EXHIBIT 4.2
NOTE AND WARRANT PURCHASE
AGREEMENT
DATED AS OF AUGUST 31, 2004
AMONG
SYSTEMS EVOLUTION INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
ARTICLE I Purchase and Sale of Notes and Warrants..............................1
Section 1.1 Purchase and Sale of Notes..............................1
Section 1.2 Conversion Shares / Warrant Shares......................1
Section 1.3 Purchase Price and Closing..............................2
Section 1.4 Warrants................................................2
ARTICLE II Representations and Warranties......................................2
Section 2.1 Representations and Warranties of the Company...........2
Section 2.2 Representations and Warranties of the Purchasers........3
ARTICLE III Covenants ........................................................15
Section 3.1 Securities Compliance..................................15
Section 3.2 Registration and Listing...............................15
Section 3.3 Inspection Rights......................................15
Section 3.4 Compliance with Laws...................................16
Section 3.5 Keeping of Records and Books of Account................16
Section 3.6 Reporting Requirements.................................16
Section 3.7 Other Agreements.......................................16
Section 3.8 Use of Proceeds........................................17
Section 3.9 Disposition of Assets..................................17
Section 3.10 Reporting Status.......................................18
Section 3.11 Reservation of Shares..................................18
Section 3.12 Future Financings; Right of First Offer and Refusal....19
Section 3.13 Disclosure of Material Information.....................18
Section 3.14 Transfer Agent Instructions............................20
Section 3.15 Disclosure of Transaction .............................20
Section 3.16 Pledge of Securities...................................21
Section 3.17 Insiders Lock-Up.......................................21
ARTICLE IV Conditions ........................................................20
Section 4.1 Conditions Precedent to the Obligation of the
Company to Sell the Securities.........................20
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Securities..................20
ARTICLE V Stock Certificate Legend............................................22
Section 5.1 Legend.................................................22
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ARTICLE VI Indemnification....................................................23
Section 6.1 General Indemnity......................................23
Section 6.2 Indemnification Procedure..............................24
ARTICLE VII Miscellaneous.....................................................25
Section 7.1 Fees and Expenses......................................25
Section 7.2 Specific Enforcement, Consent to Jurisdiction..........25
Section 7.3 Entire Agreement; Amendment............................26
Section 7.4 Notices................................................26
Section 7.5 Waivers................................................27
Section 7.6 Headings...............................................27
Section 7.7 Successors and Assigns.................................27
Section 7.8 No Third Party Beneficiaries...........................27
Section 7.9 Governing Law..........................................27
Section 7.10 Survival...............................................27
Section 7.11 Counterparts...........................................28
Section 7.12 Publicity..............................................28
Section 7.13 Severability...........................................28
Section 7.14 Further Assurances.....................................28
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NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (the "Agreement") is dated as
of August 31, 2004 by and among Systems Evolution Inc., an Idaho corporation
(the "Company"), and each of the Purchasers of the convertible promissory notes
of the Company whose names are set forth on Exhibit A attached hereto
(individually, a "Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1 Purchase and Sale of Notes. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, convertible promissory notes in the
aggregate principal amount of up to Two Million Five Hundred Thousand Dollars
($2,500,000), bearing interest at the rate of eight percent (8%) per annum,
convertible into shares of the Company's common stock, no par value (the "Common
Stock"), in substantially the form attached hereto as Exhibit B (the "Notes").
Upon the following terms and conditions, each of the Purchasers shall be issued
Series A Warrants, in substantially the form attached hereto as Exhibit C (the
"Series A Warrants"), Series B Warrants, in substantially the form attached
hereto as Exhibit D (the "Series B Warrants"), Series C Warrants, in
substantially the form attached hereto as Exhibit E (the "Series C Warrants"),
and Series D Warrants, in substantially the form attached hereto as Exhibit F
(the "Series D Warrants" and, together with the Series A Warrants, the Series B
Warrants and the Series C Warrants, the "Warrants"), to purchase the number of
shares of Common Stock, set forth opposite such Purchaser's name on Exhibit A
hereto. The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") or Section 4(2) of the Securities Act.
Section 1.2 Conversion Shares / Warrant Shares. The Company has
authorized and has reserved and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders, a number
of its authorized but unissued shares of Common Stock equal to the aggregate
number of shares of Common Stock to effect the conversion of the Notes and any
interest accrued and outstanding thereon and exercise of the Warrants. Any
shares of Common Stock issuable upon conversion of the Notes and any interest
accrued and outstanding thereon and exercise of the Warrants (and such shares
when issued) are herein referred to as the "Conversion Shares" and the "Warrant
Shares," respectively. The Notes, the Warrants, the Conversion Shares and the
Warrant Shares are sometimes collectively referred to herein as the
"Securities".
Section 1.3 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the Notes and the
Warrants. The aggregate purchase price of the Notes and Warrants being acquired
by each Purchaser is set forth opposite such Purchaser's name on Exhibit A (for
each such Purchaser, the "Purchase Price" and collectively referred to as the
"Purchase Prices"). The Notes and Warrants shall be sold and funded in multiple
closings (each, a "Closing"); provided, that the final Closing under this
Agreement occurs no later than the day immediately preceding the filing of the
registration statement providing for the resale of the Conversion Shares and the
Warrant Shares pursuant to the Registration Rights Agreement (as defined in
Section 2.1(b) hereof). Each Closing shall take place at the offices of Jenkens
& Xxxxxxxxx Xxxxxx Xxxxxx LLP, The Chrysler Building, 000 Xxxxxxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000 at 1:00 p.m. (eastern time) or at such other time and place
as the Purchasers and the Company may agree upon, upon the satisfaction of each
of the conditions set forth in Article IV hereof (each, a "Closing Date").
Funding with respect to each Closing shall take place by wire transfer of
immediately available funds on or prior to the applicable Closing Date.
Section 1.4 Warrants. Upon the following terms and conditions, the
Purchasers shall be issued Series A Warrants, Series B Warrants, Series C
Warrants and Series D Warrants. Pursuant to each series of Warrant, each
Purchaser shall be entitled to receive the number of shares of Common Stock
equal to twenty-five percent (25%) of the number of shares of Common Stock
issuable upon conversion of the Notes purchased pursuant to the terms hereof.
The Warrants shall have an exercise price equal to Warrant Price (as defined in
the respective Warrant) and shall be exercisable as stated therein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchasers,
except as set forth in the Company's disclosure schedule delivered with this
Agreement as follows:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Idaho and has the requisite corporate power to own, lease and operate
its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any subsidiaries except as set forth in the
Commission Documents (as hereafter defined) or in the Company's Form 8-K filed
on September 10, 2003, as amended on December 19, 2003, including the
accompanying financial statements (the "Form 8-K"), or in the Company's Form
10-QSB for the fiscal quarters ended February 29, 2004 and November 30, 2003
(collectively, the "Form 10-QSB"), or on Schedule 2.1(a) hereto. The Company and
each such subsidiary is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
except for any jurisdiction(s) (alone or in the aggregate) in which the failure
to be so qualified will not have a Material Adverse Effect (as defined in
Section 2.1(c) hereof) on the Company's financial condition.
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(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement attached hereto as Exhibit G (the "Registration Rights
Agreement"), the Lock-Up Agreement (as defined in Section 3.17 hereof) attached
hereto as Exhibit H, the Irrevocable Transfer Agent Instructions (as defined in
Section 3.14) and the Warrants (collectively, the "Transaction Documents") and
to issue and sell the Securities in accordance with the terms hereof. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action, and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required. This Agreement has been duly executed and delivered by
the Company. The other Transaction Documents will have been duly executed and
delivered by the Company at each Closing. Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and the
shares thereof currently issued and outstanding as of August 31, 2004 are set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Company's
Common Stock and any other outstanding security of the Company have been duly
and validly authorized. Except as set forth in this Agreement and as set forth
on Schedule 2.1(c) hereto, no shares of Common Stock are entitled to preemptive
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this Agreement or on
Schedule 2.1(c), there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as set forth on Schedule 2.1(c) hereto,
the Company is not a party to any agreement granting registration or
anti-dilution rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. Except as set forth on Schedule 2.1(c) hereto, the offer and
sale of all capital stock, convertible securities, rights, warrants, or options
of the Company issued prior to the Closing complied with all applicable Federal
and state securities laws, and no stockholder has a right of rescission or claim
for damages with respect thereto which would have a Material Adverse Effect (as
defined below) on the Company's financial condition or operating results. The
Company has furnished or made available to the Purchasers true and correct
copies of the Company's Articles of Incorporation as in effect on the date
hereof (the "Articles"), and the Company's Bylaws as in effect on the date
hereof (the "Bylaws"). For the purposes of this Agreement, "Material Adverse
Effect" means any material adverse effect on the business, operations,
properties, prospects, or financial condition of the Company and its
subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement in any material respect.
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(d) Issuance of Securities. The Notes and the Warrants to be issued at
each Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Notes shall be
validly issued and outstanding, free and clear of all liens, encumbrances and
rights of refusal of any kind. When the Conversion Shares and Warrant Shares are
issued and paid for in accordance with the terms of this Agreement and as set
forth in the Notes and Warrants, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind and the holders shall be entitled to all rights accorded to a holder
of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Notes and the consummation by the Company of the
transactions contemplated herein and therein do not and will not (i) violate any
provision of the Company's Articles or Bylaws, (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are bound
or affected, except, in all cases other than violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents, or issue and sell the Securities in accordance with the terms hereof
or thereof (other than any filings which may be required to be made by the
Company with the Commission or state securities administrators subsequent to the
Closing and the registration statement which may be filed pursuant hereto);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchasers herein.
(f) Commission Documents, Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, since September 9, 2003, the Company
has timely filed all reports, schedules, forms, statements and other documents
4
required to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d) of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "Commission
Documents"). The Company has delivered or made available to each of the
Purchasers true and complete copies of the Commission Documents filed with the
Commission since September 9, 2003. The Company has not provided to the
Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. At the
times of their respective filings, the Form 8-K and the Form 10-QSB complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such documents, and,
as of their respective dates, none of the Form 8-K and the Form 10-QSB 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. The financial statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of the Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary of
the Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership. For the purposes of this
Agreement, "subsidiary" shall mean any corporation or other entity of which at
least a majority of the securities or other ownership interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
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(h) No Material Adverse Change. Since September 9, 2003, the Company
has not experienced or suffered any Material Adverse Effect, except as disclosed
on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as set forth on Schedule 2.1(i)
hereto, neither the Company nor any of its subsidiaries has any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) other than those incurred
in the ordinary course of the Company's or its subsidiaries respective
businesses since September 9, 2003 and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company or its
subsidiaries.
(j) No Undisclosed Events or Circumstances. Except as set forth on
Schedule 2.1(j) hereto, no event or circumstance has occurred or exists with
respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
(k) Indebtedness. The Form 8-K, Form 10-QSB or Schedule 2.1(k) hereto
sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$100,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Except as set forth on Schedule 2.1(k),
neither the Company nor any subsidiary is in default with respect to any
Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has good
and marketable title to all of its real and personal property reflected in the
Commission Documents , free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those disclosed in the
Commission Documents or on Schedule 2.1(l) hereto or such that, individually or
in the aggregate, do not cause a Material Adverse Effect on the Company's
financial condition or operating results. All said leases of the Company and
each of its subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Documents, the Form 8-K, Form 10-QSB or on Schedule
2.1(m) hereto, there is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or any other proceeding pending or, to
the knowledge of the Company, threatened, against or involving the Company, any
6
subsidiary or any of their respective properties or assets. Except as set forth
in the Form 8-K, Form 10-QSB or Schedule 2.1(m) hereto, there are no outstanding
orders, judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 8-K, Form 10-QSB, or such that,
individually or in the aggregate, do not cause a Material Adverse Effect. The
Company and each of its subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as set forth in the Form 8-K or in the Form 10-QSB,
the Company and each of the subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company and the subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable. None of the federal income tax returns
of the Company or any subsidiary have been audited by the Internal Revenue
Service. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any subsidiary for any
period, nor of any basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth in this Agreement or on Schedule
2.1(p) hereto, no brokers, finders or financial advisory fees or commissions
will be payable by the Company or any subsidiary or any Purchaser with respect
to the transactions contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation of Business. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations as set forth in the
Commission Documents, the Form 8-K, Form 10-QSB and on Schedule 2.1(r) hereto,
and all rights with respect to the foregoing, which are necessary for the
conduct of its business as now conducted without any conflict with the rights of
others.
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(s) Environmental Compliance. The Company and each of its subsidiaries
have obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any Environmental
Laws. The Form 8-K or Form 10-QSB describes all material permits, licenses and
other authorizations issued under any Environmental Laws to the Company or its
subsidiaries. "Environmental Laws" shall mean all applicable laws relating to
the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law after the Closing Date or that may give rise to
any environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.
(t) Books and Record Internal Accounting Controls. The books and
records of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company, to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions is taken with respect to any differences.
(u) Material Agreements. Except as set forth in the Commission
Documents, the Form 8-K, Form 10-QSB or on Schedule 2.1(u) hereto, neither the
Company nor any subsidiary is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
8
which would be required to be filed with the Commission as an exhibit to a
registration statement on Form S-3 or applicable form (collectively, "Material
Agreements") if the Company or any subsidiary were registering securities under
the Securities Act. Except as set forth on Schedule 2.1(u) or in the Commission
Documents, the Company and each of its subsidiaries has in all material respects
performed all the obligations required to be performed by them to date under the
foregoing agreements, have received no notice of default and, to the best of the
Company's knowledge are not in default under any Material Agreement now in
effect, the result of which could cause a Material Adverse Effect. Except as set
forth on Schedule 2.1(u) or in the Commission Documents, no written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement of
the Company or of any subsidiary limits or shall limit the payment of dividends
on the Company's preferred stock, if any, or the Common Stock.
(v) Transactions with Affiliates. Except as set forth in the Commission
Documents, the Form 8-K, Form 10-QSB or on Schedule 2.1(v) hereto, there are no
loans, leases, agreements, contracts, royalty agreements, management contracts
or arrangements or other continuing transactions between (a) the Company or any
subsidiary on the one hand, and (b) on the other hand, any officer, employee,
consultant or director of the Company, or any of its subsidiaries, or any person
owning any capital stock of the Company or any subsidiary or any member of the
immediate family of such officer, employee, consultant, director or stockholder
or any corporation or other entity controlled by such officer, employee,
consultant, director or stockholder, or a member of the immediate family of such
officer, employee, consultant, director or stockholder.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Securities hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Securities or similar securities to,
or solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person, or has taken or
will take any action so as to bring the issuance and sale of any of the
Securities under the registration provisions of the Securities Act and
applicable state securities laws, and neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
any of the Securities.
(x) Governmental Approvals. Except as set forth in the Form 8-K or Form
10-QSB, and except for the filing of any notice prior or subsequent to the
Closing Date that may be required under applicable state and/or Federal
securities laws (which if required, shall be filed on a timely basis), including
the filing of a Form D and a registration statement or statements pursuant to
the Registration Rights Agreement, no authorization, consent, approval, license,
exemption of, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary for, or in connection with, the execution or delivery of the
Notes and the Warrants, or for the performance by the Company of its obligations
under the Transaction Documents.
9
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 8-K, Form 10-QSB or on Schedule 2.1(y) hereto.
Except as set forth in the Form 8-K, Form 10-QSB or on Schedule 2.1(y) hereto,
neither the Company nor any subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the Company or such subsidiary. Since
September 9, 2003, no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate, could
have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.
(z) Absence of Certain Developments. Except as disclosed in the
Commission Documents or as provided on Schedule 2.1(z) hereto, since September
9, 2003, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
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(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction, whether or
not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of $25,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind which
in the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take any
of the foregoing actions.
(aa) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(bb) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issuance and
sale of the Notes will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if any of the Purchasers, or any person or entity that
owns a beneficial interest in any of the Purchasers, is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a "party in interest" (within the meaning of Section 3(14)
of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(ac), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
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(cc) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligations to issue the Warrant Shares upon the exercise
of the Warrants in accordance with this Agreement and the Warrants, is, in each
case, absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interest of other stockholders of the
Company.
(dd) Independent Nature of Purchasers. The Company acknowledges that
the obligations of each Purchaser under the Transaction Documents are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser under the Transaction Documents. The Company acknowledges that
the decision of each Purchaser to purchase Securities pursuant to this Agreement
has been made by such Purchaser independently of any other purchase and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
its Subsidiaries which may have made or given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any of its agents
or employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. The Company
acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby. The Company acknowledges
that it has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers. The Company acknowledges that
such procedure with respect to the Transaction Documents in no way creates a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.
(ee) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will the
12
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings. The Company does not have any registration statement pending before
the Commission or currently under the Commission's review and since February 1,
2004, the Company has not offered or sold any of its equity securities or debt
securities convertible into shares of Common Stock.
(gg) Xxxxxxxx-Xxxxx Act. The Company is in substantial compliance with
the applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the "Xxxxxxxx-Xxxxx
Act"), and the rules and regulations promulgated thereunder, that are effective
and intends to comply substantially with other applicable provisions of the
Xxxxxxxx-Xxxxx Act, and the rules and regulations promulgated thereunder, upon
the effectiveness of such provisions.
Section 2.2 Representations and Warranties of the Purchasers. Each of
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Notes and
Warrants being sold to it hereunder. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by such Purchaser and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Purchaser or its Board of Directors,
stockholders, or partners, as the case may be, is required. Each of this
Agreement and the Registration Rights Agreement has been duly authorized,
executed and delivered by such Purchaser and constitutes, or shall constitute
when executed and delivered, a valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with the terms thereof.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
13
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to purchase the Notes or acquire the Warrants
in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) Acquisition for Investment. Each Purchaser is acquiring the
Securities solely for its own account for the purpose of investment and not with
a view to or for sale in connection with distribution. Each Purchaser does not
have a present intention to sell the Securities, nor a present arrangement
(whether or not legally binding) or intention to effect any distribution of
Securities to or through any person or entity; provided, however, that by making
the representations herein and subject to Section 2.2(f) below, such Purchaser
does not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
Federal and state securities laws applicable to such disposition. Each Purchaser
acknowledges that it is able to bear the financial risks associated with an
investment in the Securities and that it has been given full access to such
records of the Company and the subsidiaries and to the officers of the Company
and the subsidiaries and received such information as it has deemed necessary or
appropriate to conduct its due diligence investigation and 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.
(e) Status of Purchasers. Such Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act. Such Purchaser is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act and such Purchaser is not a broker-dealer.
(f) Opportunities for Additional Information. Each Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.
(g) No General Solicitation. Each Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(h) Rule 144. Such Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges that
such Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
14
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General. Such Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities.
(j) Independent Investment. No Purchaser has agreed to act with any
other Purchaser for the purpose of acquiring, holding, voting or disposing of
the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Securities.
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein). Section 3.1 Securities Compliance. The Company shall notify
the Commission in accordance with their rules and regulations, of the
transactions contemplated by any of the Transaction Documents, including filing
a Form D with respect to the Securities as required under Regulation D, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Purchasers or subsequent holders.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the OTC Bulletin Board or other exchange or
market.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Notes or shall beneficially own any
15
Conversion Shares or Warrant Shares, for purposes reasonably related to such
Purchaser's interests as a stockholder, to visit and inspect the properties,
assets, operations and business of the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of its officers, consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 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 GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, 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 3.6 Reporting Requirements. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall furnish the following to each Purchaser so long as such Purchaser shall be
obligated hereunder to purchase the Securities or shall beneficially own
Conversion Shares or Warrant Shares:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as soon
as available, and in any event within forty-five (45) days after the end of each
of the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company; and
(c) Copies of all notices, information and proxy statements in
connection with any meetings, that are, in each case, provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.
Section 3.7 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document.
Section 3.8 Use of Proceeds. The proceeds from the sale of the
Securities will be used by the Company for working capital and general corporate
purposes.
Section 3.9 Disposition of Assets. So long as the Notes remain
outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including, without
limitation, its software and intellectual property, to any person except for
sales to customers in the ordinary course of business or with the prior written
consent of the holders of a majority of the principal amount of the Notes then
outstanding.
16
Section 3.10 Reporting Status. So long as a Purchaser beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed with the Commission pursuant to the Exchange Act, and the Company shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
Section 3.11 Reservation of Shares. So long as any of the Notes or
Warrants remain outstanding, the Company shall take all action necessary to at
all times have authorized, and reserved for the purpose of issuance, no less
than the aggregate number of shares of Common Stock needed to provide for the
issuance of the Conversion Shares and the Warrant Shares.
Section 3.12 Future Financings; Right of First Offer and Refusal. (a)
For purposes of this Agreement, a "Subsequent Financing" shall be defined as any
subsequent offer or sale to, or exchange with (or other type of distribution
to), any third party of Common Stock or any securities convertible, exercisable
or exchangeable into Common Stock, including debt securities so convertible, in
a private transaction (collectively, the "Financing Securities") other than a
Permitted Financing. For purposes of this Agreement, "Permitted Financing" shall
mean any transaction involving (i) the Company's issuance of any Financing
Securities (other than for cash) in connection with a merger, acquisition or
consolidation of the Company, (ii) the Company's issuance of Financing
Securities in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital, (iii) the Company's issuance of Financing Securities in connection with
bona fide firm underwritten public offerings of its securities, (iv) the
Company's issuance of Common Stock or the issuance or grants of options to
purchase Common Stock pursuant to the Company's stock option plans and employee
stock purchase plans as they now exist, (v) as a result of the exercise of
options or warrants or conversion of convertible notes or preferred stock which
are granted or issued as of the date of this Agreement, (vi) any Warrants issued
to the Purchasers and any warrants issued to the placement agent for the
transactions contemplated by this Agreement, (vii) any Notes or Warrants issued
pursuant to subsequent Closings under this Agreement and the shares of Common
Stock issuable upon the conversion of such Notes and upon the exercise of such
Warrants or (viii) the payment of any interest on the Notes.
(b) During the period commencing on the final Closing Date and ending
on the date that is twelve (12) months following the final Closing Date, the
Company covenants and agrees to promptly notify (in no event later than five (5)
days after making or receiving an applicable offer) in writing (a "Rights
Notice") each Purchaser of the terms and conditions of any proposed Subsequent
Financing. The Rights Notice shall describe, in reasonable detail, the proposed
Subsequent Financing, the proposed closing date of the Subsequent Financing,
which shall be within thirty (30) calendar days from the date of the Rights
Notice, including, without limitation, all of the terms and conditions thereof
and proposed definitive documentation to be entered into in connection
therewith. The Rights Notice shall provide each Purchaser an option (the "Rights
Option") during the ten (10) trading days following delivery of the Rights
Notice (the "Option Period") to inform the Company whether such Purchaser will
purchase up to its pro rata portion for the securities being offered in such
17
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing (the "First Refusal Rights"). If any Purchaser
elects not to participate in such Subsequent Financing, the other Purchasers may
participate on a pro-rata basis so long as such participation in the aggregate
does not exceed the total Purchase Price hereunder. For purposes of this
Section, all references to "pro rata" means, for any Purchaser electing to
participate in such Subsequent Financing, the percentage obtained by dividing
(x) the principal amount of the Notes purchased by such Purchaser at the
applicable Closing by (y) the total principal amount of all of the Notes
purchased by all of the participating Purchasers at each Closing. Delivery of
any Rights Notice constitutes a representation and warranty by the Company that
there are no other material terms and conditions, arrangements, agreements or
otherwise except for those disclosed in the Rights Notice, to provide additional
compensation to any party participating in any proposed Subsequent Financing,
including, but not limited to, additional compensation based on changes in the
Purchase Price or any type of reset or adjustment of a purchase or conversion
price or to issue additional securities at any time after the closing date of a
Subsequent Financing. If the Company does not receive notice of exercise of the
Rights Option from the Purchasers within the Option Period, the Company shall
have the right to close the Subsequent Financing on the scheduled closing date
with a third party; provided that all of the material terms and conditions of
the closing are the same as those provided to the Purchasers in the Rights
Notice. If the closing of the proposed Subsequent Financing does not occur on
that date, any closing of the contemplated Subsequent Financing or any other
Subsequent Financing shall be subject to all of the provisions of this Section
3.12, including, without limitation, the delivery of a new Rights Notice. The
provisions of this Section 3.12(b) shall not apply to issuances of Financing
Securities in a Permitted Financing.
Section 3.13 Disclosure of Material Information. The Company covenants
and agrees that neither it nor any other person acting on its behalf has
provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
Section 3.14 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit I
attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 3.14 shall affect in any
way each Purchaser's obligations and agreements set forth in Section 5.1 to
18
comply with all applicable prospectus delivery requirements, if any, upon resale
of the Conversion Shares and Warrant Shares. If a Purchaser provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration under the Securities Act or the Purchaser provides the Company with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.14 will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 3.14 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 3.14, that the Purchasers shall be entitled, in addition to all
other available remedies, to an order and/or injunction restraining any breach
and requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
Section 3.15 Disclosure of Transaction. The Company shall issue a press
release describing the material terms of the transactions contemplated hereby
(the "Press Release") as soon as practicable after the Closing; provided,
however, that if Closing occurs after 4:00 P.M. Eastern Time on any Trading Day
but in no event later than one hour after the Closing, the Company shall issue
the Press Release no later than 9:00 A.M. Eastern Time on the first Trading Day
following the Closing Date. The Company shall also file with the Commission a
Current Report on Form 8-K describing the material terms of the transactions
contemplated hereby (and attaching as exhibits thereto this Agreement, the
Registration Rights Agreement, the Lock-Up Agreement (as defined in Section 3.17
hereof), the form of Note and the form of each series of Warrant) as soon as
practicable following the Closing Date but in no event more than two (2) Trading
Days following the Closing Date, which Press Release and Form 8-K shall be
subject to prior review and comment by the Purchasers. "Trading Day" means any
day during which the OTC Bulletin Board (or other principal exchange on which
the Common Stock is traded) shall be open for trading.
Section 3.16 Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by a Purchaser in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
Common Stock. The pledge of Common Stock shall not be deemed to be a transfer,
sale or assignment of the Common Stock hereunder, and no Purchaser effecting a
pledge of Common Stock shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document; provided that a Purchaser and its pledgee
shall be required to comply with the provisions of Article V hereof in order to
effect a sale, transfer or assignment of Common Stock to such pledgee. At the
Purchasers' expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Common Stock may reasonably request in
connection with a pledge of the Common Stock to such pledgee by a Purchaser.
19
Section 3.17 Insiders Lock-Up. The persons listed on Schedule 3.17
attached hereto shall be subject to the terms and provisions of a lock-up
agreement in substantially the form as Exhibit H hereto (the "Lock-Up
Agreement"), which shall provide the manner in which such persons will sell,
transfer or dispose of their shares of Common Stock.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Securities. The obligation hereunder of the Company to issue and sell
the Notes and the Warrants to the Purchasers is subject to the satisfaction or
waiver, at or before each Closing, of each of the conditions set forth below.
These conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
(a) Accuracy of Each Purchaser's Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Notes and
Warrants has been delivered to the Company at the Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents have
been duly executed and delivered by the Purchasers to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Securities. The obligation hereunder of each Purchaser to acquire
and pay for the Notes and the Warrants is subject to the satisfaction or waiver,
at or before each Closing, of each of the conditions set forth below. These
conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
20
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that are expressly made as of a
particular date), which shall be true and correct in all material respects as of
such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) No Suspension, Etc. Trading in the Company's Common Stock shall not
have been suspended by the Commission or the OTC Bulletin Board (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the applicable Closing), and, at any
time prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of such Purchaser, makes
it impracticable or inadvisable to purchase the Securities.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel, Etc. At each Closing, the Purchasers shall have
received an opinion of counsel to the Company, dated the date of the Closing,
substantially in the form of Exhibit J hereto and reasonably acceptable to
counsel to the Purchasers, and such other certificates and documents as the
Purchasers or its counsel shall reasonably require incident to the Closing.
(g) Registration Rights Agreement. At the Closing, the Company shall
have executed and delivered the Registration Rights Agreement to each Purchaser.
(h) Notes and Warrants. The Company shall have executed and delivered
to the Purchasers the Notes and Warrants, in such denominations as such
Purchaser shall request, being acquired by such Purchaser at the Closing.
21
(i) Resolutions. The Board of Directors of the Company shall have
adopted resolutions consistent with Section 2.1(b) hereof in a form reasonably
acceptable to such Purchaser (the "Resolutions").
(j) Reservation of Shares. As of the Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes and the exercise of the
Warrants, a number of shares of Common Stock equal to the aggregate number of
Conversion Shares issuable upon conversion of the Notes outstanding on the
Closing Date and the number of Warrant Shares issuable upon exercise of the
number of Warrants assuming such Warrants were granted on the Closing Date.
(k) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit I attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(l) Secretary's Certificate. The Company shall have delivered to such
Purchaser a secretary's certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Articles, (iii) the Bylaws, each as in effect at the
Closing, and (iv) the authority and incumbency of the officers of the Company
executing the Transaction Documents and any other documents required to be
executed or delivered in connection therewith.
(m) Officer's Certificate. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.
(n) Lock-Up Agreement. As of the Closing Date, the persons listed on
Schedule 3.17 hereto shall have delivered to the Purchasers a fully executed
Lock-Up Agreement in the form of Exhibit H attached hereto.
(o) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
ARTICLE V
STOCK CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Notes and the
Warrants, and, if appropriate, securities issued upon conversion thereof, shall
be stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required by applicable state securities or "blue
sky" laws):
22
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR SYSTEMS EVOLUTION
INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such securities, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer and removal will not be effected until: (a) either (i) the
Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that the registration of the Conversion Shares or the
Warrant Shares under the Securities Act is not required in connection with such
proposed transfer, (ii) a registration statement under the Securities Act
covering such proposed disposition has been filed by the Company with the
Commission and has become effective under the Securities Act and the holder
covenants that it will comply with all applicable securities laws in connection
with the sale of such Conversion Shares or Warrant Shares, including, without
limitation, the prospectus delivery requirements, (iii) the Company has received
other evidence reasonably satisfactory to the Company that such registration and
qualification under the Securities Act and state securities laws are not
required, or (iv) the holder provides the Company with reasonable assurances
that such security can be sold pursuant to Rule 144 under the Securities Act;
and (b) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that registration or qualification
under the securities or "blue sky" laws of any state is not required in
connection with such proposed disposition, or (ii) compliance with applicable
state securities or "blue sky" laws has been effected or a valid exemption
exists with respect thereto. The Company will respond to any such notice from a
holder within five (5) business days. In the case of any proposed transfer under
this Section 5.1, the Company will use reasonable efforts to comply with any
such applicable state securities or "blue sky" laws, but shall in no event be
required, (x) to qualify to do business in any state where it is not then
qualified, or (y) to take any action that would subject it to tax or to the
general service of process in any state where it is not then subject. The
restrictions on transfer contained in this Section 5.1 shall be in addition to,
and not by way of limitation of, any other restrictions on transfer contained in
any other section of this Agreement. Whenever a certificate representing the
Conversion Shares or Warrant Shares is required to be issued to a Purchaser
without a legend, in lieu of delivering physical certificates representing the
Conversion Shares or Warrant Shares (provided that a registration statement
under the Securities Act providing for the resale of the Warrant Shares and
Conversion Shares is then in effect and such Purchaser covenants that it will
comply with all applicable securities laws in connection with the sale of such
Conversion Shares or Warrant Shares, including, without limitation, the
prospectus delivery requirements), the Company shall cause its transfer agent to
electronically transmit the Conversion Shares or Warrant Shares to a Purchaser
by crediting the account of such Purchaser's Prime Broker with the Depository
Trust Company through its Deposit Withdrawal Agent Commission system (to the
extent not inconsistent with any provisions of this Agreement).
23
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
24
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Notes, each party shall pay
the fees and expenses of its advisors, counsel, accountants and other experts,
if any, and all other expenses, incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement,
provided that the Company shall pay all actual attorneys' fees and expenses
(including disbursements and out-of-pocket expenses) incurred by the Purchasers
in connection with (i) the preparation, negotiation, execution and delivery of
this Agreement, the Notes, the Warrants, the Registration Rights Agreement and
the transactions contemplated thereunder, which payment shall be made at the
initial Closing and shall not exceed $35,000 (exclusive of disbursements and
out-of-pocket expenses), (ii) the filing and declaration of effectiveness by the
Commission of the Registration Statement (as defined in the Registration Rights
Agreement) and (iii) any amendments, modifications or waivers of this Agreement
or any of the other Transaction Documents. In addition, the Company shall pay
all reasonable fees and expenses incurred by the Purchasers in connection with
the enforcement of this Agreement or any of the other Transaction Documents,
including, without limitation, all reasonable attorneys' fees and expenses. The
Company shall pay all stamp or other similar taxes and duties levied in
connection with issuance of the Securities pursuant hereto.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
25
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement, the Notes or the Registration Rights Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement or
the Registration Rights Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby irrevocably
submits to the jurisdiction of the United States District Court sitting in the
Southern District of New York and the courts of the State of New York located in
New York county for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement or any of the other Transaction Documents or
the transactions contemplated hereby or thereby and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the
Purchasers consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 7.2 shall affect or limit any right to serve process in any other manner
permitted by law.
Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contains the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the Transaction Documents, neither the Company nor any of
the Purchasers makes any representations, warranty, covenant or undertaking with
respect to such matters and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least seventy-five
percent (75%) of the principal amount of the Notes then outstanding, and no
provision hereof may be waived other than by an a written instrument signed by
the party against whom enforcement of any such amendment or waiver is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Notes then outstanding. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents or holders of
the Notes, as the case may be.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
26
If to the Company: Systems Evolution Inc.
00000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Attention: Chief Executive Officer
Tel. No.: (000) 000-0000
Fax No.: (281) ___-____
with copies to: Xxxxxxx & Xxxxxxxx, P.C.
00000 00xx Xxxxxx, X.X.
Xxxxx Xxxxx
Xxxxxxxxxx, X.X. 00000
Attention: Xxxxxxx Xxxxx, Esq.
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
If to any Purchaser: At the address of such Purchaser
set forth on Exhibit A to this
Agreement, with copies to
Purchaser's counsel as set
forth on Exhibit A or as
specified in writing by such
Purchaser with copies to:
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx, Esq.
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 7.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
27
Section 7.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and (s) should survive
until thirty (30) days after the passage of the applicable statute of
limitations and those contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution and delivery hereof and the Closing
until the date two (2) years from the final Closing Date, and the agreements and
covenants set forth in Articles I, III, VI and VII of this Agreement shall
survive the execution and delivery hereof and the Closing hereunder until the
Purchasers in the aggregate beneficially own (determined in accordance with Rule
13d-3 under the Exchange Act) less than 10% of the total combined voting power
of all voting securities then outstanding, provided, that Sections 3.1, 3.2,
3.4, 3.5, 3.7, 3.8, 3.10, 3.13 and 3.14 shall not expire until the Registration
Statement required by Section 2 of the Registration Rights Agreement is no
longer required to be effective under the terms and conditions of Registration
Rights Agreement.
Section 7.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section 7.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers
without the consent of the Purchasers unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. Section
7.13 Severability. The provisions of this Agreement, the Notes and the
Registration Rights Agreement are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement, the Notes or the
Registration Rights Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, the Notes or the Registration Rights Agreement shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent possible.
28
Section 7.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Securities and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
SYSTEMS EVOLUTION INC.
By:
----------------------------
Name:
Title:
PURCHASER
By:
----------------------------
Name:
Title:
EXHIBIT A TO THE
NOTE AND WARRANT PURCHASE AGREEMENT FOR
SYSTEMS EVOLUTION INC.
NAMES AND ADDRESSES NUMBER OF WARRANTS DOLLAR AMOUNT OF
OF PURCHASERS PURCHASED INVESTMENT
------------------- ------------------ ----------------
EXHIBIT B TO THE
NOTE AND WARRANT PURCHASE AGREEMENT FOR
SYSTEMS EVOLUTION INC.
FORM OF NOTE
EXHIBIT C TO THE
NOTE AND WARRANT PURCHASE AGREEMENT FOR
SYSTEMS EVOLUTION INC.
FORM OF SERIES A WARRANT
EXHIBIT D TO THE
NOTE AND WARRANT PURCHASE AGREEMENT FOR
SYSTEMS EVOLUTION INC.
FORM OF SERIES B WARRANT
EXHIBIT E TO THE
NOTE AND WARRANT PURCHASE AGREEMENT FOR
SYSTEMS EVOLUTION INC.
FORM OF SERIES C WARRANT
EXHIBIT F TO THE
NOTE AND WARRANT PURCHASE AGREEMENT FOR
SYSTEMS EVOLUTION INC.
FORM OF SERIES D WARRANT
EXHIBIT G TO THE
NOTE AND WARRANT PURCHASE AGREEMENT FOR
SYSTEMS EVOLUTION INC.
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT H TO THE
NOTE AND WARRANT PURCHASE AGREEMENT FOR
SYSTEMS EVOLUTION INC.
FORM OF LOCK-UP AGREEMENT
EXHIBIT I TO THE
NOTE AND WARRANT PURCHASE AGREEMENT FOR
SYSTEMS EVOLUTION INC.
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
SYSTEMS EVOLUTION INC.
as of August 31, 2004
[Name and address of Transfer Agent]
Attn: _____________
LADIES AND GENTLEMEN:
Reference is made to that certain Note and Warrant Purchase Agreement
(the "Purchase Agreement"), dated as of August 31, 2004, by and among Systems
Evolution Inc., an Idaho corporation (the "COMPANY"), and the purchasers named
therein (collectively, the "PURCHASERS") pursuant to which the Company is
issuing to the Purchasers convertible promissory notes (the "NOTES") and
warrants (the "WARRANTS") to purchase shares of the Company's common stock, no
par value per share (the "COMMON STOCK"). This letter shall serve as our
irrevocable authorization and direction to you (provided that you are the
transfer agent of the Company at such time) to issue shares of Common Stock upon
conversion of the Notes (the "CONVERSION SHARES") and exercise of the Warrants
(the "WARRANT SHARES") to or upon the order of a Purchaser from time to time
upon (i) surrender to you of a properly completed and duly executed Conversion
Notice or Exercise Notice, as the case may be, in the form attached hereto as
Exhibit I and Exhibit II, respectively, (ii) in the case of the conversion of
the Notes, a copy of such Note(s) (with the original Notes delivered to the
Company) representing principal amount of the Notes being converted or, in the
case of Warrants being exercised, a copy of the Warrants (with the original
Warrants delivered to the Company) being exercised (or, in each case, an
indemnification undertaking with respect to such Notes or the Warrants in the
case of their loss, theft or destruction), and (iii) delivery of a treasury
order or other appropriate order duly executed by a duly authorized officer of
the Company. So long as you have previously received (x) written confirmation
from counsel to the Company that a registration statement covering resales of
the Conversion Shares or Warrant Shares, as applicable, has been declared
effective by the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 ACT"), and no subsequent notice by
the Company or its counsel of the suspension or termination of its effectiveness
and (y) a copy of such registration statement, and if the Purchaser represents
in writing that the Conversion Shares or the Warrant Shares, as the case may be,
were sold pursuant to the Registration Statement and in accordance with any
prospectus delivery requirements or other applicable securities laws and causes
to be furnished, if requested, a selling broker representation letter as to
delivery of a prospectus, then certificates representing the Conversion Shares
and the Warrant Shares, as the case may be, shall not bear any legend
restricting transfer of the Conversion Shares and the Warrant Shares, as the
case may be, thereby and should not be subject to any stop-transfer restriction.
Provided, however, that if you have not previously received those items and
representations listed above, then the certificates for the Conversion Shares
and the Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE SECURITIES ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS, OR SYSTEMS EVOLUTION INC. SHALL HAVE RECEIVED
AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please be advised that the Purchasers are relying upon this letter as
an inducement to enter into the Securities Purchase Agreement and, accordingly,
each Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
SYSTEMS EVOLUTION INC.
By:___________________________
Name:______________________
Title:_____________________
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By:________________________________
Name:___________________________
Title:__________________________
Date:______________________________
EXHIBIT I
SYSTEMS EVOLUTION INC.
CONVERSION NOTICE
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of
Systems Evolution Inc. (the "Maker") according to the conditions hereof, as of
the date written below.
Date of Conversion _________________________________________________________
Applicable Conversion Price __________________________________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________
Signature___________________________________________________________________
[Name]
Address:__________________________________________________________________
__________________________________________________________________
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
SYSTEMS EVOLUTION INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Systems
Evolution Inc. covered by the within Warrant.
Dated:_________________ Signature_____________________
Address ______________________
______________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the date of Exercise: _________________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: ________________ Signature_____________________
Address ______________________
______________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated:_________________ Signature_____________________
Address ______________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Transfer Agent]
Attn: _____________
Re: SYSTEMS EVOLUTION INC.
Ladies and Gentlemen:
We are counsel to Systems Evolution Inc., an Idaho corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Note and Warrant Purchase Agreement (the "PURCHASE AGREEMENT"), dated as of
August 31, 2004, by and among the Company and the purchasers named therein
(collectively, the "PURCHASERS") pursuant to which the Company issued to the
Purchasers convertible promissory notes (the "NOTES") and warrants (the
"WARRANTS") to purchase shares of the Company's common stock, no par value per
share (the "COMMON STOCK"). Pursuant to the Purchase Agreement, the Company has
also entered into a Registration Rights Agreement with the Purchasers (the
"REGISTRATION RIGHTS AGREEMENT"), dated as of August 31, 2004, pursuant to which
the Company agreed, among other things, to register the Registrable Securities
(as defined in the Registration Rights Agreement), including the shares of
Common Stock issuable upon conversion of the Notes and exercise of the Warrants,
under the Securities Act of 1933, as amended (the "1933 ACT"). In connection
with the Company's obligations under the Registration Rights Agreement, on
________________, 2004, the Company filed a Registration Statement on Form SB-2
(File No. 333-________) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission (the "SEC") relating to the resale of the Registrable
Securities which names each of the present Purchasers as a selling stockholder
thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:___________________________
cc: [LIST NAMES OF PURCHASERS]
EXHIBIT J TO THE
NOTE AND WARRANT PURCHASE AGREEMENT FOR
SYSTEMS EVOLUTION INC.
FORM OF OPINION OF COUNSEL
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Idaho and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the failure to so qualify would have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Notes, the Warrants and the Common Stock issuable upon conversion of the
Notes and exercise of the Warrants. The execution, delivery and performance of
each of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated thereby have been duly and validly authorized by
all necessary corporate action and no further consent or authorization of the
Company, its Board of Directors or its stockholders is required. Each of the
Transaction Documents have been duly executed and delivered, and the Notes and
the Warrants have been duly executed, issued and delivered by the Company and
each of the Transaction Documents constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
respective terms. The Common Stock issuable upon conversion of the Notes and
exercise of the Warrants are not subject to any preemptive rights under the
Articles of Incorporation or the Bylaws.
3. The Notes and the Warrants have been duly authorized and, when
delivered against payment in full as provided in the Purchase Agreement, will be
validly issued, fully paid and nonassessable. The shares of Common Stock
issuable upon conversion of the Notes and exercise of the Warrants have been
duly authorized and reserved for issuance, and when delivered upon conversion or
against payment in full as provided in the Notes and the Warrants, as
applicable, will be validly issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Notes, the Warrants
and the Common Stock issuable upon conversion of the Notes and exercise of the
Warrants do not (a) violate any provision of the Articles of Incorporation or
Bylaws, (b) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company is a party and
which is set forth on Schedule I, (c) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any commitment
which is set forth on Schedule I to which the Company is a party or by which the
Company is bound or by which any of its respective properties or assets are
bound, or (d) result in a violation of any Federal, state, local or foreign
statute, rule, regulation, order, judgment, injunction or decree (including
Federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound or affected, except, in
all cases other than violations pursuant to clauses (a) and (d) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
5. No consent, approval or authorization of or designation, declaration
or filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution, delivery and performance of the Transaction Documents, or the
offer, sale or issuance of the Notes, the Warrants and the Common Stock issuable
upon conversion of the Notes and exercise of the Warrants other than filings as
may be required by applicable Federal and state securities laws and regulations
and any applicable stock exchange rules and regulations.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Purchase Agreement or the transactions contemplated thereby or
any action taken or to be taken pursuant thereto. There is no action, suit,
claim, investigation or proceeding pending, or to our knowledge, threatened,
against or involving the Company or any of its properties or assets and which,
if adversely determined, is reasonably likely to result in a Material Adverse
Effect. To our knowledge, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any officers or directors of the Company
in their capacities as such.
7. Assuming that all of the Purchasers' representations and warranties
in the Purchase Agreement are complete and accurate, the offer, issuance and
sale of the Notes and the Warrants and the offer, issuance and sale of the
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
are exempt from the registration requirements of the Securities Act of 1933, as
amended.
8. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
Very truly yours,
