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EXHIBIT 10.1
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (the "AGREEMENT"), dated as of April 5, 2000, by and
among xXxx.xxx (formerly known as xXxx.xxx, Inc.), a Delaware corporation, with
headquarters located at 0000 Xxxxxx Xxxx, Xxxxx Xxxx, Xxxxxxxxxx 00000 (the
"COMPANY"), and the investors listed on the Schedule of Investors attached
hereto (individually, an "INVESTOR" and collectively, the "INVESTORS").
WHEREAS:
A. Each of the Investors owns shares of Series A Convertible Preferred
Stock, par value $.01 per share (the "SERIES A PREFERRED SHARES"), which has the
rights set forth in the Company's Certificate of Designations, Preferences and
Rights of the Series A Convertible Preferred Stock (the "SERIES A CERTIFICATE OF
DESIGNATIONS"), and which were issued pursuant to the Securities Purchase
Agreement, dated as of May 7, 1999, between the Company and the Investors (the
"SERIES A PURCHASE AGREEMENT").
B. The Company has agreed and each of the Investors, severally and not
jointly, has agreed that, subject to the terms and conditions of this Agreement,
each Investor will tender to the Company that number of shares of Series A
Preferred Stock set forth opposite such Investor's name on the Schedule of
Investors and the Company will exchange the Series A Preferred Stock for an
equal number of shares of a newly created series of preferred stock, par value
$.01 per share, designated Series B Convertible Preferred Stock (the "SERIES B
PREFERRED SHARES"), which shall be convertible into shares of the Company's
Common Stock, par value $.01 per share (the "COMMON STOCK") (as converted, the
"SERIES B CONVERSION SHARES"), in accordance with the terms of the Company's
Certificate of Designations, Preferences and Rights of the Series B Convertible
Preferred Stock (the "SERIES B CERTIFICATE OF DESIGNATIONS"), substantially in
the form attached hereto as Exhibit A.
C. Subject to the terms and conditions of this Agreement, each Investor
shall have the right to exchange any of such Investor's Series B Preferred
Shares for an equal number of shares of a newly created series of preferred
stock, par value $.01 per share, designated Series C Convertible Preferred Stock
(the "SERIES C PREFERRED SHARES" and, collectively with the Series B Preferred
Shares, the "PREFERRED SHARES"), which shall be convertible into shares of the
Common Stock (as converted, the "SERIES C CONVERSION SHARES" and, collectively
with the Series B Conversion Shares, the "CONVERSION SHARES") in accordance with
the terms of the Company's Certificate of Designations, Preferences and Rights
of the Series C Convertible Preferred Stock (the "SERIES C CERTIFICATE OF
DESIGNATIONS"), substantially in the form attached hereto as Exhibit B.
D. The execution and delivery of this Agreement by the Company and the
Investors and the offer and issuance by the Company of Preferred Shares is being
made in reliance upon the provisions of Section 3(a)(9) of the Securities Act of
1933, as amended (the "1933 ACT"). The
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Preferred Shares and the Conversion Shares issuable upon conversion thereof are
sometimes collectively referred to in this Agreement as the "SECURITIES".
NOW THEREFORE, the Company and the Investors hereby agree as follows:
1. AGREEMENT TO EXCHANGE.
(a) Exchange. Each Investor, severally and not jointly, hereby agrees
that at the Closing (as defined below) it will exchange shares of Series A
Preferred Stock for shares of Series B Convertible Preferred Stock in the
amounts set forth in the Schedule of Investors and on the terms and conditions
set forth herein. At the Closing, the Company shall issue to each Investor one
(1) Series B Preferred Share for each Series A Preferred Share being exchanged
by such Investor, in the denominations as such Investor shall request and in the
name of such Investor or its designee.
(b) The Closing Date. The date and time of the Closing (the "CLOSING
DATE") shall be 10:00 a.m. Central Time within two (2) business days following
the earlier of the date the public announcement of a proposed merger between the
Company and XXXX.XXX, Inc. ("XXXX.XXX") or an affiliate of XXXX.XXX and the
execution by the Company and XXXX.XXX or an affiliate of XXXX.XXX of a letter of
intent for a proposed merger between the Company and XXXX.XXX or an affiliate of
XXXX.XXX on substantially the same terms described in the Disclosed Information
(as defined in Section 3(f)) (the "LETTER OF INTENT"), subject to satisfaction
(or waiver) of the conditions to the Closing set forth in Sections 6 and 7 (or
such later date as is mutually agreed to by the Company and the Investors). The
Closing shall occur on the Closing Date at the offices of Xxxxxx Xxxxxx Xxxxx,
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000 or at such
other place as the Company and the Investors may mutually agree.
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
Each Investor represents and warrants with respect to only itself
that:
(a) Reliance on Exemptions. Such Investor understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Investor's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of such
Investor to acquire the Securities.
(b) No Governmental Review. Such Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the
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investment in the Securities nor have such authorities passed upon or endorsed
the merits of the offering of the Securities.
(c) Transfer or Resale. Such Investor understands that: (i) the
Securities have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Investor
shall have delivered to the Company an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Investor provides the Company with
assurances reasonably acceptable to the Company that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act, as amended, (or a successor rule thereto) ("RULE 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 0000 Xxx) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
(d) Legends. Such Investor understands that, subject to the last
paragraph of this Section 2(d), the certificates or other instruments
representing the Preferred Shares and the stock certificates representing the
Conversion Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate or other instrument without such legend to the holder of the
Securities upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Securities are registered for sale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a form reasonably acceptable to the Company, to
the effect that a public
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sale, assignment or transfer of the Securities may be made without registration
under the 1933 Act, or (iii) such holder provides the Company assurances
reasonably acceptable to the Company that such Securities can be sold pursuant
to Rule 144 without any restriction as to the number of securities acquired as
of a particular date that can then be immediately sold.
(e) Authorization; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Investor and
constitutes valid and binding agreements of such Investor enforceable against
such Investor in accordance with its terms, subject as to enforceability to
general principles of equity and to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
(f) Residency. Such Investor is a resident of that country specified
in its address on the Schedule of Investors.
(g) Ownership of Shares. Such Investor has not granted to any other
party any rights under the Series A Purchase Agreement and has all rights to
waive any rights which it may have under the Series A Purchase Agreement to
permit such Investor to tender its Series A Preferred Shares to the Company in
exchange for Series B Preferred Shares pursuant to the terms of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Investors that:
a. Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest, except for DocuMagix, Inc.) are corporations duly organized and
validly existing in good standing under the laws of the jurisdiction in which
they are incorporated, and have the requisite corporate power and authorization
to own their properties and to carry on their business as now being conducted.
Each of the Company and its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries except
as set forth on Schedule 3(a). DocuMagix, Inc. has no or only deminimus assets
and has no liabilities in excess of $250,000.
b. Authorization; Enforcement; Validity. (i) The Company has the
requisite corporate power and authority to enter into and perform this
Agreement, the Series B Certificate
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of Designations, the Series C Certificate of Designations and the Irrevocable
Transfer Agent Instructions (as defined in Section 5) and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "TRANSACTION
DOCUMENTS"), and to issue the Securities in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the issuance of the Preferred Shares and
the reservation for issuance and the issuance of the Conversion Shares issuable
upon conversion thereof, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders (except such stockholder approval as
may be required (A) by the Nasdaq National Market for the issuance of a number
of Conversion Shares which is greater than 20% of the number of shares of Common
Stock outstanding on the Closing Date ("20% APPROVAL") or (B) to increase the
number of authorized shares of Common Stock of the Company), (iii) this
Agreement and the Irrevocable Transfer Agent Instructions have been duly
executed and delivered by the Company, (iv) the Transaction Documents constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to the Closing Date, the Series B Certificate of Designations will be
filed with the Secretary of State of the State of Delaware and will not have
been amended since the date it was filed.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 35,000,000 shares of Common Stock, of which
as of April 1, 2000, 13,184,072 shares are issued and outstanding, 5,470,000
shares are reserved for issuance pursuant to the Company's stock option and
purchase plans and 345,002 shares are issuable and reserved for issuance
pursuant to securities (other than the Preferred Shares and Series A Preferred
Shares) exercisable or exchangeable for, or convertible into, shares of Common
Stock and (ii) 5,000,000 shares of preferred stock, of which as of the date
hereof, 1,500 shares were designated as Series A Convertible Preferred Stock and
1,500 shares of Series A Convertible Preferred Stock were issued and
outstanding. As of the Closing Date, the Company shall not have issued or
reserved for issuance any shares of Common Stock since April 1, 2000 except (A)
pursuant to the exercise of options for which shares of Common Stock were
reserved as of April 1, 2000 and are reflected in the number of reserved shares
set forth in clause (i) of the immediately preceding sentence, (B) any shares of
Common Stock issuable upon exercise of warrants issued to XXXX.XXX pursuant to
the terms of the Letter of Intent, and (C) the Conversion Shares. All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable. Except as disclosed in Schedule 3(c), (i) no
shares of the Company's capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is bound to issue currently or
potentially in the future additional shares of capital stock of the Company or
any of its Subsidiaries or options, warrants,
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scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, (iv) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act, (v) there are
no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions (other than the
Series A Preferred Shares), and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is bound to redeem currently or potentially in the future a security of the
Company or any of its Subsidiaries, (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement, and (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
Investor true and correct copies of the Company's Certificate of Incorporation,
as amended and as in effect on the date hereof (the "CERTIFICATE OF
INCORPORATION"), and the Company's By-laws, as amended and as in effect on the
date hereof (the "BY-LAWS"), and the terms of all securities convertible into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto.
d. Issuance of Securities. The Preferred Shares are duly authorized
and, upon issuance in accordance with the terms hereof, shall be (i) validly
issued, fully paid and non-assessable, (ii) free from all taxes, liens and
charges with respect to the issue thereof and (iii) entitled to the rights and
preferences set forth in the respective Series B Certificate of Designations or
Series C Certificate of Designations. At least 4,500,000 of shares of Common
Stock (subject to adjustment pursuant to the Company's covenant set forth in
Section 4(f) below) have been duly authorized and reserved for issuance upon
conversion of the Preferred Shares. Upon conversion in accordance with the
Certificate of Designations, the Conversion Shares will be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof, with the holders being entitled to all rights accorded to
a holder of Common Stock. Assuming the accuracy as to factual matters of the
representations set forth in Section 2, the issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the execution,
delivery and performance of the Transaction Documents by the Company, the
performance by the Company of its obligations under the Series B Certificate of
Designations and the Series C Certificate of Designations and the consummation
by the Company of the transactions contemplated hereby and thereby (including,
without limitation, the reservation for issuance and issuance of the Conversion
Shares) will not (i) result in a violation of the Certificate of Incorporation,
any Certificate of Designations, Preferences and Rights of any outstanding
series of preferred stock of the Company or the By-laws 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 material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market (as defined below)) applicable to the
Company or any of its Subsidiaries or by which any property
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or asset of the Company or any of its Subsidiaries is bound or affected. Except
as disclosed in Schedule 3(e), neither the Company nor its Subsidiaries is in
violation of any term of or in default under its Certificate of Incorporation,
any Certificate of Designation, Preferences and Rights of any outstanding series
of preferred stock of the Company or By-laws or their organizational charter or
by-laws, respectively. Except as disclosed in Schedule 3(e), neither the Company
nor any of its Subsidiaries is in violation of any term of or in default under
any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, except for possible conflicts, defaults,
terminations or amendments which 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 law, ordinance or regulation of any
governmental entity, except for possible violations the sanctions for which
either individually or in the aggregate would not have a Material Adverse
Effect. Except as specifically contemplated by the Transaction Documents and
except for a notice of filing pursuant to the California Corporation Code, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. Except
as disclosed in Schedule 3(e), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain on or prior to the Closing
Date pursuant to the preceding sentence have been obtained or effected on or
prior to the date hereof. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company is not in violation of the listing requirements of the Nasdaq National
Market, including, without limitation, the requirements set forth in Rule 4460
of the Nasdaq National Market.
f. SEC Documents; Financial Statements. Since December 31, 1997, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, 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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the
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periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except for the proposed terms of a possible merger
transaction with XXXX.XXX disclosed to each Investor by Xxxx Xxxxx, the
Company's Chief Financial Officer, on April 2, 2000 (the "DISCLOSED
INFORMATION"), neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided any of the Investors with
any material, nonpublic information.
g. Acknowledgment Regarding Investors' Exchange of Preferred Shares.
The Company acknowledges and agrees that each of the Investors is acting solely
in the capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that each Investor is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby and
any advice given by any of the Investor or any of their respective
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Investor's purchase of the Securities. The Company further represents to each
Investor that the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives.
h. Solicitation. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has paid or given, either directly or
indirectly, a commission or other remuneration for soliciting the exchange of
the Securities.
i. 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 require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. Neither the
Company nor any of its Subsidiaries has taken any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings for purposes of
provisions relating to the 20% Approval.
j. Transactions With Affiliates. Except as set forth on Schedule 3(j)
and in the SEC Documents filed at least ten days prior to the date hereof and
other than the grant of stock options disclosed on Schedule 3(c), none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
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k. Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the
Investors as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Securities and the
Investor's ownership of the Securities.
l. Rights Agreement. The Company has not adopted a shareholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) Blue Sky. The Company shall, on or before the Closing Date, take
such action as the Company shall reasonably determine is necessary to qualify
the Securities for, or obtain exemption for the Securities for, sale to the
Investors at the Closing pursuant to this Agreement under applicable securities
or "Blue Sky" laws of the states of the United States, and shall provide
evidence of any such action so taken to the Investors on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Closing Date.
(c) Reporting Status. Until the earlier of (i) the date which is one
(1) year after the date as of which the Investors may sell all of the Conversion
Shares without restriction pursuant to Rule 144(k) promulgated under the 1933
Act (or successor thereto); or (ii) the date on which (A) the Investors shall
have sold all the Conversion Shares, and (B) none of the Preferred Shares is
outstanding (the "REPORTING PERIOD"); the Company (I) shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and (II) except as a
result of a Major Corporate Event (as defined in the Series C Certificate of
Designations) (provided that the Company has complied with Section 4(j) of this
Agreement with Section 4 of the Series B Certificate of Designations, with
respect to the Series B Preferred Shares, and Sections 4(a) and 4(b) of the
Series C Certificate of Designations, with respect to the Series C Preferred
Shares, if any), shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would otherwise permit such termination.
(d) Financial Information. The Company agrees to send the following
to each Investor during the Reporting Period: (i) within two (2) business days
after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements or amendments (other than on Form S-8) filed
pursuant to the 1933 Act; (ii) using the Company's reasonable best efforts, on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of
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its Subsidiaries, and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
(e) Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than the number of shares of Common Stock needed to provide
for the issuance of the Conversion Shares (without regard to any limitations on
conversions), based on the then current Conversion Price.
(f) Listing. The Company shall promptly secure the listing of all of
the Conversion Shares (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Conversion Shares from time to time issuable
under the terms of the Transaction Documents. The Company shall maintain the
Common Stock's authorization for listing on the Nasdaq National Market, AMEX or
NYSE, except as a result of a Major Corporate Event (provided that the Company
has complied with Section 4(j) of this Agreement, with Section 4 of the Series B
Certificate of Designations with respect to the Series B Preferred Shares, and
Sections 4(a) and 4(b) of the Series C Certificate of Designations with respect
to the Series C Preferred Shares, if any). Neither the Company nor any of its
Subsidiaries shall take any action which would reasonably be expected to result
in the delisting or suspension of the Common Stock on the Nasdaq National
Market, AMEX or NYSE (other than to switch listings from the Nasdaq National
Market to AMEX or NYSE or from AMEX to the Nasdaq National Market or NYSE or as
a result of a Major Corporate Event (provided that the Company has complied with
Section 4(j) of this Agreement with Section 4 of the Series B Certificate of
Designations, with respect to the Series B Preferred Shares, and Sections 4(a)
and 4(b) of the Series C Certificate of Designations, with respect to the Series
C Preferred Shares, if any). The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(f).
(g) Expenses. Subject to Section 9(l) below, by May 15, 2000 the
Company shall reimburse the Investors for the Investors' attorneys' fees and
expenses in connection with negotiating and preparing the Transaction Documents
and consummating the transactions contemplated thereby up to an aggregate of
$25,000.
(h) Filing of Form 8-K. On or before the earlier of (i) the date
which is one (1) business day after the date the Company signs a letter of
intent with XXXX.XXX or an affiliate of XXXX.XXX for a proposed merger
transaction and (ii) the time of the public announcement of a proposed merger
between the Company and XXXX.XXX or an affiliate of XXXX.XXX, the Company shall
file a Form 8-K or the Company's Form 10-K for the year ended December 31, 1999
with the SEC describing the terms of the transaction contemplated by the
Transaction Documents and including as exhibits to such Form 8-K or Form 10-K
this Agreement, the Series B Certificate of Designations and the Series C
Certificate of Designations, in the form required by the 1934 Act.
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(i) Disclosure of Disclosed Information. Prior to or concurrent with
the first public announcement of a proposed merger between the Company and
XXXX.XXX or an affiliate of XXXX.XXX, the Company shall publicly disclose the
Disclosed Information (as defined in Section 3(f)).
(j) Corporate Existence. So long as a Investor beneficially owns any
Preferred Shares, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is listed for trading on the Nasdaq National
Market, NYSE or AMEX.
(k) Rule 144. The Company shall not, directly or indirectly, dispute
or otherwise interfere with any claim by a holder of Preferred Shares that such
holder's holding period of any Security for purposes of Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("RULE 144") relates back
(i.e., tacks) to the holding period for the Series A Preferred Stock.
(l) Right to Exchange Series B Preferred Shares. If the Company does
not consummate a merger transaction with XXXX.XXX or an affiliate of XXXX.XXX on
substantially the same terms as was disclosed in the Disclosed Information or
the proposed merger transaction between the Company and XXXX.XXX or an affiliate
of XXXX.XXX is terminated or abandoned, then at any time beginning on and
including the date of the Merger Termination (as defined below), subject to the
exceptions described below, any holder of Series B Preferred Shares may exchange
all or any portion of such holder's Series B Preferred Shares for an equal
number of Series C Preferred Shares by delivering written notice to the Company
of such holder's election to exchange its Series B Preferred Shares for Series C
Preferred Shares (a "SERIES C ELECTION NOTICE"). The consummation of such an
exchange of Series B Preferred Shares for Series C Preferred Shares shall be at
10:00 a.m. Central Time on the date which is three (3) business days after the
date such investors delivers a Series C Election Notice to the Company (a
"SERIES C CLOSING"). Each of the Company and such Investor shall deliver at such
Series C Closing documents substantially similar to those described in Sections
6 and 7 and each of the Company's and such Investor's obligations at such Series
C Closing shall be subject to the satisfaction or waiver of the same type of
conditions described in Sections 6 and 7, respectively. Each Series C Closing
shall occur at the offices of Xxxxxx Xxxxxx Xxxxx, 000 Xxxx Xxxxxx Xxxxxx, Xxxxx
0000, Xxxxxxx, Xxxxxxxx 00000-0000 or at such other place as the Company and the
applicable Investor(s) may mutually agree. "MERGER TERMINATION" means the
earlier of (i) the abandonment or termination of a proposed merger transaction
between the Company and XXXX.XXX or an affiliate of XXXX.XXX, if there has not
previously been a public announcement of a proposed merger transaction between
the Company and XXXX.XXX or an affiliate of XXXX.XXX, (ii) the public
announcement by the Company or XXXX.XXX of the abandonment or termination of a
proposed merger transaction between the Company and XXXX.XXX or an affiliate of
XXXX.XXX, if there has previously been a public announcement of a proposed
merger transaction between the Company and XXXX.XXX or an affiliate of XXXX.XXX,
and (iii) November 30,
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2000, if the Company does not consummate a merger transaction with XXXX.XXX or
an affiliate of XXXX.XXX on substantially the same terms as was disclosed in the
Disclosed Information on or prior to November 30, 2000.
(m) Right of First Refusal. Subject to the exceptions described
below, following the Company's receipt of a Series C Election Notice the Company
and its Subsidiaries shall not contract with any party for any equity financing
(including any debt financing with an equity component) or issue any equity
securities of the Company or any Subsidiary or securities convertible or
exchangeable into or for equity securities of the Company or any Subsidiary
(including debt securities with an equity component) in any form ("FUTURE
OFFERINGS") during the period beginning on the date of the Company's receipt of
such Series C Election Notice and ending on, and including, May 13, 2000, unless
it shall have first delivered to each Investor or a designee appointed by such
Investor written notice (the "FUTURE OFFERING NOTICE") describing the proposed
Future Offering, including the terms and conditions thereof, and providing each
Investor an option to purchase up to its Aggregate Percentage (as defined below)
of the securities to be issued in such Future Offering, as of the date of
delivery of the Future Offering Notice, in the Future Offering (the limitations
referred to in this and the preceding sentence are collectively referred to as
the "CAPITAL RAISING LIMITATIONS"). For purposes of this Section 4(m),
"AGGREGATE PERCENTAGE" at any time with respect to any Investor shall mean the
percentage obtained by dividing (i) the aggregate number of the Series B
Preferred Shares initially issued to such Investor by (ii) the aggregate number
of the Series B Preferred Shares initially issued to all the Investors. An
Investor can exercise its option to participate in a Future Offering by
delivering written notice thereof to participate to the Company within five (5)
business days after receipt of a Future Offering Notice, which notice shall
state the quantity of securities being offered in the Future Offering that such
Investor will purchase, up to its Aggregate Percentage, and that number of
securities it is willing to purchase in excess of its Aggregate Percentage. In
the event that one or more Investors fail to elect to purchase up to each such
Investor's Aggregate Percentage, then each Investor which has indicated that it
is willing to purchase a number of securities in such Future Offering in excess
of its Aggregate Percentage shall be entitled to purchase its pro rata portion
(determined in the same manner as described in the preceding sentence) of the
securities in the Future Offering which one or more of the Investors have not
elected to purchase. In the event the Investors fail to elect to fully
participate in the Future Offering within the periods described in this Section
4(m), the Company shall have 60 days thereafter to sell the securities of the
Future Offering that the Investors did not elect to purchase, upon terms and
conditions, no more favorable to the purchasers thereof than specified in the
Future Offering Notice. In the event the Company has not sold such securities of
the Future Offering within such 60 day period, the Company shall not thereafter
issue or sell such securities without first offering such securities to the
Investors in the manner provided in this Section 4(m). The Capital Raising
Limitations shall not apply to (i) a loan from a commercial bank which does not
have any equity feature, (ii) any transaction involving the Company's issuances
of securities (A) as consideration in a merger or consolidation, (B) in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), (C) as consideration for the
acquisition of a business, product, license or other assets by the Company, or
(D) equipment lease financing, (iii) the issuance of Common Stock in a firm
commitment, underwritten public offering, (iv) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other
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convertible securities outstanding as of the date hereof, (v) the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option plan, restricted stock plan or stock purchase plan for
the benefit of the Company's employees, officers, directors or consultants for
services provided to the Company. The Investors shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings.
(n) Right to Exchange Series C Preferred Shares. Subject to the
exceptions described below, so long as any Series C Preferred Shares are
outstanding, if the Company issues or agrees to issue any equity securities or
any instrument convertible into or exercisable or exchangeable for equity
securities of the Company (other than pursuant to a firm commitment,
underwritten public offering) ("NEW EQUITY SECURITIES") after the first date on
which the Company receives a Series C Election Notice, the Company shall provide
written notice thereof via facsimile and overnight courier to each holder of
Preferred Shares ("NEW FINANCING NOTICE") at least ten (10) days prior to the
date that the Company enters into any agreement with respect to any New Equity
Securities or issues any New Equity Securities. Within one business day after
each issuance of New Equity Securities, the Company shall make an irrevocable
exchange offer to each holder of Preferred Shares on such terms and conditions
as each such holder shall reasonably require to exchange any or all of such
holder's Preferred Shares for a like amount (based on the following formula to
value each Preferred Share: the Stated Value plus any accrued and unpaid
dividends) of the New Equity Securities. Each such exchange offer shall remain
open until the earlier of (i) the date which is 15 business days after the
receipt by each holder of Preferred Shares of the New Financing Notice or (ii)
such time as all of the holders of Preferred Shares accept or reject, in
writing, such exchange offer (the "EXCHANGE OFFER NOTICE PERIOD").
Notwithstanding the foregoing, a holder of Preferred Shares shall not be
entitled pursuant to this Section 4(n) to exchange such Preferred Shares for
securities issued by the Company as part of (i) a loan from a commercial bank
which does not have any equity feature, (ii) any transaction involving the
Company's issuances of securities (A) as consideration in a merger or
consolidation, (B) in connection with any strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), (C) as
consideration for the acquisition of a business, product, license or other
assets by the Company, or (D) equipment lease financing, (iii) the issuance of
Common Stock in a firm commitment, underwritten public offering, (iv) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of April 1, 2000, (v)
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option plan, restricted stock plan or stock
purchase plan for the benefit of the Company's employees, officers, directors or
consultants for services provided to the Company.
(o) Reports Under the 1934 Act for Rule 144. With a view to making
available to the Investors the benefits of Rule 144 promulgated under the 1933
Act or any other similar rule or regulation of the SEC that may at any time
permit the Investors to sell securities of the
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Company to the public without registration ("RULE 144"), the Company agrees to
use all reasonable best efforts to, at all times prior to the merger of the
Company into XXXX.XXX or an affiliate of XXXX.XXX on substantially the same
terms set forth in the Letter of Intent:
i. make and keep public information available, as those terms
are understood and defined in Rule 144;
ii. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and
the 1934 Act so long as the Company remains subject to
such requirements and the filing of such reports and other
documents is required for the applicable provisions of
Rule 144; and
iii. furnish to each Investor so long as such Investor owns any
of the Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the
1934 Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the
investors to sell such securities pursuant to Rule 144
without registration.
(p) Issuance of Shares of XXXX.XXX for Series B Preferred Shares.
Prior to the consummation of a merger transaction with XXXX.XXX or an affiliate
of XXXX.XXX, the Company shall obtain the written agreement of XXXX.XXX to
issue, in exchange for outstanding Series B Preferred Shares, a number of shares
of XXXX.XXX's common stock ("XXXX.XXX COMMON STOCK") to each holder of Series B
Preferred Shares, concurrent with the issuance of XXXX.XXX Common Stock to the
holders of the Company's Common Stock, equal to the product of (i) the number
Series B Preferred Shares which such holder holds as of the time of such merger
(including the Series B Preferred Shares such holder is not able to convert as
of the date of the consummation of such merger due to the limitations of Section
5 or Section 14 of the Series B Certificate of Designations), multiplied by (ii)
the quotient of (A) the Conversion Amount (as defined in the Series B
Certificate of Designations), divided by (B) the Conversion Price (as defined in
the Series B Certificate of Designations), multiplied by (iii) the number of
shares of XXXX.XXX Common Stock being issued in such merger for each share of
Common Stock outstanding.
(q) Issuance of Shares of XXXX.XXX Warrants for Series A Warrants.
Prior to the consummation of a merger transaction with XXXX.XXX or an affiliate
of XXXX.XXX, the Company shall obtain the written agreement of XXXX.XXX to
issue, in exchange for outstanding Warrants issued pursuant to the Series A
Purchase Agreement (the "SERIES A WARRANTS"), a warrant to each Investor, on
substantially the same terms as the Series A Warrants, to purchase shares of
XXXX.XXX Common Stock, which new warrant shall be form and substance reasonably
satisfactory to such Investors.
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(r) Restriction on Sales Following Merger. If the Closing has
occurred and the Company consummates a merger transaction with XXXX.XXX or an
affiliate of XXXX.XXX on terms substantially similar to the terms set forth in
the Letter of Intent on or before November 30, 2000, then beginning immediately
following each Investor's receipt of the Merger Closing Notice (as defined
below), each Investor agrees that following receipt of written notice (the
"MERGER CLOSING NOTICE") from XXXX.XXX that such merger has been consummated
neither such Investor nor any of its affiliates shall sell during any calendar
month ending on or after the date of such Investor's receipt of the Merger
Closing Notice (beginning with the first calendar month which ends on or after
the date of such Investor's receipt of the Merger Closing Notice), more than 10%
of such Investor's XXXX.XXX Merger Shares (as defined below) on a cumulative
basis (with partial calendar months prorated). "XXXX.XXX MERGER SHARES" means
the number of shares of XXXX.XXX Common Stock which such Investor received
pursuant to the merger of the Company into XXXX.XXX or an affiliate of XXXX.XXX.
(s) Trading Restrictions. Each Investor agrees that during the period
beginning on and including the date of this Agreement and ending on and
including the first date on or after the consummation of a merger of the Company
into XXXX.XXX or an affiliate of XXXX.XXX on terms substantially similar to the
terms set forth in the Letter of Intent, neither such Investor nor any of such
Investor's affiliates shall engage in any transaction constituting a "short
sale" (as defined in Rule 3b-3 of the 0000 Xxx) of the XXXX.XXX Common Stock,
including without limitation the purchase of a "put option" or the sale of a
"call option" on XXXX.XXX Common Stock; provided, however, the restrictions set
forth in this sentence shall not apply at any time on and after the earlier of
the date of a Merger Termination (as defined in Section 4(l)) and the date on
which this Agreement is terminated in accordance with Section 9(l). Each
Investor agrees that during the period (A) beginning on the later of the first
day after the date which is 20 trading days after the Company files a Form 8-K
or its Form 10-K with the SEC disclosing the terms of the transactions
contemplated by this Agreement in accordance with Section 4(h) and the date on
which the Company and XXXX.XXX sign a definitive merger agreement for the merger
of the Company into XXXX.XXX or an affiliate of XXXX.XXX on terms substantially
similar to the terms set forth in the Letter of Intent (such later date is
referred to herein as the "RESTRICTION TRIGGER DATE") and (B) ending on the
earlier of (I) the date of a Merger Termination, (II) the date which this
Agreement is terminated in accordance with Section 9(l), and (III) the date of
the consummation of the merger of the Company into XXXX.XXX or an affiliate of
XXXX.XXX on terms substantially similar to the same terms set forth in the
Letter of Intent, neither such Investor nor any of such Investor's affiliates
shall make Net Sales (as defined below) of the Common Stock during any calendar
month ending on or after the Restriction Trigger Date in excess of 400,000
shares of Common Stock (with partial calendar months prorated) (subject to
adjustment for stock splits, stock dividends, stock combinations and other
similar transactions). Notwithstanding the foregoing, the restrictions set forth
in the preceding sentence shall not apply on and after any date on which the
Company materially breaches any of its obligations or covenants in this
Agreement or in the Series B Certificate of Designations. For purposes of this
Section 4(s), "NET SALES" means the result of total sales of Common Stock during
a specific calendar month minus total purchases of Common Stock during such
calendar month.
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(t) Waiver and Consent Under Series A Purchase Agreement. Each
Investor waives the Company's obligations to comply with its obligations under
Sections 4(c) and 4(g) of the Series A Purchase Agreement in connection with the
Company's merger into XXXX.XXX or an affiliate of XXXX.XXX on substantially the
terms set forth in the Disclosure Information, provided that the Closing occurs
on or before April 14, 2000 and the Company otherwise is in compliance with its
obligations in this Agreement. Each Investor waives its rights under Sections
4(f) and 4(j) with respect to the Company's issuance of warrants to acquire
shares of Common stock to XXXX.XXX pursuant to the terms set forth in the
Disclosed Information.
5. 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 Investor or its respective nominee(s), for the Conversion
Shares in such amounts as specified from time to time by each Investor to the
Company upon conversion of the Preferred Shares (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(d) of this Agreement until such legend is permitted to be removed
pursuant to the last paragraph of Section 2(g). The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(e)
(in the case of the Conversion Shares, prior to registration of the Conversion
Shares under the 0000 Xxx) will be given by the Company to its transfer agent
and that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 5 shall affect in any way
each Investor's obligations and agreements set forth in Section 2(d) to comply
with all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If an Investor provides the Company with an opinion of counsel, in a
form reasonably acceptable to the Company, to the effect that the public sale,
assignment or transfer of the Securities may be made without registration under
the 1933 Act or the Investor provides the Company with assurances reasonably
acceptable to the Company that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Investor and without any restrictive legends.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Investors 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 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Investors shall be
entitled, in addition to all other available remedies, to an 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.
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6. CONDITIONS TO THE COMPANY'S OBLIGATION TO EXCHANGE.
The obligation of the Company hereunder to consummate the exchange of
Series A Preferred Shares for Series B Preferred Shares as contemplated hereby
at the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Investor with prior written notice thereof:
(i) Each Investor shall have executed each of this Agreement and
delivered the same to the Company.
(ii) The Series B Certificate of Designations shall have been
filed with the Secretary of State of the State of Delaware.
(iii) Each Investor shall have delivered to the Company
certificates representing that number of shares of Series A Preferred
Stock being tendered by such Investor as set forth on the Schedule of
Investors.
(iv) The representations and warranties of each Investor set
forth in this Agreement shall be true and correct as of the date when
made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Investor shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Investor
at or prior to the Closing Date.
(v) The Company and XXXX.XXX or an affiliate of XXXX.XXX shall
have executed a letter of intent for a proposed merger between the
Company and XXXX.XXX or an affiliate of XXXX.XXX on substantially the
same terms described in the Disclosed Information (as defined in Section
3(f)).
7. CONDITIONS TO EACH INVESTOR'S OBLIGATION TO EXCHANGE.
The obligation of each Investor hereunder to consummate the exchange
of the Series A Preferred Shares for Series B Preferred Shares as contemplated
hereby at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for each Investor's sole benefit and may be waived by such Investor at any time
in its sole discretion:
(i) The Company shall have executed this Agreement and delivered
the same to such Investor.
(ii) The Series B Certificate of Designations shall have been
filed with the Secretary of State of the State of Delaware, and a copy
thereof certified by such Secretary of State shall have been delivered
to such Investor.
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(iii) The Common Stock shall be authorized for quotation on the
Nasdaq National Market or listing on AMEX or NYSE, trading in the Common
Stock issuable upon conversion of the Preferred Shares to be traded on
the Nasdaq National Market, AMEX or NYSE shall not have been suspended
by the SEC, The Nasdaq Stock Market, Inc., AMEX or NYSE and all of the
Conversion Shares issuable upon conversion of the Series B Preferred
Shares to be exchanged at the Closing shall be listed upon the Nasdaq
National Market, AMEX or NYSE.
(iv) The representations and warranties of the Company set forth
in this Agreement shall be true and correct as of the date when made and
as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Investor shall have received a certificate, executed
by the Chief Financial Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Investor including, without limitation, an
update as of the Closing Date regarding the representation contained in
Section 3(c) above.
(v) Such Investor shall have received the opinion of Howard,
Rice, Nemerovski, Canady, Xxxx & Xxxxxx, dated as of the Closing Date,
in form, scope and substance reasonably satisfactory to such Investor
and in substantially the form of Schedule 7(v) attached hereto.
(vi) The Company shall have executed and delivered to such
Investor the Stock Certificates (in such denominations as such Investor
shall request) for the Series B Preferred Shares.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Investor (the "RESOLUTIONS").
(viii) 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 Series B Preferred Shares, at least
that number of shares of Common Stock required to be reserved by the
Company pursuant to Section 4(e).
(ix) The Irrevocable Transfer Agent Instructions, in the form
set forth in Exhibit C attached hereto, shall have been delivered
to and acknowledged in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Investor a
certificate evidencing the incorporation and good standing of the
Company in Delaware and the qualification and good standing of the
Company in California issued by the Secretary of State of each such
state as of a date within ten days of the Closing Date.
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(xi) The Company shall have delivered to such Investor a
secretary's certificate certifying as to (A) the Resolutions, (B)
certified copies of its Certificate of Incorporation and (C) By-laws,
each as in effect at the Closing.
(xii) The Company shall have delivered to such Investor a
certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the
Closing Date.
(xiii) The Company shall have delivered to such Investor a
letter from the Company's transfer agent certifying the number of shares
of Common Stock outstanding as of a date within five (5) days of the
Closing Date.
(xiv) 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 or adversely affects any of the
transactions contemplated by this Agreement, nor shall any proceeding
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
(xv) The Company and XXXX.XXX or an affiliate of XXXX.XXX shall
have executed a letter of intent for a proposed merger between the
Company and XXXX.XXX or an affiliate of XXXX.XXX on substantially the
same terms described in the Disclosed Information (as defined in Section
3(f)) and, if requested by such Investor, the Company shall delivered a
copy of such executed letter of intent to such Investor.
(xvi) The Company shall have delivered to such Investor such
other documents relating to the transactions contemplated by the
Transaction Documents as such Investor or its counsel may reasonably
request.
8. INDEMNIFICATION. In consideration of each Investor's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Investor and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or the Certificate of Designations or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach of any covenant, agreement or obligation of the Company contained in
the Transaction Documents or the
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Certificate of Designations or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitee (other than a cause of action, suit or claim by
another Investor) and arising out of or resulting from the execution, delivery
or performance by such Investor of the Transaction Documents or the enforcement
of the Transaction Documents by such Investor. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of California, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of California or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of California.
Each party hereby irrevocably waives any right it may have, and agrees not to
request, a jury trial for the adjudication of any dispute hereunder or in
connection with or arising out of this agreement or any transaction contemplated
hereby.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Investors, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. The Series A
Purchase Agreement, the Series A Warrants (as defined in the Series A Purchase
Agreement) and the Registration Rights Agreement (as defined in the Series A
Purchase Agreement) shall remain in full force and effect with respect to the
securities and the transactions contemplated thereby. No provision of this
Agreement may be amended other than
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by an instrument in writing signed by the Company and the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding, and no provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
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 or the Certificate of Designations unless the same
consideration also is offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
xXxx.xxx
0000 Xxxxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxx X. Xxxxx, Chief Financial Officer
With a copy to:
Howard, Rice, Nemerovski, Canady, Xxxx & Rabkin,
A Professional Corporation
Three Xxxxxxxxxxx Xxxxxx, Xxxxxxx Xxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxxx X. Xxxxxxxxxx, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Company
0000 00xx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxx Xxxxx
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If to an Investor, to it at the address and facsimile number set forth on the
Schedule of Investors, with copies to such Investor's representatives as set
forth on the Schedule of Investors, or at such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Preferred Shares. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding, including by merger or consolidation, except pursuant to a Major
Corporate Event (as defined in Section 4(b) of the Series C Certificate of
Designations), provided that the Company has complied with Section 4(j) of this
Agreement with Section 4 of the Series B Certificate of Designations, with
respect to the Series B Preferred Shares, and Sections 4(a) and 4(b) of the
Series C Certificate of Designations, with respect to the Series C Preferred
Shares, if any. An Investor may assign some or all of its rights hereunder to
(i) a Permitted Transferee (as defined below) without the consent of the Company
and (ii) to a person which is not a Permitted Transferee with the prior consent
of the Company, which consent shall not be unreasonably withheld.
Notwithstanding anything to the contrary contained in the Transaction Documents,
the Investors shall be entitled to pledge the Securities in connection with a
bona fide margin account or other loan secured by such Securities. For purposes
of this Section 9(i), a "PERMITTED TRANSFEREE" shall mean (i) an Investor, (ii)
an Affiliate (as that term is defined in Rule 501(b) under the 1933 act) of an
Investor, (iii) any holder of Preferred Shares or Warrants and (iv) any
Affiliate of a holder of Preferred Shares or Warrants.
h. 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 (other than XXXX.XXX with respect to Section 4(r) and
Section 4(s)).
i. Survival. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Investors contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing and each Series C Closing. Each Investor shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Investor shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior
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approval of any Investor, to make any press release or other public disclosure
with respect to such transactions as is required by applicable law and
regulations (although each Investor shall be consulted by the Company in
connection with any such press release or other public disclosure prior to its
release and shall be provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have occurred
with respect to an Investor on or before April 14, 2000 due to the Company's or
such Investor's failure to satisfy the conditions set forth in Sections 6 and 7
above (and the nonbreaching party's failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at any time after 5:00 p.m.,
California time, on April 14, 2000 without liability of any party to any other
party. In the event that the Closing shall not have occurred with respect to an
Investor on or before April 14, 2000 due to the failure of the condition set
forth in Section 6(v), with respect to the Company, and Section 7(xv), with
respect to an Investor, to be satisfied (and such party's failure to waive such
unsatisfied condition), either the Company or any Investor shall have the option
to terminate this Agreement with respect to such party at any time after 5:00
p.m., California time, on April 14, 2000 without liability of any party to any
other party. Notwithstanding the foregoing, that if this Agreement is terminated
by the Investors pursuant to this Section 9(l), the Company shall remain
obligated to reimburse the Investors for the expenses described in Section 4(g)
above.
m. Placement Agent. The Company acknowledges that it has not engaged
any placement agent in connection with the sale of the Preferred Shares. The
Company shall be responsible for the payment of any placement agent's fees or
broker's commissions (other than those of placement agents or brokers engaged by
an Investor) relating to or arising out of the transactions contemplated hereby.
The Company shall pay, and hold each Investor harmless against, any liability,
loss or expense (including, without limitation, attorneys' fees and out of
pocket expenses) arising in connection with any such claim. Each Investor,
severally and not jointly, represents that it has not engaged any placement
agent or broker for the exchange of the Series A Preferred Shares for the Series
B Preferred Shares.
n. No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Investor and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other
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security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment
or payments to the Investors hereunder or pursuant to the Certificate of
Designations or the Investors enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
* * * * * *
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IN WITNESS WHEREOF, the Investors and the Company have caused this
Exchange Agreement to be duly executed as of the date first written above.
COMPANY: INVESTORS:
XXXX.XXX XXXXXX CAPITAL LTD.
By: /s/ XXXX X. XXXXX By: /s/ XXXXXX X. XXXXXXX
---------------------------- ----------------------------
Name: Xxxx X. Xxxxx Name: Xxxxxx X. Xxxxxxx
Its: Chief Financial Officer Its: Authorized Signatory
XXXXXXX CAPITAL LTD.
By: /s/ XXXXXX X. XXXXXXX
----------------------------
Name: Xxxxxx X. Xxxxxxx
Its: Authorized Signatory
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SCHEDULE OF INVESTORS
NUMBER OF
SERIES A
PREFERRED
INVESTOR ADDRESS SHARES INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER EXCHANGED AND FACSIMILE NUMBER
------------------- ------------------------------------ --------- -----------------------------------
Xxxxxx Capital Ltd. c/o Citadel Investment Group, L.L.C. 975 Xxxxxx Xxxxxx & Zavis
000 Xxxx Xxxxxxxxxx Xxxxxx 000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000 Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx Xxxxxxx Attention: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Residence: Illinois
Xxxxxxx Capital Ltd. c/o Citadel Investment Group, L.L.C. 525 Xxxxxx Xxxxxx & Xxxxx
000 Xxxx Xxxxxxxxxx Xxxxxx 000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000 Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx Xxxxxxx Attention: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Residence: Illinois
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LIST OF SCHEDULES
SCHEDULE 3(a) Subsidiaries
SCHEDULE 3(c) Capitalization
SCHEDULE 3(e) Conflicts
SCHEDULE 3(j) Transactions with Affiliates
SCHEDULE 7(v) Legal Opinion
LIST OF EXHIBITS
EXHIBIT A Form of Certificate of Designations, Preferences and
Rights of the Series B Preferred Stock
EXHIBIT B Form of Certificate of Designations, Preferences and
Rights of the Series C Preferred Stock
EXHIBIT C Form of Irrevocable Transfer Agent Instructions
