Exhibit 10.1
NOTE AND WARRANT PURCHASE
AGREEMENT
DATED AS OF FEBRUARY 27, 2004
AMONG
V-ONE CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
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PAGE
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ARTICLE I Purchase and Sale of Notes and Warrants..............................1
Section 1.1 Purchase and Sale of Notes and Warrants.............1
Section 1.2 Purchase Price and Closing..........................1
Section 1.3 Conversion Shares / Warrant Shares..................2
Section 1.4 Warrants............................................2
Section 1.5 Subordination.......................................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...13
ARTICLE III Covenants.........................................................16
Section 3.1 Securities Compliance..............................16
Section 3.2 Registration and Listing...........................16
Section 3.3 Inspection Rights..................................17
Section 3.4 Compliance with Laws...............................17
Section 3.5 Keeping of Records and Books of Account............17
Section 3.6 Reporting Requirements.............................17
Section 3.7 Amendments.........................................18
Section 3.8 Other Agreements...................................18
Section 3.9 Distributions......................................18
Section 3.10 Use of Proceeds....................................19
Section 3.11 Future Financings; Right of First Offer and
Refusal..........................................19
Section 3.12 Reservation of Shares..............................19
Section 3.13 Transfer Agent Instructions........................19
Section 3.14 Disposition of Assets..............................19
Section 3.15 Reporting Status...................................19
Section 3.16 Disclosure of Transaction .........................20
Section 3.17 Disclosure of Material Information.................20
Section 3.18 Pledge of Securities...............................20
Section 3.19 Stockholder Approval...............................20
ARTICLE IV Conditions.........................................................21
Section 4.1 Conditions Precedent to the Obligation of the
Company to Sell the Notes and Warrants...........21
Section 4.2 Conditions Precedent to the Obligation of
the Purchasers to Purchase the Notes and
Warrants.........................................22
ARTICLE V Stock Certificate Legend...........................................24
Section 5.1 Legend.............................................24
ARTICLE VI Indemnification...................................................25
Section 6.1 General Indemnity..................................25
Section 6.2 Indemnification Procedure..........................26
ARTICLE VII Miscellaneous.....................................................27
Section 7.1 Fees and Expenses..................................27
Section 7.2 Specific Enforcement, Consent to Jurisdiction......27
Section 7.3 Entire Agreement; Amendment........................28
Section 7.4 Notices............................................28
Section 7.5 Waivers............................................29
Section 7.6 Headings...........................................29
Section 7.7 Successors and Assigns.............................29
Section 7.8 No Third Party Beneficiaries.......................29
Section 7.9 Governing Law......................................29
Section 7.10 Survival...........................................29
Section 7.11 Counterparts.......................................30
Section 7.12 Publicity..........................................30
Section 7.13 Severability.......................................30
Section 7.14 Further Assurances.................................30
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NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (the "Agreement") is dated as of
February 27, 2004 by and among V-ONE Corporation, a Delaware corporation (the
"Company"), and each of the Purchasers of the subordinated convertible
promissory notes of the Company whose names are set forth on Exhibit A 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 AND WARRANTS. Upon the
following terms and conditions, the Company shall issue and sell to the
Purchasers, and the Purchasers shall purchase from the Company, subordinated
convertible promissory notes in the aggregate principal amount of up to One
Million Two Hundred Fifty Thousand Dollars ($1,250,000.00) bearing interest at
the rate of seven percent (7%) per annum, convertible into shares of the
Company's common stock, par value $.001 per share (the "Common Stock"), in
substantially the form attached hereto as EXHIBIT B (the "Notes"), and warrants
to purchase shares of Common Stock, in substantially the form attached hereto as
EXHIBIT C (the "Warrants"), set forth with respect to such Purchaser 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 Section 4(2) of the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act"), including Regulation D ("Regulation D"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments to be made hereunder.
Section 1.2 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 agree to purchase the Notes and Warrants for an
aggregate purchase price of up to One Million Two Hundred Fifty Thousand Dollars
($1,250,000.00) (the "Purchase Price"). The closing of the purchase and sale of
the Notes and the Warrants to be acquired by the Purchasers from the Company
under this Agreement shall take place at the offices of Jenkens & Xxxxxxxxx
Xxxxxx Xxxxxx LLP, The Chrysler Building, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000 (the "Closing") at such time and place or on such date as the
Purchasers and the Company may agree upon (the "Closing Date"). At the Closing,
the Company shall deliver or cause to be delivered to each Purchaser (i) its
Note for the principal amount set forth opposite the name of such Purchaser on
Exhibit A and (ii) a certificate representing a Warrant to purchase such number
of shares of Common Stock as is set forth opposite the name of such Purchaser on
Exhibit A. At the Closing, each Purchaser shall deliver its Purchase Price by
wire transfer to an account designated by the Company.
Section 1.3 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 its Common Stock equal to at least 120%
of 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 1.4 WARRANTS. The Company agrees to issue to each of the
Purchasers Warrants to purchase the number of shares of Common Stock set forth
opposite such Purchaser's name on Exhibit A hereto. The Warrants shall expire
four and one-half years from the Closing Date and shall have an exercise price
per share equal to $.25.
Section 1.5 SUBORDINATION. The Notes shall be subordinated and made
junior to the outstanding shares of the Company's Series C Preferred Stock and
Series D Preferred Stock as to the payment of dividends or as to distribution of
assets upon liquidation, dissolution or winding up of the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2. 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 Delaware 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
Company's Form 10-K for the year ended December 31, 2002, as amended, including
the accompanying financial statements (the "Form 10-K"), or in the Company's
Form 10-Q for the fiscal quarters ended September 30, 2003, June 30, 2003 or
March 31, 2003, as each may be amended (collectively, the "Form 10-Q"), 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.
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Notes, the
Registration Rights Agreement attached hereto as EXHIBIT D (the "Registration
Rights Agreement"), the Irrevocable Transfer Agent Instructions (as defined in
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Section 3.13) 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 the 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 February 27, 2004 are set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Company's
Common Stock and any other security of the Company have been duly and validly
authorized. Except as set forth in this Agreement and the Registration Rights
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 and the Registration Rights 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 Certificate of Incorporation as in effect on the date
hereof (the "Certificate"), 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 the
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 Certificate 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 Notes, the Warrants, the Conversion Shares and
the Warrant Shares 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 any
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 December 31, 2002, the Company
has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
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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 December 31, 2002. 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 10-K and the Form 10-Q 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 10-K and the Form 10-Q 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.
(h) NO MATERIAL ADVERSE CHANGE. Since December 31, 2002, the Company has
not experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.
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(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 December 31, 2002 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 10-K, Form 10-Q 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 Form
10-K, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated in the Form 10-K,
Form 10-Q 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 Form 10-K, Form 10-Q 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 subsidiary or any of their
respective properties or assets. Except as set forth in the Form 10-K, Form 10-Q
or Schedule 2.1(m) hereto, there are no outstanding orders, judgments,
6
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 10-K, Form 10-Q, 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 10-K or in the Form 10-Q, 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 Form 10-K, Form 10-Q
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 10-K or Form 10-Q 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 Form 10-K, Form 10-Q 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 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
8
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 its Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in the Form 10-K,
Form 10-Q 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, any subsidiary or any of their
respective customers or suppliers 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 Notes, the Warrants, the Conversion Shares and the
Warrant Shares 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 10-K or Form
10-Q and 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.
(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 10-K, Form 10-Q or on Schedule 2.1(y) hereto. Except as
set forth in the Form 10-K, Form 10-Q or on Schedule 2.1(y) hereto, neither the
9
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 December 31, 2002,
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 provided on Schedule 2.1(z)
hereto, since December 31, 2002, 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;
(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;
10
(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.
(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
11
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
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.
12
(ff) 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, 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
and the Warrants 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
13
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 the Securities to or through any person or entity; provided,
however, that by making the representations herein and subject to Section 2.2(h)
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 or the
Warrants 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 Notes and
the Warrants 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"),
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.
14
(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.
(k) PATRIOT ACT. If the Purchaser is an individual, the Purchaser certifies
that he or she is not nor to his or her knowledge has been designated, a
"suspected terrorist" as defined in Executive Order 13224. If the Purchaser is a
corporation, trust, partnership, limited liability company or other
organization, the Purchaser certifies that, to the best of Purchaser's
knowledge, the Purchaser has not been designated, and is not owned or
controlled, by a "suspected terrorist" as defined in Executive Order 13224. The
Purchaser hereby acknowledges that the Company seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Purchaser hereby represents, warrants and
agrees that to its knowledge: (i) none of the cash or property that the
Purchaser will pay or will contribute to the Company has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by the Purchaser to the Company,
to the extent that they are within the Purchaser's control shall cause the
Company to be in violation of the United States Bank Secrecy Act, the United
States International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Purchaser shall promptly notify the Company if any of these
representations ceases to be true and accurate regarding the Purchaser. The
Purchaser agrees to provide the Company any additional information regarding the
Purchaser that the Company deems necessary or convenient to ensure compliance
with all applicable laws concerning money laundering and similar activities. The
Purchaser understands and agrees that if at any time it is discovered that any
of the foregoing representations are incorrect, or if otherwise required by
applicable law or regulation related to money laundering similar activities, the
Company may undertake appropriate actions to ensure compliance with applicable
law or regulation, including but not limited to segregation and/or redemption of
the Purchaser's investment in the Company. In the event that the Company is
requested or required (by deposition, interrogatory, request for documents,
subpoena, civil investigative demand or similar legal, judiciary or regulatory
process or as otherwise required by applicable law or regulation) to disclose
any confidential information about a Purchaser, the Company shall (A) provide
the Purchaser with prompt prior written notice of such request or requirement
and (B) cooperate with the Purchaser so that the Purchaser may seek a protective
order or other appropriate remedy. In the event that such protective order or
other remedy is not obtained, the Company and their respective representatives
shall disclose only that portion of the confidential information that such
person is advised by legal counsel in writing is legally required to be
disclosed, and provided that the Company uses reasonable efforts to obtain
reliable assurance that confidential treatment will be accorded any confidential
information so disclosed.
15
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 Notes, Warrants, Conversion Shares and Warrant Shares 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 Notes, the Warrants, the Conversion Shares and
the Warrant Shares 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 use its commercially reasonable best efforts
to list the Common Stock on the OTC Bulletin Board.
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 the
Notes, or shall own Conversion Shares, Warrant Shares or the Warrants to
purchase Warrant Shares which, in the aggregate, represent more than two percent
(2%) of the total combined voting power of all voting securities then
outstanding, for purposes reasonably related to such Purchaser's interests as a
stockholder to examine and make reasonable copies of and extracts from the
records and books of account of, and 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
16
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 Commission ceases making
periodic reports filed under Section 13 of the Exchange Act available via its
Election Data Gathering Retrieval and Analysis System, then at a Purchaser's
request the Company shall furnish the following to such Purchaser so long as
such Purchaser shall be obligated hereunder to purchase the Notes or shall
beneficially own the Notes or Warrants, or shall own Conversion Shares or
Warrant Shares which, in the aggregate, represent more than 2% of the total
combined voting power of all voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon as
practical after the document is filed with the Commission, and in any event
within fifty-five (55) 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-K as soon as
practical after the document is filed with the Commission, and in any event
within one hundred (100) days after the end of each fiscal year of the Company;
and
(c) Copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are 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 AMENDMENTS. The Company shall not amend or waive any
provision of the Certificate or Bylaws of the Company in any way that would
adversely affect exercise rights, voting rights, conversion rights, prepayment
rights or redemption rights of the holder of the Notes.
Section 3.8 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 3.9 DISTRIBUTIONS. So long as any Notes or Warrants remain
outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section 3.10 USE OF PROCEEDS. The proceeds from the sale of the Notes
and the Warrants will be used by the Company for working capital and general
corporate purposes.
Section 3.11 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
17
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 and/or acquisition,
consolidation, sale or disposition of all or substantially all of the Company's
assets, (ii) the Company's issuance of Financing Securities in connection with
strategic license agreements 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 outstanding on the date hereof, (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) the Company's issuance of shares of Common Stock issued as payment of any
interest on the Notes, or (vii) any Warrants issued to the Purchasers and any
warrants issued to the placement agent for the transactions contemplated by this
Agreement.
(b) During the period commencing on the Closing Date and ending on the
date that is twelve (12) months following the 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
five (5) trading days following delivery of the Rights Notice (the "Option
Period") to inform the Company whether such Purchaser will purchase its pro rata
portion of the securities being offered in such 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.
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 Closing by (y) the total principal amount of all the Notes
purchased by all of the participating Purchasers at the 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
3.11, including, without limitation, the delivery of a new Rights Notice. The
18
provisions of this Section 3.11(b) shall not apply to issuances of Financing
Securities in a Permitted Financing.
Section 3.12 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 120% of the aggregate number of shares of Common Stock needed to provide
for the issuance of the Conversion Shares and the Warrant Shares.
Section 3.13 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 E
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 3.13 will be given by the Company to its transfer agent and that
the Conversion Shares and Warrant Shares 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 3.13
shall affect in any way each Purchaser's obligations and agreements set forth in
Section 5.1 to comply with all applicable prospectus delivery requirements, if
any, upon resale of the Conversion Shares and the 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 Conversion
Shares or Warrant Shares may be made without registration under the Securities
Act or the Purchaser provides the Company with reasonable assurances that the
Conversion Shares or Warrant Shares 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 3.13 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 3.13 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 3.13, 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 3.14 DISPOSITION OF ASSETS. So long as at least $250,000 of
principal amount of the Notes remains 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
19
business or with the prior written consent of the holders of a majority of the
Notes then outstanding.
Section 3.15 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 3.16 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 (the "Form 8-K") describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, the Registration Rights Agreement and the form of Warrant) as soon as
practicable following the date of execution of this Agreement but in no event
more than two (2) Trading Days following the date of execution of this
Agreement, 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 Nasdaq
SmallCap Market or the OTC Bulletin Board shall be open for trading.
Section 3.17 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 3.18 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
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Purchaser effecting a pledge
of the Securities 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 Securities to such pledgee. At the
Purchasers' expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Purchaser.
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ARTICLE IV
CONDITIONS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
SELL THE NOTES AND WARRANTS. 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 the 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 material 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 the 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 NOTES AND WARRANTS. 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 the 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.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Company in this Agreement, the Notes 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.
21
(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 (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 the Closing, the Purchasers shall have
received an opinion of counsel to the Company, dated the date of the Closing, in
the form of Exhibit F hereto, 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) WARRANTS AND NOTES. At the Closing, the Company shall have delivered
the originally executed Warrants (in such denominations as each Purchaser may
request) to the Purchasers. At the Closing, the Company shall have delivered the
originally executed Notes (in such denominations as each Purchaser may request)
to the Purchasers being acquired by the Purchasers at the Closing.
22
(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 at least 120% of 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
(after giving effect to the Notes and the Warrants to be issued on the Closing
Date and assuming all such Notes and Warrants were fully convertible or
exercisable on such date regardless of any limitation on the timing or amount of
such conversions or exercises).
(k) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E 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 Certificate, (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) 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, the Conversion Shares and the Warrant Shares,
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):
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
23
UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS
OR V-ONE CORPORATION 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, (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, (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, or (z)
to comply with state securities or "blue sky" laws of any state for which
registration by coordination is unavailable to the Company. 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 the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, the Company shall use its reasonable best efforts to 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 DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system (to the extent
not inconsistent with any provisions of this Agreement).
24
ARTICLE VI
INDEMNIFICATION
Section 6.1 GENERAL INDEMNITY. The Company agrees to indemnify and
hold harmless the Purchasers and any finder (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
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
25
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 Certificate of Designation,
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 Registration Rights Agreement and the
transactions contemplated thereunder, which payment shall be made at Closing and
shall not exceed $25,000 (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.
Section 7.2 SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(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 Certificate of Designation 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.
26
(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 contains the
entire understanding 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 two-thirds (2/3) 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.
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:
If to the Company: V-ONE Corporation
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxxx Xxxxxxx, President & Chief
Executive Officer
Tel. No.: (301) _______
Fax No.: (301) _______
27
with copies to: Xxxxxxxxxxx & Xxxxxxxx LLP
0000 Xxxxxxxxxxxxx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Tel. No.: (202) _______
Fax No.: (202) _______
Attention: Xxxxxx X. Xxxxxx, III
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.: (212) _______
Fax No.: (212) _______
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.
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 the choice of law provisions. This Agreement shall not
28
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
indefinitely 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 three (3) years from the 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, 3.9, 3.10, 3.12, 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
Registration Rights Agreement and the Notes 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
Registration Rights Agreement or the Notes 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 Registration Rights Agreement or the Notes 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.
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
Notes, the Conversion Shares, the Warrants, the Warrant Shares and the
Registration Rights Agreement.
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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.
V-ONE CORPORATION
By: /s/ Xxxxxxxx X. Xxxxxxx
--------------------------------------------
Name: Xxxxxxxx X. Xxxxxxx
Title: President and Chief Executive
Officer
PURCHASER
By: /s/ [each Purchaser]
--------------------------------------------
Name:
Title:
