Purchasers in their sole discretion.
Section 5.2 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have
received from Christensen, Miller, Fink, Jacobs, Xxxxxx, Xxxx & Xxxxxxx, LLP,
counsel for the Company, an opinion dated the Closing Date, substantially in the
form attached to this Agreement as EXHIBIT C.
Section 5.3 REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Company contained in Article III shall be
true, complete and correct in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date, and the Chief Executive or Chief Operating Officer
of the Company shall have certified to such effect to the Purchasers in writing
on behalf of the Company.
Section 5.4 PERFORMANCE. The Company shall have performed and complied
in all material respects with all agreements contained herein required to be
performed or complied with by it prior to or at the Closing Date, and the Chief
Executive or Chief Operating Officer of the Company shall have certified to the
Purchasers in writing to such effect on behalf of the Company.
24
Section 5.5 ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and
other proceedings to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Purchasers and their
counsel and the Purchasers and their counsel shall have received all such
counterpart originals or certified or other copies of such documents as they
reasonably may request.
Section 5.6 PURCHASE BY OTHER PURCHASERS. The aggregate principal
amount of Convertible Notes to be purchased at the Closing by the Purchasers
shall be not less than $30,000,000.
Section 5.7 SUPPORTING DOCUMENTS. The Purchaser shall have received
copies of the following documents:
(a) The Charter, certified as of a recent date by the Secretary of State
of the State of Delaware, in the form of EXHIBIT B, together with a certificate
of said Secretary dated as of a recent date as to the legal existence and good
standing of the Company in the State of Delaware, and certificates of the
Secretary of State of each jurisdiction in which the Company is qualified to do
business as a foreign corporation dated as of a recent date as to the Company's
qualification and good standing in such jurisdiction.
(b) A certificate of the Secretary of the Company dated as of the Closing
Date and certifying (i) that attached thereto is a true and complete copy of the
Bylaws of the Company as in effect on the date of such certification, (ii) that
attached thereto is a true and complete copy of all resolutions adopted by the
Board of Directors of the Company authorizing the execution, delivery and
performance of this Agreement and the Convertible Notes, and the issuance, sale
and delivery of the Conversion Shares, and that all such resolutions are in full
force and effect and are all of the resolutions adopted in connection with the
transactions contemplated by this Agreement, and (iii) to the incumbency and
signatures of each officer of the Company executing this Agreement and the
Convertible Notes on behalf of the Company and any certificate or instrument
furnished pursuant hereto, and a certification by another officer of the Company
as to the incumbency and signature of the officer signing the certificate
referred to in this subsection (b).
(c) The acceptance, by CT Corporation System, of its appointment as agent
for service of process pursuant to Section 7.9 of this Agreement and Section 9.6
of the Convertible Notes.
All such documents required under this Article V shall be satisfactory in
form and substance to the Purchasers and their counsel.
25
ARTICLE VI
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that, from and after
the Closing until payment in full or conversion of all of the Convertible Notes,
except with respect to the covenants contained in Sections 6.4, 6.5, 6.6, 6.7,
6.13, 6.14, 6.15 and 6.21, which covenants shall terminate and the Company shall
be discharged from future compliance therewith at such time as the aggregate
Accreted Value of all of the Convertible Notes held by all of the Purchasers is
equal to or less than $15,000,000:
Section 6.1 FINANCIAL STATEMENTS, REPORTS. The Company shall furnish to
each holder of the Convertible Notes:
(a) Within ten (10) business days of their becoming available, copies of
(i) all financial statements, reports, notices and proxy statements and other
communications sent or made available by the Company to its security holders,
(ii) all regular periodic reports and all registration statements and
prospectuses, if any, filed by the Company with any securities exchange or with
the SEC, and (iii) all press releases made available by the Company.
(b) At the time of delivery of each annual financial statement pursuant to
Section 6.1(a), a certificate executed by the Chief Financial Officer or other
senior executive officer of the Company stating that such officer has caused
this Agreement and the terms of the Convertible Notes to be reviewed and has no
knowledge of any default by the Company in the performance or observance of any
of the provisions of this Agreement or the Convertible Notes or, if such officer
has such knowledge, specifying such default and the nature thereof;
(c) Promptly after the commencement thereof, notice of actions, suits,
claims, proceedings, investigations and inquiries that, in the reasonable
judgment of the Company, if adversely determined would have a Material Adverse
Effect on the Company;
(d) Within two (2) business days after any executive officer of the
Company obtains actual knowledge (i) of any condition or event that constitutes
a material default of any of the Company's duties or obligations under this
Agreement or the Convertible Notes, or (ii) that any Purchaser has given any
notice or taken any action with respect to a claimed default by the Company, a
certificate of the Company's Chief Executive or Chief Operating Officer
specifying, as applicable, the nature and period of existence of such condition
or event, the notice given (and providing a copy thereof), action taken and the
nature of such claimed default, event or condition, and what action the Company
has taken, is taking and proposes to take with respect thereto.
(e) Immediately upon receipt of any notice of any default or acceleration
delivered to the Company by any Purchaser, written notice thereof setting forth
the name of the person that
26
delivered the notice and the aggregate amount of Convertible Notes held by such
person, together with a copy of each such notice.
Section 6.2 RESERVE FOR CONVERSION OF CONVERTIBLE NOTES. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, for the purpose of effecting the conversion of the
Convertible Notes and otherwise complying with the terms of this Agreement, a
number of its duly authorized shares of Common Stock equal to the greater of (i)
1.5 times the maximum number of Conversion Shares into which Convertible Notes
may be converted pursuant to Section 4 of the Convertible Notes from time to
time and (ii) 12,000,000 (as proportionately adjusted for stock splits,
combinations and the like). If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of the Convertible Notes or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval (including shareholder approval if
at any time necessary) or other action and will make any filing with any court
or administrative body that may be required under applicable state securities
laws or rules of any exchange or self-regulatory organization (as defined in the
Exchange Act) applicable to the Convertible Notes or Registrable Shares in
connection with the issuance of shares of Common Stock upon conversion of the
Convertible Notes.
Section 6.3 CORPORATE EXISTENCE. The Company and each Subsidiary
shall maintain its corporate existence, rights and franchises in full force and
effect; provided, however, that nothing contained in this Section 6.3 shall
limit the ability of the Company or any Subsidiary to enter into any merger,
consolidation or business combination otherwise permitted by this Agreement.
Section 6.4 LIMITATIONS ON INDEBTEDNESS. The Company and the
Subsidiaries shall not, directly or indirectly, create, assume, incur,
guarantee, or otherwise become directly or indirectly liable with respect to
Indebtedness for Borrowed Money; PROVIDED, that the Company may incur (i)
Indebtedness for Borrowed Money in an amount not to exceed $7,500,000 at any
time outstanding from a reputable commercial lender, and (ii) Indebtedness in
respect of capital leases and conditional sales of equipment and other property
used in the ordinary course of business ("Permitted Property"), incurred in the
ordinary course of business in an amount not to exceed $4,000,000 at any time
outstanding.
Section 6.5 LIENS. The Company shall not, and shall not permit any
Subsidiary to, directly or indirectly, create, incur, assume or permit to exist
any Lien, or file or execute or agree to the execution of any financing
statement, on or with respect to any property, real or personal, of the Company
or any Subsidiary, whether now owned or hereafter acquired, or any income or
profits therefrom, except:
(i) existing Liens identified on SCHEDULE 6.5;
27
(ii) Liens to secure Indebtedness for Borrowed Money
permitted pursuant to Section 6.4(i), provided that the Convertible
Notes are equally and ratably secured by such Liens; and
(iii) other or additional Liens on Permitted Property to
secure Indebtedness with respect to the acquisition of such Permitted
Property of the Company and the Subsidiaries on a consolidated basis
arising in the ordinary course of business in an amount not to exceed
$4,000,000 at any time outstanding.
Section 6.6 LIMITATION ON SALES OF ASSETS. The Company shall not in one
or a series of transactions, other than in the ordinary course of business,
sell, lease, transfer, convey or otherwise dispose of all or any significant
part of the property or its assets in one or any series of related transactions,
or enter into any agreement to do any of the foregoing, without prior written
notice to the Holders and unless the net proceeds of such transaction (after
taxes and expenses associated with the transaction) are used within 180 days of
the closing of such transaction to: (i) be deployed in a Permitted Business, or
(ii) retire indebtedness, including the Convertible Notes then outstanding. As
used in this Section, a "significant part" shall be deemed to be property and/or
assets representing more than 5% of the Company's total assets.
Section 6.7 LIMITATION ON INVESTMENTS. The Company shall not, and shall
procure that no Subsidiary shall, make any Investment in (a) any Person other
than a Subsidiary, or (b) any track or racetrack; PROVIDED, HOWEVER, that the
Company or any Subsidiary may make Permitted Investments not at any time to
exceed the aggregate of (i) $4,000,000 and (ii) an amount equal to 50% of the
net proceeds of any new issue for cash consideration of Common Stock of the
Company made after the Closing Date.
Section 6.8 PROPERTIES, BUSINESS, INSURANCE. The Company shall maintain
and cause each of its Subsidiaries to maintain as to their respective properties
and business, with financially sound and reputable insurers, insurance against
such casualties and contingencies and of such types and in such amounts as is
customary in the case of business organizations engaged in the same or similar
business or having similar properties similarly situated.
Section 6.9 RESTRICTIVE AGREEMENTS PROHIBITED. Neither the Company nor
any of its Subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of this Agreement.
Section 6.10 TRANSACTION WITH AFFILIATES. Except for transactions
unanimously approved by the members of the Board of Directors having no material
interest in such transaction or transactions as being on fair and reasonable
terms no less favorable to the Company or any Subsidiary than it would obtain in
a transaction between unrelated parties, neither the Company nor any of its
Subsidiaries shall enter into any transaction with any director, officer or
employee of the Company or holder of more than 5% of the outstanding capital
stock of any class or series of capital stock of the Company or any of its
Subsidiaries, member of the
28
family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or member of the family of any such person, is
a director, officer, trustee, partner or holder of more than 5% of the
outstanding capital stock or other ownership or control interests thereof.
Section 6.11 USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Convertible Notes at the Closing for working capital in
accordance with the Company's financial budgets and operating plans.
Section 6.12 COMPENSATION. The Company shall pay compensation to its
officers only as shall be approved by the Board of Directors or a committee
thereof designated for the purpose of establishing officer compensation.
Section 6.13 MERGERS, SALE OF ASSETS, ETC. OF SUBSIDIARIES. Except for
transactions permitted by Section 6.6, the Company shall not permit any
Subsidiary to consolidate or merge into or sell or transfer all or substantially
all its assets, except that any Subsidiary may (i) consolidate or merge into or
sell or transfer assets to any other Subsidiary, or (ii) merge into or sell or
transfer assets to the Company.
Section 6.14 MAINTENANCE OF OWNERSHIP OF SUBSIDIARIES. Except for
transactions permitted by Section 6.6, the Company shall not sell or otherwise
transfer any shares of capital stock of any Subsidiary, except to the Company or
another Subsidiary, or permit any Subsidiary to issue, sell or otherwise
transfer any shares of its capital stock or the capital stock of any Subsidiary,
except to the Company or another Subsidiary.
Section 6.15 NO NEW SUBSIDIARIES. The Company shall not, and shall
procure that the Subsidiaries shall not, form or acquire any Subsidiary of any
kind (a "New Subsidiary") after the Closing Date, unless such New Subsidiary (a)
has executed and delivered to the holders of the Convertible Notes a binding and
enforceable unconditional guarantee of the Convertible Notes satisfactory in
form and substance to counsel designated by a majority in interest of the then
Holders of the Convertible Notes, and (b) agrees to be bound by, and to comply
with, all of the provisions of this Article VI which are by their terms
applicable to Subsidiaries.
Section 6.16 WRAP-UP OF SUBSIDIARIES. On or before September 30, 1999,
the Company shall cause all of its Subsidiaries existing as of the date hereof
to be merged into the Company.
Section 6.17 DISTRIBUTIONS BY THE COMPANY. The Company shall not
purchase or set aside any sums for the purchase of, or pay any dividend or make
any distribution on, any shares of its stock.
Section 6.18 DISTRIBUTIONS BY SUBSIDIARIES. The Company shall not permit
any Subsidiary to purchase or set aside any sums for the purchase of, or pay any
dividend or make
29
any distribution on, any shares of its stock, except for dividends or other
distribution payable to the Company or another Subsidiary.
Section 6.19 LIMITATION ON CONVERTIBLE SECURITIES. The Company shall not
issue any securities exercisable for or convertible into Common Stock of the
Company for which the applicable exercise or conversion price or ratio may be
adjusted from its value at issuance based on the market price of the Common
Stock or any other floating standard.
Section 6.20 SUBSIDIARY DIVIDEND RESTRICTIONS. The Company will not
permit any Subsidiary to create, incur, assume or permit to exist any agreement
or instrument (other than this Agreement) which has the effect of restricting or
prohibiting the power, authority or legal right of such Subsidiary to declare or
pay any dividend or other distribution to the Company.
Section 6.21 PERMITTED BUSINESS. The Company shall not, and shall
procure that no Subsidiary shall, engage in any business other than a Permitted
Business.
Section 6.22 COMPLIANCE WITH LAWS. The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations, orders,
rulings and judgments, except where such noncompliance would not have a Material
Adverse Effect.
Section 6.23 RULE 144 COMPLIANCE. The Company agrees to take such action
as may be necessary to enable a holder of Common Stock to complete the public
sale of Common Stock in accordance with Rule 144 of the Securities and Exchange
Commission under the Securities Act or any similar successor rules or
regulations promulgated by the SEC.
Section 6.24 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep, and cause each Subsidiary to keep, adequate records and books of account,
in which complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company and such Subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
Section 6.25 YEAR 2000 PROBLEM. The Company shall take, and shall
procure that each Subsidiary shall take, all actions necessary to mitigate the
risk of the Year 2000 Problem.
ARTICLE VII
MISCELLANEOUS
Section 7.1 GENERAL INDEMNITY. The Company hereby indemnifies and holds
harmless the Purchaser and its successors and assigns against and in respect of
any and all costs, expenses, debts, liabilities and obligations incurred by any
of them, including reasonable attorney fees, for breach of any representation,
warranty or promise made to any of them by the Company or any Subsidiary
hereunder.
30
Section 7.2 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement, the issuance, sale and delivery of the Convertible
Notes, and the issuance and delivery of the Conversion Shares.
Section 7.3 BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of an claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party. The Company
acknowledges that it has engaged U.S. Bancorp Libra as its placement agent for
the Convertible Notes and will pay U.S. Bancorp Libra (and/or its designees) a
fee comprised of a cash amount equal to 4% of the aggregate gross proceeds
received from the sale of the Convertible Notes and an aggregate of warrants to
purchase 50,000 shares of the Company's Common Stock at an exercise price of
$10.00 per share.
Section 7.4 PARTIES IN INTEREST. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generally of the foregoing, all representations, covenants and agreements
benefitting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of the Convertible Notes or Registrable Shares.
Section 7.5 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telecopy or facsimile transmission, (iii) sent by overnight
courier, or (iv) sent by registered or certified mail, return receipt requested,
postage prepaid.
If to the Company, to: Xxxxxx.xxx, Inc.
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Chief Executive Officer
Fax: (000) 000-0000
with a copy to: Christensen, Miller, Fink, Jacobs, Xxxxxx,
Weil & Xxxxxxx, LLP
2121 Avenue of the Stars, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
31
If to the Purchaser, at the address of the Purchaser set forth on
SCHEDULE I, and to Purchaser's counsel (if
such counsel is made known by notice to the
Company)
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telecopy or facsimile transmission, at the time that receipt
thereof has been acknowledged by electronic confirmation or otherwise, (iii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, or (iv) if sent by registered or
certified mail, on the fifth (5th) business day following the day such mailing
is made.
Section 7.6 WAIVERS AND CONSENTS. The holders of 66 2/3% in interest
of the principal amount of the Convertible Notes outstanding may waive the
Company's compliance with any of its covenants contained in this Agreement
(including those set forth in Article VI), or any breach or default by the
Company of any of its obligations pursuant to this Agreement and may rescind
an acceleration of the Convertible Notes, except (i) any default in the
payment of principal, interest, premium or penalty when and as due under this
Agreement or the Convertible Notes or (ii) any default in respect of a
provision that under Section 7.14 may not be amended without the consent of
each Holder affected.
Section 7.7 GOVERNING LAW. THE PARTIES HERETO ACKNOWLEDGE THAT THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE CONVERTIBLE NOTES BEAR A
REASONABLE RELATION TO THE STATE OF NEW YORK IN THAT, INTER ALIA, CERTAIN OF THE
PURCHASERS ARE RESIDENTS OF THE STATE OF NEW YORK, CERTAIN OF THE PURCHASERS
HAVE A PRINCIPAL PLACE OF BUSINESS IN THE STATE OF NEW YORK, AND A SUBSTANTIAL
PART OF THE NEGOTIATIONS RELATING TO THE TRANSACTIONS HAVE OCCURRED IN THE STATE
OF NEW YORK. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICT OF LAWS THEREOF. IT IS THE INTENT OF THE PARTIES THAT THE LAWS OF THE
STATE OF NEW YORK REGARDING USURY AND THE CHARGING OF INTEREST APPLY TO THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 7.8 USURY. Notwithstanding any other provision of this
Agreement to the contrary, all agreements among the Company and the Purchaser
are expressly limited, so that in no event or contingency whatsoever, whether by
reason of the advancement of the proceeds of the Convertible Notes, acceleration
of maturity of the unpaid principal balance, the addition of accrued interest to
principal or otherwise, shall the amount paid, charged for, contracted for,
received or agreed to be paid to any Holder for the use, forbearance or
detention of the money to be advanced under the Convertible Notes exceed the
highest lawful rate permissible under applicable usury laws as prescribed by a
court of competent jurisdiction ("Applicable Law"). If,
32
from any circumstances whatsoever, interest would otherwise be payable to any
Holder in excess of the maximum amount permissible under Applicable Law, the
interest payable to such Holder shall be reduced to the maximum amount, and if
from any circumstances any Holder shall ever receive anything deemed interest by
Applicable Law in excess of the maximum amount permissible under Applicable Law,
an amount equal to the excessive interest shall by applied to the reduction of
the principal hereof and not to the payment of interest, or if such excessive
amount of interest exceeds the unpaid principal balance hereof, such excess
shall be refunded to the Company. All interest paid or agreed to be paid to
Holders shall, to the extent permitted by Applicable Law, be amortized,
prorated, allocated and spread throughout the full period (including any renewal
or extension) until payment in full of the principal so that the interest hereon
for such full period shall not exceed the maximum amount permissible under
Applicable Law. Purchaser expressly disavows any intent to contract for, charge
or receive interest in an amount which exceeds the maximum amount permissible
under Applicable Law. This Section 7.8 shall control agreements between the
Company and the Purchaser. This covenant shall survive the payment in full of
the Convertible Notes.
Section 7.9 SUBMISSION TO JURISDICTION; APPOINTMENT OF AGENT FOR
SERVICE. Any legal action or proceeding in connection with this Agreement or
the performance hereof may be brought in the state and federal courts located in
the Borough of Manhattan, City, County and State of New York, and the parties
hereby irrevocably submit to the non-exclusive jurisdiction of such courts for
the purpose of any such action or proceeding. The Company hereby appoints CT
Corporation System of 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 and any successor
thereto as its authorized agent to accept service of process in any such action
or proceeding and agrees that the failure of said firm to give the Company any
notice of any such service shall not impair or affect the validity of such
service or of any judgement rendered in any action or proceeding based thereon.
In addition to other methods of service allowed by applicable law, the Company
expressly consents that service of process in any action or proceeding hereunder
may be made by certified mail return receipt requested. Such service shall
become effective 30 days after mailing.
Section 7.10 WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM BROUGHT BY ANY PARTY HERETO OR
BENEFICIARY HEREOF ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
Section 7.11 ATTORNEYS' FEES AND EXPENSES. The Company will pay all costs
and expenses of the Purchasers in connection with this Agreement and the
consummation of all transactions contemplated hereby (including the enforcement
of any rights of the Purchasers hereunder and the costs of counsel referred to
in Section 6.15), and all costs and expenses of the Purchasers and each other
Holder relating to any future amendment or supplement to this Agreement or any
of the Convertible Notes (or any proposal for such amendment or supplement)
whether or not consummated, or any waiver or consent with respect thereto (or
any proposal for such waiver or consent) whether or not consummated, including
but not limited to reasonable out-of-pocket expenses, the cost of obtaining a
private placement number for the Convertible
33
Notes, the cost of all accounting services required hereby, all reasonable
attorney's fees and disbursements of Xxxxxx & Xxxxxx LLP, all photocopying or
reproduction or printing expenses relating to such transactions, and the cost of
transmitting the Convertible Notes to the respective home offices of the
Purchasers or to such other addresses as may be requested by the Purchasers.
The Company will not be required to pay the costs and expenses of any
prospective transferee incurred in connection with such transferee's acquisition
of any Convertible Notes or Registrable Shares, other than the cost of
registering the same and the cost of transmitting the same to such transferee.
Section 7.12 ENTIRE AGREEMENT. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof.
Section 7.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.14 AMENDMENTS. This Agreement may be amended or modified with
the written consent of the Company and the holders of at least 66-2/3% of the
outstanding principal amount of the Convertible Notes. However, without the
consent of each Holder affected thereby, no amendment may: (a) reduce the amount
of Convertible Notes whose Holders must consent to an amendment; (b) reduce the
rate or extend the time for payment of interest on any Convertible Notes; (c)
reduce the principal amount of or extend the Maturity Date of any Convertible
Notes; (d) reduce the premium payable upon prepayment of any Convertible Notes
pursuant to Section 3 of the Convertible Notes or change the time at which any
Convertible Note may be prepaid pursuant to Section 3 of the Convertible Notes;
(e) make any Convertible Notes payable in money other than United States
Dollars; or (f) make any change or amendment affecting the conversion of any
Convertible Note or the registration of any Registrable Share.
Section 7.15 SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of an other provision and of the entire Agreement shall not be affected
thereby.
Section 7.16 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are for convenience only and not to be considered in construing or
interpreting any term or provision of this Agreement.
Section 7.17 CERTAIN DEFINED TERMS. As used in this Agreement, 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):
34
(a) "CAPITALIZED LEASE" shall mean, with respect to any person, any lease
or any other agreement for the use of property which, in accordance with
generally accepted accounting principles, should be capitalized on the lessee's
or user's balance sheet.
(b) "CAPITALIZED LEASE OBLIGATION" of any person shall mean and include,
as of any date as of which the amount thereof is to be determined, the amount of
the liability capitalized or disclosed (or which should be disclosed) in
accordance with generally accepted accounting principles, in a balance sheet of
such person in respect of a Capitalized Lease of such person.
(c) "CHANGE IN CONTROL" shall mean and include (i) the sale by the Company
and/or any Subsidiary of all or substantially all of the assets of the Company
and the Subsidiaries taken as a whole, (ii) any Acquisition by any person or any
persons acting together which would constitute a "group" for purposes of Section
13(d) of the Exchange Act (a "Group") of 20% or more of the total voting power
of all classes of capital stock of the Company entitled to vote generally in the
election of the Board of Directors of the Company, (iii) the acquisition by the
Company for cash, property or securities, in one transaction or a series of
related transactions within a 12-month period, of more than 30% of the capital
stock of the Company outstanding immediately prior to the commencement of such
acquisition, (iv) the payment of a dividend or other distribution by the Company
to its shareholders, in one transaction or a series of related transactions
within a 12-month period, of cash, property or securities having an aggregate
fair market value at the time of distribution that is 30% or more of the fair
market value of the capital stock of the Company outstanding immediately prior
to such distribution (both such fair market values as determined by reference to
the then most recently furnished valuations of the fair market value of the
Common Stock of the Company), or (v) any Acquisition by any person or Group of
the power to elect, appoint or cause the election or appointment of at least a
majority of the members of the Board of Directors of the Company, through
beneficial ownership of the capital stock or otherwise; PROVIDED, HOWEVER, that
notwithstanding anything contained in this Section to the contrary, the effect
of and actions taken pursuant to that certain Stockholders Agreement of the
Company, shall not be deemed to constitute a Change in Control for purposes of
this Agreement. For the purposes of this definition, "ACQUISITION' of the power
or properties and assets stated in the preceding sentence means the earlier of
(a) the actual possession thereof and (b) the consummation of any transaction or
series of related transactions which, with the passage of time, will give such
Person or Persons that actual possession thereof.
(d) "GAAP" shall mean generally accepted accounting principles as in
effect in the United States of America from time to time.
(e) "GUARANTEE" shall mean any obligation, contingent or otherwise, of any
person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other person in any manner, whether directly or indirectly,
and including, without limitation, any obligation of such person, direct or
indirect (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or to purchase (or to advance or supply funds for
the purchase of) any security for the payment of such Indebtedness, (ii) to
purchase property, securities or
35
services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness, or (iii) to maintain working capital, equity
capital or other financial statement condition of the primary obligor so as to
enable the primary obligor to pay such Indebtedness; PROVIDED, HOWEVER, that the
term "Guarantee" shall not include endorsements for collection or deposit, in
either case, in the ordinary course of business.
(f) "INDEBTEDNESS" of any person shall mean and include, as of any date as
of which the amount thereof is to be determined, (i) all items (other than
capital items such as capital stock, surplus and retained earnings, as well as
reserves for taxes in respect of income deferred to the future and other
deferred credits and reserves), contingent or otherwise, which, in accordance
with generally accepted accounting principles, would be included in determining
total liabilities as shown on the liability side of a balance sheet of such
person, (ii) all obligations of such person evidenced by bonds, debentures,
notes or similar instruments, (iii) all obligations of such person upon which
interest charges are customarily paid, (iv) all obligations of such person under
conditional sale or other title retention agreements relating to property
purchased by such person, (v) all obligations of such person issued or assumed
as the deferred purchase price property or services (other than accounts payable
to suppliers incurred in the ordinary course of business and paid when due),
(vi) all Indebtedness of others to the extent secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any lien or security interest on property owned or acquired by
such person whether or not the obligations secured thereby have been assumed,
(vii) all Capitalized Lease obligations of such person, and (viii) any
Guarantees or contingent liabilities of such person. If any person becomes a
Subsidiary after the date of this Agreement, all outstanding Indebtedness of
such person shall, for purposes of this Agreement, be deemed to have been
incurred by such person immediately after it becomes a Subsidiary.
(g) "INDEBTEDNESS FOR BORROWED MONEY" shall mean, without duplication, all
Indebtedness (i) in respect of money borrowed, (ii) evidenced by a note (other
than the Convertible Notes), debenture or other like written obligation to pay
money, (iii) in respect of rent or hire of property under leases or lease
arrangements which under GAAP are required to be capitalized, (iv) in respect of
obligations under conditional sales or other title retention agreements, and (v)
all subordinate indebtedness, and shall also include all guarantees of any of
the foregoing.
(h) "INVESTMENT" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee of similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of capital stock, Indebtedness or other
similar instruments issued by such Person.
36
(i) "LIEN" shall mean: (i) any interest in property (whether real,
personal or mixed and whether tangible or intangible) which secures an
obligation owed to, or a claim by, a person other than the owner of such
property, whether such interest is based on the common law, statute or contract,
including, without limitation, any such interest arising from a Capitalized
Lease, arising from a mortgage, charge, pledge, security agreement, conditional
sale, trust receipt or deposit in trust, or arising from a consignment or
bailment given for security purposes, (ii) any encumbrance upon such property
which does not secure such an obligation, and (iii) any exception to or defect
in the title to or ownership interest in such property, including, without
limitation, reservations, rights of entry, possibilities of reverter,
encroachments, easements, rights of way, restrictive covenants, licenses and
PROFITS A PRENDRE. For purposes of this Agreement, the Company or a Subsidiary
shall be deemed to be the owner of any property which it has acquired or holds
subject to a Capitalized Lease or conditional sale agreement or other similar
arrangement pursuant to which title to the property has been retained by or
vested in some other person for security purposes.
(j) "MATERIAL ADVERSE EFFECT" shall mean a material, adverse effect on the
business, operations, prospects or financial condition of the Company or any of
its Subsidiaries.
(k) "PERMITTED BUSINESS" shall mean (i) any internet-related gaming or
wagering system operated in compliance with applicable law (the "Original
Business"); and (ii) any other business ancillary or reasonably related to the
Original Business, such as a track or other content provider, a licensed
wagering facility, a merchandising business targeted to customers and
prospective customers of the Original Business.
(l) "PERMITTED INVESTMENT" means an Investment by the Company or a
Subsidiary in a Person engaged in a Permitted Business.
(m) "PERSON" shall mean an individual, corporation, trust, partnership,
joint venture, unincorporated organization, government agency or any agency or
political subdivision thereof, or other entity.
(n) "PURCHASE PRICE" with respect to any Convertible Note shall mean the
Purchase Price thereof as set forth on Schedule I attached hereto.
(o) "REFINANCE" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness.
"REFINANCED" and "REFINANCING" shall have correlative meanings.
(p) "SUBSIDIARY" shall mean, as to the Company, any corporation of which
more than 50% of the outstanding stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening
37
of any contingency) is at the time directly or indirectly owned by the Company,
or by one or more of its subsidiaries, or by the Company and one or more of its
subsidiaries.
Section 7.18 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
Section 7.19 CONFIDENTIALITY. The Purchaser agrees that it will maintain
with the same degree of care it uses with respect to its own confidential
information all confidential, proprietary or secret information which the
Purchaser may obtain from the Company pursuant to financial statements, reports
and other materials submitted by Company to the Purchaser pursuant to this
Agreement, or pursuant to visitation or inspection rights granted hereunder,
unless such information is known, or until such information becomes known
through no fault of the Purchaser to the public, PROVIDED, HOWEVER, that a
Purchaser may disclose such information (i) on a confidential basis to its
attorneys, accountants, consultants any other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (ii) to any prospective purchaser of Convertible Notes or Conversion
Shares from the Purchaser as long as such prospective purchaser agrees in
writing to be bound by the provisions of this Section, (iii) to any affiliate or
partner of the Purchaser and (iv) as required by applicable law or legal
process, provided that the Purchaser shall use reasonable efforts to give the
Company ten (10) business days prior notice thereof. If a Purchaser is required
in any legal or administrative or other governmental proceedings to disclosure
any of such information, the Purchaser shall use reasonable efforts to give the
Company an opportunity to obtain protective provisions against further
disclosure. The Company agrees that, except as otherwise necessary or advisable
in connection with the registration of Registrable Shares pursuant to this
Agreement, it will maintain as confidential and will not disclose to the public,
by press release or otherwise, the identity of the Purchaser, such
confidentiality to be maintained by the Company on the same terms as the
Purchaser is to maintain confidential information obtained from the Company, as
set forth above.
Section 7.20 PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Conversion Shares are registered as the owner and Holder thereof for all
purposes, and the Company shall not be affected by notice to the contrary.
Prior to conversion of the Convertible Notes, no Holder thereof shall be deemed
to be a stockholder of the Company for any purpose by virtue of being such a
Holder.
Section 7.21 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of an Purchaser or the Company, the Company and the
Purchasers shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desire to confirm and carry out and
to effectuate fully the intent and purpose of this Agreement.
38
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
COMPANY:
XXXXXX.XXX, INC.
By:
------------------------------
Its:
-------------------------------
PURCHASERS:
-----------------------------
By:
------------------------------
Its:
-------------------------------
39
SCHEDULE I
PURCHASER PURCHASE PRICE PRINCIPAL AMOUNT OF NOTES
--------- -------------- -------------------------
[Name and address] $__,___,___.00 $__,___,000.00
40
