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Exhibit 10.48
Dated as of July 18, 2000
SECURITIES PURCHASE AGREEMENT
SERIES C
CONVERTIBLE PREFERRED STOCK AND
TWO COMMON STOCK PURCHASE WARRANTS
OF
VASCO DATA SECURITY INTERNATIONAL, INC.
LINKLATERS
0000 Xxxxxx xx xxx Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000 0000
Facsimile: (000) 000 0000
Ref: WBH/IYS
LINKLATERS & ALLIANCE
Linklaters is a member
firm of Linklaters & Alliance
a non-partnership association
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("AGREEMENT"), dated as of July 18, 2000,
between VASCO DATA SECURITY INTERNATIONAL, INC., a Delaware corporation (the
"COMPANY") and UBIZEN N.V., a Belgian stock corporation (the "PURCHASER").
WITNESSETH:
WHEREAS, the Company desires to raise capital through the sale by the Company of
equity securities resulting in gross proceeds of fifteen million U.S. dollars
($15,000,000) (the "FINANCING");
WHEREAS, on the Closing Date (as defined below), the Company desires to issue
and sell to the Purchaser, and the Purchaser desires to purchase from the
Company, 150,000 shares of the Company's Series C Convertible Preferred Stock,
$0.01 par value per share (the "SERIES C PREFERRED STOCK"), for a purchase price
of fifteen million U.S. dollars ($15,000,000), on the terms, and subject to the
conditions, set forth in this Agreement; and
WHEREAS, on the Closing Date, the Company further desires to issue to the
Purchaser a common stock purchase warrant (the "COMMON STOCK PURCHASE WARRANT")
entitling the Purchaser to acquire 789,474 shares of the Company's class of
common stock, par value $.001 per share (the "COMMON STOCK") on the terms, and
subject to the conditions, set forth therein.
WHEREAS, on the Closing Date, the Company further desires to issue to the
Purchaser an additional common stock purchase warrant (the "ADDITIONAL COMMON
STOCK PURCHASE WARRANT") granting the Purchaser the rights to acquire up to an
additional 480,000 shares of Common Stock, which rights shall vest in the
Purchaser in accordance with the vesting schedule appended thereto as Exhibit B,
on the terms, and subject to the conditions, set forth therein.
NOW, THEREFORE, in consideration of these premises, the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1 DEFINITIONS
For purposes hereof unless the context otherwise requires, the following
terms shall have the meanings indicated. All accounting terms not
otherwise defined herein, shall have the respective meanings accorded to
them under GAAP (as defined below). Unless the context otherwise
requires, (i) references to a "Schedule" or an "EXHIBIT" are to a
Schedule or an Exhibit attached to this Agreement, (ii) references to a
"SECTION" are to a section of this Agreement and (iii) any of the
following terms may be used in the singular or the plural, depending on
the reference.
"ADDITIONAL COMMON STOCK PURCHASE WARRANT" has the meaning ascribed
thereto in the introduction hereof, substantially in the form of Exhibit
C hereto.
"AFFILIATE" means any Person (i) which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common
control with another Person (ii) which beneficially owns or holds 20% or
more of any class of the outstanding Voting Stock of such other Person,
or (iii) which is a relative or spouse of such person, or any relative of
such spouse, who has the same home as such Person. The term "CONTROL"
means the possession,
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directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person, whether through ownership of
Voting Stock, by Contract or otherwise.
"AGREEMENT" means this Agreement, as amended, modified or supplemented
from time to time, in accordance with the terms hereof, together with any
exhibits, schedules or other attachments thereto.
"BENEFIT PLANS" has the meaning ascribed thereto in Section 5.7 hereof.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or a day on
which banking institutions in New York, New York or Brussels, Belgium are
authorized or obligated by Law, executive order or government decree to
be closed.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however
designated and whether voting or non-voting) of such Person's capital
stock, whether outstanding on the Closing Date or issued after the
Closing Date and any and all rights, warrants or options exercisable or
exchangeable for or convertible into such capital stock.
"CERTIFICATE OF DESIGNATIONS" means the Certificate of Designations of
the Series C Preferred Stock, substantially in the form of Exhibit A
hereto.
"CHARTER DOCUMENTS" means (i) the certificate of incorporation, (ii) the
Certificate of Designations and (iii) the by-laws of the Company, each as
amended from time to time.
"CLOSING DATE" has the meaning ascribed thereto in Section 3.1 hereof.
"CODE" means the Internal Revenue Code of 1986, and the rules and
regulations promulgated thereunder, as amended from time to time.
"COMMISSION" means the United States Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"COMMON STOCK" has the meaning ascribed thereto in the introduction
hereof.
"COMMON STOCK PURCHASE WARRANT" has the meaning ascribed thereto in the
introduction hereof, substantially in the form of Exhibit B hereto.
"COMPANY" has the meaning ascribed thereto in the introduction hereof.
"COMPANY FINANCIAL STATEMENTS" has the meaning ascribed thereto in
Section 5.10 hereof.
"COMPANY SEC DOCUMENTS" has the meaning ascribed thereto in Section 5.9
hereof.
"CONTRACTS" has the meaning ascribed thereto in Section 5.15 hereof.
"ENVIRONMENTAL LAW" means (i) any federal, state and local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgement, decree, injunction,
requirement or agreement with any governmental entity, (x) relating to
the protection, preservation or restoration of the environment,
(including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant
and animal life or any other natural resource), or to human health or
safety, or (y) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous
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Substances, in each case as amended and as now or hereafter in effect.
The term Environmental Law includes, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.ss.ss.9601 et seq., the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C.ss.ss.11001 et seq., the Resource
Conservation and Recovery Act 42 U.S.C.ss.ss.6901 et seq., the Toxic
Substance Control Act, 15 U.S.C.ss.ss.2601 et seq., the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.ss.ss.136 et seq.,
the Clean Air Act, 42 U.S.C.ss.ss.7401 et seq., the Clean Water Act
(Federal Water Pollution Control Act), 33 U.S.C.ss.ss.1251 et seq., the
Safe Drinking Water Act, 42 U.S.C.ss.ss.300 et seq., the Occupational
Safety and Health Act 29 U.S.C.ss.ss.641 et seq., and the Hazardous
Materials Transportation Act 49 U.S.C.ss.ss.1801, et seq., as any of the
above statutes have been amended, all rules and regulations promulgated
pursuant to any of the above statutes, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and
tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure
to any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations promulgated thereunder, as amended.
"ERISA AFFILIATE" means any trade or business (whether incorporated or
unincorporated) which is a member of a group described in Section 414(b),
(c), (m) or (o) of the Code, of which the Company also is a member.
"ERISA AFFILIATE TITLE IV PLAN" has the meaning ascribed thereto in
Section 5.7 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, and the rules
and regulations of the Commission promulgated thereunder, as amended.
"FINANCING" has the meaning ascribed thereto in the introduction hereof.
"GAAP" means generally accepted accounting principles and practices set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board
or in such other statements by such other entity as may be adopted by a
significant segment of the accounting profession that are applicable to
the circumstances as of the date of determination.
"GOVERNMENTAL AUTHORITY" means any governmental or quasi-governmental
authority including, without limitation, any federal, state, territorial,
county, municipal or other governmental or quasi-governmental agency,
board, branch, bureau, commission, court, arbitration panel, department,
authority, body or other instrumentality or political unit or subdivision
or official thereof, whether domestic or foreign.
"HAZARDOUS SUBSTANCE" means any substance presently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law, whether
by type or by quantity, including any substance containing any such
substances as a component. Hazardous Substance includes, without
limitation, any toxic waste, pollutant, contaminant, hazardous substance,
toxic substance, hazardous waste, special waste, industrial substance or
petroleum or any derivative or by-
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product thereof, radon, radioactive material, asbestos, asbestos
containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyl.
"HOLDER" means any Person who acquires and holds the Securities or the
Registrable Securities in compliance with this Agreement and applicable
Law.
"INDEMNIFIED PARTY" or "INDEMNIFIED PARTIES" has the meaning ascribed
thereto in Section 13.1 hereof.
"INSPECTORS" has the meaning ascribed thereto in Section 9.1.8 hereof.
"INTELLECTUAL PROPERTY" means patents, patent applications, patented or
unpatented inventions, design rights (including, without limitation,
trademarks, trade names, service marks, service names and brand names),
copyrights, know-how and trade secrets, and all other intellectual
property rights and forms of protection of a similar nature having
equivalent or similar effect as any of the foregoing rights, which may
subsist anywhere in the world.
"LAW" means any statute, ordinance, code, rule, regulation or order
enacted, adopted, promulgated, applied or followed by any Governmental
Authority.
"LICENSE" or "LICENSES" has the meaning ascribed thereto in Section 5.17
hereof.
"LIEN" means any security agreement, financing statement (whether or not
filed) mortgage, lien (statutory or otherwise), charge, pledge,
hypothecation, conditional sales agreement, adverse claim, title
retention agreement or other security interest, encumbrance, lien,
charge, restrictive agreement, mortgage, deed of trust, indenture,
pledge, option, limitation, exception to or other title defect in or on
any interest or title of any vendor, lessor, lender or other secured
party under any conditional sale, lease, consignment, or bailment given
for security purposes, trust receipt or other title retention agreement
with respect to any Property or asset of such Person, whether direct,
indirect, accrued or contingent.
"LOSSES" has the meaning ascribed thereto in Section 13.1 hereof.
"MATERIAL ADVERSE EFFECT" means with respect to the Company, any
significant and substantial adverse effect or change, or any event or
condition which would, with the passage of time, constitute a significant
and substantial adverse effect or change (a) in the condition (financial
or other), business, results of operations, prospects of the Company or
the business of the Company, taken as a whole, or (b) on the validity or
enforceability of this Agreement or on the ability of the Company to
consummate the transactions contemplated hereby.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means The Nasdaq Stock Market, Inc.
"PERSON" means any individual, entity or group, including, without
limitation, any corporation, limited liability company, limited or
general partnership, joint venture, association, joint stock company,
trust, unincorporated organization, or government or any agency or
political subdivision thereof.
"PREFERRED STOCK" means the class of preferred stock, par value $0.01 per
share, of the Company.
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"PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"PURCHASE PRICE" has the meaning ascribed thereto in Section 2.2 hereof.
"PURCHASER" has the meaning ascribed thereto in the introduction hereof.
"REGISTRABLE SECURITIES" means any Common Stock held or to be received by
the Purchaser and any of its direct or indirect assignees or transferees
upon conversion or redemption of the Series C Preferred Stock or upon
exercise of the Common Stock Purchase Warrant or the Additional Common
Stock Purchase Warrant and any Common Stock issued in respect thereof,
including (i) by way of stock dividend or stock split, (ii) in connection
with a combination of shares, recapitalization, merger, consolidation or
other reorganization or (iii) otherwise. As to any particular Registrable
Securities once issued, such securities shall cease to be Registrable
Securities when (i) a Registration Statement with respect to the sale of
such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such
Registration Statement, (ii) they shall have been distributed to the
public pursuant to Rule 144 (or any successor rule) or (iii) they shall
have ceased to be outstanding.
"REGISTRATION EXPENSES" means all fees and expenses incident to the
performance of or compliance with the provisions of this Agreement,
whether or not any Registration Statement is filed or becomes effective,
including, without limitation, all (i) registration and filing fees
(including, without limitation, (A) fees with respect to filings required
to be made with the NASD in connection with an underwritten offering and
(B) fees and expenses of compliance with State securities or blue sky
laws (including, without limitation, fees and disbursements of counsel
for the underwriter or underwriters in connection with blue sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws
of such jurisdictions as provided in Section 9.1.4 hereof)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities in a form eligible for deposit
with The Depository Trust Company and of printing prospectuses), (iii)
fees and disbursements of all independent certified public accountants
relating to the Registration Statement(including, without limitation, the
reasonable expenses of any special audit and "comfort" letters required
by or incident to such performance), (iv) the fees and expenses of any
"qualified independent underwriter" or other independent appraiser
participating in an offering pursuant to Rule 2720 of the NASD Rules of
Conduct, (v) liability insurance under the Securities Act or any other
securities laws, if the Company desires such insurance, (vi) fees and
expenses of all attorneys, advisers, appraisers and other persons
retained by the Company or any Subsidiary of the Company, (vii) internal
expenses of the Company and its Subsidiaries relating to the Registration
Statement (including, without limitation, all salaries and expenses of
officers and employees of the Company and its Subsidiaries performing
legal or accounting duties), (viii) the expense of any annual audit, (ix)
the expenses relating to printing, word processing and distributing all
registration statements, underwriting agreements, securities sales
agreements and any other documents necessary in order to comply with this
Agreement, and (x) the reasonable out-of-pocket expenses of the holders
of the Registrable Securities being registered in such registration
incurred in connection therewith including, without limitation, the
reasonable fees and disbursements of not more than one counsel chosen by
the holders of a majority of Registrable Securities included in such
registration. Registration Expenses shall not include any
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underwriting discounts or commissions or any transfer taxes payable in
respect of the sale of Registrable Securities by the holders thereof.
"REGISTRATION STATEMENT" means any registration statement under the
Securities Act for purposes of effecting a registered public offering of
securities of the Company.
"REGULATION D" means Regulation D promulgated under the Securities Act.
"REGULATION S" means Regulation S promulgated under the Securities Act.
"RESTRICTED SECURITY" has the meaning ascribed thereto in Section 12.2
hereof.
"RETURNS" means all returns, declarations, reports, estimates,
information returns and settlements of any nature regarding Taxes
required to be filed by any Person with a Governmental Authority and
relating to the Company or a Subsidiary.
"RULE 144" means Rule 144 as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"RULE 144A" means Rule 144A as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"SECURITIES" means the Series C Preferred Stock, the Common Stock
Purchase Warrant and the Additional Common Stock Purchase Warrant.
"SECURITIES ACT" means the Securities Act of 1933, and the rules and
regulations of the Commission promulgated thereunder, as amended.
"SERIES C PREFERRED STOCK" has the meaning ascribed thereto in the
introduction hereof.
"SUBSIDIARY" means with respect to any Person, any corporation,
association or other business entity of which securities representing
more than 50% of the combined voting power or 50% of the combined value
of the total outstanding Capital Stock (or in the case of an association
or other business entity which is not a corporation, more than 50% of the
equity interest) is at the time owned or controlled, directly or
indirectly, by that Person or one or more Subsidiaries of that Person or
a combination thereof. When used herein without reference to any Person,
"SUBSIDIARY" means a Subsidiary of the Company.
"TAXES" means any federal, state, local, foreign or other taxes, fees and
charges of any nature whatsoever imposed by any jurisdiction or
governmental or taxing authority thereof or therein (including, without
limitation, income (net or gross), gross receipts, profits, alternative
or add-on minimum, franchise, license, capital, capital stock,
intangible, services, premium, mining, transfer, sales, value-added, use,
ad valorem, payroll, wage, severance, windfall profits, import, excise,
custom, stamp, withholding or estimated taxes), fees, duties,
assessments, withholding or governmental charges of any kind whatsoever
(including interest, penalties, additions to tax or additional amounts
with respect to such items).
"TRANSACTION DOCUMENTS" means, collectively, this Agreement, the
Certificate of Designations, the Common Stock Purchase Warrant, the
Additional Common Stock Purchase Warrant and any and all agreements,
exhibits, schedules, certificates, instruments and other documents
delivered pursuant hereto and thereto.
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"VOTING STOCK" means any class or classes of capital stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to vote for the election of directors, managers or trustees
of any Persons (irrespective of whether or not at the time, capital stock
of any class or classes will have, or might have, voting power by the
reason of the happening of any contingency).
2 ISSUANCE, PURCHASE AND SALE OF SECURITIES
2.1 AUTHORIZATION OF THE SECURITIES The Company has authorized the
issuance and sale of the Series C Preferred Stock in the aggregate
amount of fifteen million U.S. dollars ($15,000,000) to be
acquired by the Purchaser in accordance with the terms of this
Agreement. The Series C Preferred Stock shall have the voting
powers, dividend rights, liquidation rights, designations,
preferences and relative, participating, optional or other special
rights, and the qualifications, limitations and restrictions
thereof, set forth in the Certificate of Designations, which shall
be filed with the Secretary of State of the State of Delaware
prior to the Closing Date. The Company has further authorized the
issue of the Common Stock Purchase Warrant and the Additional
Common Stock Purchase Warrant to the Purchaser.
2.2 SALE AND PURCHASE OF THE SECURITIES
2.2.1 Subject to the terms and conditions of this Agreement, on
the Closing Date, the Company will issue, sell and deliver
to the Purchaser and the Purchaser will purchase from the
Company one hundred fifty thousand (150,000) shares of
Series C Preferred Stock, each such share convertible into
7.0175466 shares of Common Stock or redeemable in cash by
the Company, all as provided in the Certificate of
Designations. At the Closing (as defined below), a purchase
price (the "PURCHASE PRICE") in the amount of one hundred
U.S. dollars ($100.00) per share or an aggregate of fifteen
million U.S. dollars ($15,000,000) shall be payable by the
Purchaser to the Company by certified check or wire
transfer of immediately available funds.
2.2.2 In consideration for the Purchaser's participation in the
Financing, subject to the terms and conditions of this
Agreement, on the Closing Date the Company will issue to
the Purchaser the Common Stock Purchase Warrant to purchase
an aggregate of seven hundred eighty nine thousand four
hundred and seventy four (789,474) shares of Common Stock
at an exercise price of $15.00 per share, pursuant to the
terms and conditions set forth in that Common Stock
Purchase Warrant, which shall be substantially in the form
of Exhibit B hereto.
2.2.3 In consideration for the Purchaser's participation in the
Financing, subject to the terms and conditions of this
Agreement, on the Closing Date the Company will issue to
the Purchaser the Additional Common Stock Purchase Warrant
to purchase up to an aggregate of four hundred eighty
thousand (480,000) additional shares of Common Stock at an
exercise price of $4.25 per share, pursuant to the terms
and conditions set forth in that Additional Common Stock
Purchase Warrant, which shall be substantially in the form
of Exhibit C hereto.
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3 CLOSING OF SALE OF THE SECURITIES
3.1 CLOSING
The closing of the purchase and sale of the Securities pursuant to
Section 2.2 hereof (the "CLOSING") shall take place at the offices
of Linklaters, 1345 Avenue of the Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx,
Xxx Xxxx 00000 on July 20, 2000 or at such other place and date as
the parties may agree (such date on which the Closing shall have
actually occurred, the "CLOSING DATE").
4 DELIVERIES AT CLOSING
4.1 DELIVERIES BY THE COMPANY TO THE PURCHASER ON THE CLOSING DATE
At the Closing, the Company will deliver or cause to be delivered
to the Purchaser, against payment of the Purchase Price as
provided herein:
4.1.1 The Series C Preferred Stock as provided in Section 2.2
hereof, and
4.1.2 An opinion of Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP, counsel
for the Company, in form and substance acceptable to the
Purchaser, addressed to the Purchaser, dated the Closing
Date.
4.1.3 The Common Stock Purchase Warrant as provided in Section
2.2 hereof.
4.1.4 The Additional Common Stock Purchase Warrant as provided in
Section 2.2 hereof.
4.2 DELIVERIES BY THE PURCHASER TO THE COMPANY ON THE CLOSING DATE
4.2.1 At the Closing, the Purchaser will deliver or cause to be
delivered to the Company the Purchase Price.
5 REPRESENTATIONS AND WARRANTIES, ETC. OF THE COMPANY
In order to induce the Purchaser to purchase the Securities, the Company
represents and warrants to the Purchaser that, except as set forth on the
disclosure schedule hereto:
5.1 ORGANIZATION AND QUALIFICATION; AUTHORITY
The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. All
of the Subsidiaries of the Company are listed on Schedule 5.1
hereto. The Company has full corporate power and authority and all
necessary government approvals to own and lease its properties and
carry on its business as presently conducted or as intended to be
conducted, is duly qualified, registered or licensed as a foreign
corporation to do business and is in good standing in each
jurisdiction in which the ownership or leasing of its properties
or the character of its present operations makes such
qualification, registration or licensing necessary, except where
the failure to so qualify or be in good standing would not have a
Material Adverse Effect. The Company has heretofore delivered to
the Purchaser complete and correct copies of the Charter Documents
as presently in effect.
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5.2 CORPORATE AUTHORIZATION
The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents are within the
Company's corporate power and authority. The execution and
delivery of this Agreement and the other Transaction Documents by
the Company and the performance by the Company of its obligations
hereunder and thereunder, have been duly authorized by all
requisite corporate action and no other corporate proceedings on
the part of the Company other than those listed on Schedule 5.2
are necessary to authorize this Agreement and the other
Transaction Documents. This Agreement and the other Transaction
Documents have been duly executed and delivered by duly authorized
officers of the Company and, assuming the due authorization,
execution and delivery thereof by all parties thereto other than
the Company, constitute legal, valid and binding obligations of
the Company, enforceable against it in accordance with its terms,
except as may be limited by bankruptcy, reorganization,
moratorium, fraudulent conveyance and insolvency laws and by other
laws affecting the rights of creditors generally and except as may
be limited by the availability of equitable remedies.
5.3 NO CONFLICT; REQUISITE CONSENTS
The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents do not and will not
(i) contravene or conflict with the Charter Documents, (ii) (A)
conflict with or result in a violation of or (B) constitute a
default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of the Company under
any provision of any written agreement or other instrument binding
upon the Company or require the consent of any third party under
any Law applicable to the Company or any License held by the
Company, (iii) conflict with or result in a violation or breach of
any term or provision of any Law applicable to the Company, or
(iv) result in the creation or imposition of any Lien on any asset
of the Company, except, with respect to each of the occurrences or
results referred to in clauses (ii) and (iv) of this sentence, the
third party consents set forth in Schedule 5.3 and such items
which would not have a Material Adverse Effect.
5.4 CAPITALIZATION
5.4.1 As of July 18, 2000, the authorized Capital Stock of the
Company consists of 75,000,000 shares of Common Stock and
500,000 shares of Preferred Stock, of which 27,341,222
shares of Common Stock and no shares of Preferred Stock are
currently issued and outstanding.
5.4.2 All issued and outstanding shares of the Company's Common
Stock are validly issued, fully paid and nonassessable.
Except as set forth on Schedule 5.4, there are no (i)
outstanding subscriptions, options, warrants or rights
(including conversion rights and preemptive rights),
agreements, calls, convertible securities, arrangements or
commitments of any character to which the Company is a
party relating to any unissued Capital Stock or other
securities of the Company or otherwise obligating the
Company to grant, issue or sell any such options, warrants
or rights or (ii) shares of Common Stock reserved for
issuance upon the exercise of any warrants, options granted
or to be granted
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under any stock option plan or any options previously
granted outside of any stock option plan.
5.5 LITIGATION; DEFAULTS
There is no action, suit, proceeding or investigation pending or,
to the knowledge of the Company, threatened against or affecting
the Company, or any properties of the Company, before or by any
Governmental Authority or any other Person, which would (i) have a
Material Adverse Effect, or (ii) impair the ability of the Company
to perform any material obligation which the Company has under any
Transaction Document, except as set forth on Schedule 5.5 or
Schedule 5.11. Except as set forth on Schedule 5.5, the Company is
not in violation of, or in default under (and there does not exist
any event or condition which, after notice or lapse of time or
both, would constitute such a default under), any term of its
Charter Documents, or of any term of any agreement, Contract,
instrument, judgement, decree, writ, determination, arbitration
award, or Law applicable to the Company or to which the Company is
bound, or to any Properties of the Company.
5.6 NO MATERIAL ADVERSE EFFECT
Except as set forth in Schedule 5.6, since March 31, 2000, there
has been (i) no event or condition which has had or is reasonably
likely to result in a Material Adverse Effect, and (ii) no
acquisition or disposition of any material assets by the Company
(or any Contract or arrangement therefor), or any other material
transaction, otherwise than for fair value in the ordinary course
of business, except in any such case as set forth in the Company
SEC Documents.
5.7 EMPLOYEE PROGRAMS
5.7.1 Schedule 5.7 lists each material benefit arrangement,
including (i) any employment or consulting agreement, (ii)
any arrangement providing for insurance coverage or
workers' compensation benefits, (iii) any incentive bonus
or deferred bonus arrangement, (iv) any arrangement
providing termination allowance, severance or similar
benefits, (v) any equity compensation plan, (vi) any
deferred compensation plan and (vii) any compensation
policy and practice. The Company does not provide, and does
not have an obligation to provide, or make contributions to
provide any compensation or benefits to its current or
former employees or directors of the Company, other than
any plans, programs or other arrangements which only
provide for the payment of cash compensation currently from
the general assets of the Company on a payday by payday
basis as base salary or hourly wages for current services
and other than policies for vacation, sick days and
holidays, medical, disability and life insurance and except
as set forth on Schedule 5.7 (individually, a "BENEFIT
PLAN," and collectively, the "BENEFIT PLANS").
5.7.2 Except as disclosed on Schedule 5.7:
(i) No ERISA Affiliate (other than the Company)
provides, or has an obligation to provide,
contributions, compensation or benefits of or
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under any plan, program or arrangement which is
subject to Title IV of ERISA ("ERISA AFFILIATE TITLE
IV PLAN").
(ii) No assets have been set aside in a trust or other
separate account to pay directly or indirectly any
benefits under any Benefit Plan or to the extent
assets have been set aside, all assets are shown on
the books and records of such trust or separate
account at their fair market value as of the date of
any report last provided with respect to such trust;
except in each case any assets with respect to the
Company's "401(k) plan", which is disclosed in
Schedule 5.7.
(iii) Each Benefit Plan and each ERISA Affiliate Title IV
Plan has been established, maintained and
administered in compliance in all material respects
with all applicable Laws.
(iv) The Company has not incurred any material liability
for any tax or penalty with respect to any Benefit
Plan, ERISA Affiliate Title IV Plan or any group
health plan (as described in Section 5000 of the
Code) of an ERISA Affiliate including, without
limitation, any tax or penalty under ERISA or under
the Code.
(v) The Company has not terminated or withdrawn from, or
sought a funding waiver with respect to, any Benefit
Plan which is subject to Title IV of ERISA.
(vi) To the knowledge of the Company, there is no
proposed or actual material audit or investigation
by any Governmental Authority with respect to any
Benefit Plan or ERISA Affiliate Title IV Plan.
(vii) The Company has no obligation to make, or reimburse
another employer, directly or indirectly, for
making, contributions to a multi-employer plan as
described in Title IV of ERISA.
5.8 PRIVATE OFFERINGS
Neither the Company nor any Person acting on its behalf (other
than the Purchaser, as to whom the Company makes no
representations) has offered or sold the Securities by means of
any general solicitation or general advertising within the meaning
of Rule 502(c) under the Securities Act. No securities of the same
class or series as the Securities have been issued and sold by the
Company prior to the date hereof. The Securities shall bear
substantially the same legend set forth in Section 12.1 hereof for
so long as required by the Securities Act.
5.9 COMPANY SEC DOCUMENTS
The Company has filed with the Commission, and has heretofore made
available to the Purchaser, true and complete copies of its Annual
Report on Form 10-K for the year ended December 31, 1999, its
quarterly report on Form 10-Q for the quarter ended March 31,
2000, and its definitive proxy materials relating to its annual
meeting of stockholders held on June 13, 2000 (collectively, the
"COMPANY SEC DOCUMENTS"). As of their respective dates, the
Company SEC Documents did not contain any untrue
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statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
5.10 FINANCIAL STATEMENTS: NO UNDISCLOSED LIABILITIES
The financial statements of the Company included or incorporated
by reference in the Company SEC Documents (the "COMPANY FINANCIAL
STATEMENTS") have been prepared in accordance with GAAP applied on
a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present in all material respects the
financial position of the Company as at the dates thereof and the
results of operations and cash flows for the periods then ended
(subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments and any other
adjustments described therein). Since March 31, 2000, the Company
has not incurred any liabilities or obligations of any nature,
whether or not accrued, absolute, contingent or otherwise, that
would have a Material Adverse Effect, other than liabilities (i)
disclosed on Schedule 5.10, or in the Company SEC Documents, (ii)
adequately provided for in the Company Financial Statements or
disclosed in any related notes thereto, (iii) not required under
GAAP to be reflected in the Company Financial Statements, or
disclosed in any related notes thereto or (iv) incurred in
connection with this Agreement or the other Transaction Documents.
5.11 ENVIRONMENTAL REGULATION, ETC.
Except as set forth on Schedule 5.11 (i) the business as presently
or formerly engaged in by the Company is and has been conducted in
compliance with all applicable Environmental Law, including,
without limitation, having all permits, licenses and other
approvals and authorizations, (ii) the Company has not received
notice from any governmental authority or third party of an
asserted claim under applicable Environmental Law and, to the best
of its knowledge, the Company does not know of any such claim
which is pending or threatened and (iii) to the best of its
knowledge, the Company will not be required to make any future
capital expenditures to comply with applicable Environmental Law.
5.12 PROPERTIES AND ASSETS
The Company has good record and marketable fee title to all real
Property and all other Property, whether tangible or intangible,
owned by it, except defects in title which would not have a
Material Adverse Effect or as otherwise disclosed on Schedule
5.12. The Company has complied with all commitments and
obligations on its part to be performed or observed under each of
the leases listed on Schedule 5.12, except for such non-compliance
as would not have a Material Adverse Effect.
5.13 EMPLOYMENT PRACTICES
The Company is not a party to, or bound by, any collective
bargaining agreement, Contract or other agreement or understanding
with a labor union organization except as set forth on Schedule
5.13. Except as set forth on Schedule 5.13, there (i) is no unfair
labor practice or material labor arbitration proceeding pending or
threatened against the Company, (ii) are no organizational efforts
with respect to the formation of a collective bargaining unit
presently' being made or, to the Company's knowledge, threatened
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involving employees of the Company, and (iii) is no labor
controversy in existence with respect to the Company's business
and operations, except as would not in any such case have a
Material Adverse Effect.
5.14 INTELLECTUAL PROPERTY
The Company has the right to use all Intellectual Property
necessary for the conduct of its business. All registrations with
and applications to any Governmental Authority in respect of such
Intellectual Property are valid and in full force and effect and
are not subject to the payment of any taxes or maintenance fees or
the taking of any other actions by the Company (other than the
payment of fees not yet due or the taking of actions not yet
required) to maintain their validity or effectiveness. The Company
has taken reasonable security measures to protect the secrecy,
confidentiality and value of its trade secrets in respect of the
business of the Company. The Company has not received any notice
that it is, and, to the best of its knowledge, the Company is not,
in default (or with the giving of notice or lapse of time or both,
would be in default) under any license to use such Intellectual
Property, and, to the best of the Company's knowledge, such
Intellectual Property is not being infringed by any other Person.
No claim is pending or has been made to such effect that has not
been resolved and, to the knowledge of the Company, the Company is
not infringing any Intellectual Property rights of any other
Person in connection with the conduct of the business of the
Company.
5.15 MATERIAL CONTRACTS
The Company has previously furnished or made available to the
Purchaser all contracts, agreements, commitments, obligations and
licenses to which the Company is a party that are material
("CONTRACTS"); provided, however, purchase agreements involving
payments in the aggregate of $50,000 per annum or less shall not
be deemed to be material unless such purchase agreement is by and
between the Company and any Affiliate. All of the Contracts are
valid and binding and are in full force and effect; and, except as
set forth on Schedule 5.15 hereto, there are no existing defaults
(or events which, with notice or lapse of time or both, would
constitute a material default) by the Company or its Subsidiaries,
or, to the Company's knowledge, any other party thereunder, except
as would not have a Material Adverse Effect.
5.16 TAXES
Except as set forth in Schedule 5.16:
5.16.1 all material Returns have been or will be timely filed when
due in accordance with all applicable Laws:
5.16.2 all Taxes shown on the Returns have been timely paid,
except those which are being contested (as described on
Schedule 5.16);
5.16.3 the Returns completely, accurately and correctly reflect in
all material respects the facts regarding the income,
properties, operations and status of any entity required to
be shown thereon;
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5.16.4 the Company and each Subsidiary have adequate reserves on
their financial statements for Taxes accrued but not yet
due, relating to the income, property or operations of the
Company or the Subsidiary;
5.16.5 there are no legally binding agreements or consents
currently in effect for the extension or waiver of the time
(A) to file any Return or (B) for assessment or collection
of any Taxes relating to the Company or any Subsidiary, and
neither the Company nor any Subsidiary has been requested
to enter into any such agreement or consent by a
Governmental Authority;
5.16.6 to the best of the Company's reasonable knowledge and
belief, none of the Returns have been examined by any
Governmental Authority;
5.16.7 all Taxes which the Company and each Subsidiary is required
by Law to withhold or collect have been duly withheld or
collected, and have been timely paid over to the
appropriate Governmental Authority to the extent due and
payable;
5.16.8 there is no action, suit, proceeding, investigation by a
Governmental Authority, audit or claim currently pending,
or, to the Company's reasonable best knowledge, threatened
by any Governmental Authority, regarding any Taxes relating
to the Company, any Subsidiary or any group of which the
Company is now or was formerly a member;
5.16.9 all Tax deficiencies which have been claimed or asserted
against the Company, any Subsidiary or any affiliated group
(as defined in Section 1504 of the Code) of which the
Company is now or was formerly a member, have been fully
paid or finally settled;
5.16.10 no Person has executed or entered into a closing agreement
pursuant to Section 7121 of the Code (or any comparable
provision of State, local or foreign Law) that is
currently in force and determines the Tax liabilities of
the Company or any Subsidiary;
5.16.11 there are no liens for any Tax on the assets of the
Company or any Subsidiary other than liens in the ordinary
course of business which arise as a matter of law and
liens for Taxes not yet due and payable or Taxes that the
Company or any Subsidiary is contesting in good faith;
5.16.12 there are no Tax allocation or other agreements with or
relating to any income or other Taxes with any other
person to which the Company or any Subsidiary is now or
ever has been a party;
5.16.13 neither the Company nor any Subsidiary is a party to any
written agreement, contract, arrangement or plan that
would result, separately or in the aggregate, in the
payment of any "EXCESS PARACHUTE PAYMENTS" within the
meaning of Section 280G of the Code (or any comparable
provision of state, local or foreign Law);
5.16.14 neither the Company nor any Subsidiary has agreed, nor is
required, to make any adjustment under Section 481(a) of
the Code (or any comparable provision
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of state, local, or foreign Law) by reason of a change in
accounting method or otherwise;
5.16.15 no power of attorney is currently in effect, and no Tax
ruling has been requested of any Governmental Authority,
with respect to any Tax matter relating to the Company;
5.16.16 no indebtedness of the Company consists of "CORPORATE
ACQUISITION INDEBTEDNESS" within the meaning of Section
279 of the Code;
5.16.17 the Company is not a "UNITED STATES REAL PROPERTY HOLDING
CORPORATION" within the meaning of Section 897(c)(2) of
the Code; and
5.16.18 neither the Company nor any Subsidiary is either a passive
foreign investment company (a "PFIC"), as defined in
Section 1297 of the Code, or a foreign personal holding
company (an "FPHC"), as defined in Section 552 of the
Code.
5.17 LICENSES; COMPLIANCE WITH LAWS
The Company holds all licenses, franchises, permits, consents,
registrations, certificates and other approvals (individually, a
"LICENSE" and collectively, "LICENSES") required for the conduct
of its business as now being conducted, and is operating in
substantial compliance therewith, except where the failure to hold
any such License or to operate in compliance therewith would not
have a Material Adverse Effect. Except as set forth on Schedule
5.17, the Company is in substantial compliance with all Laws
applicable to it, except in each case where the failure so to
comply would not have a Material Adverse Effect taken as a whole.
5.18 TRANSACTIONS WITH AFFILIATES
There are no material transactions, agreements or understandings,
existing or presently contemplated, between or among the Company
and any of its officers or directors or stockholders or any of
their Affiliates or associates except as set forth on Schedule
5.18. Except as set forth on Schedule 5.18, no officer, director
or Affiliate of the Company or any Affiliate of any such officer
or director provides or causes to be provided any assets
(including Intellectual Property), know how, services or
facilities used or held for use by the Company in connection with
its business and the Company does not provide or cause to be
provided any assets (including Intellectual Property), know how,
services or facilities to any such officer, director or Affiliate.
Except as set forth on Schedule 5.18, each of the transactions
listed on such Schedule is engaged in on an arm's-length basis.
5.19 CONFIDENTIAL INFORMATION
The Company has taken and shall take all reasonable steps to
protect the confidentiality of the knowhow and trade secrets which
the Company presently uses or reasonably expects to use in the
future conduct of its business.
5.20 INSURANCE
The Company maintains all liability (including product liability),
property (including Intellectual Property), workers' compensation,
fire, casualty, officers' and directors' and other insurance
policies to the extent and in the manner customary in the industry
for
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companies in similar businesses similarly situated. Except as set
forth on Schedule 5.20, each insurance policy is valid and binding
and in full force and effect and all premiums thereunder have been
paid. Except as set forth on Schedule 5.20, the Company has not
received any notice of cancellation or termination in respect of
any such policy and is not in default thereunder. Except as set
forth on Schedule 5.20, the Company has not received any notice
that any insurer under any policy referred to in such notice is
denying, liability with respect to a claim thereunder or defending
under a reservation of rights clause.
5.21 SUBSTANTIAL CUSTOMERS AND SUPPLIERS
Except as set forth on Schedule 5.21, no material customer or
supplier of the Company has ceased or materially reduced its
purchases from or sales or provisions of materials, services or
facilities to the Company since March 31, 2000 or has threatened
to cease or materially reduce such purchases or sales or provision
of materials, services or facilities. Except as set forth on
Schedule 5.21, to the best of the Company's knowledge, no material
customer or supplier of the Company is threatened with bankruptcy
or insolvency.
5.22 REGISTRATION RIGHTS
Except as set forth on Schedule 5.22 and except as contemplated by
this Agreement, the Company is not under any contractual
obligation to register any of its currently outstanding Capital
Stock or any of its securities which may hereafter be issued.
5.23 EXPORT CONTROLS
The Company has complied, is in compliance, and has not received
any notice from any governmental or other regulatory authority
that it is not in compliance, with all United States laws, rules
and regulations regarding the export of technology.
5.24 DIVIDENDS
On or after March 31, 2000, the Company has not declared or paid
any dividends, or authorized or made any distribution upon or with
respect to any class or series of its Capital Stock.
5.25 YEAR 2000 COMPLIANCE
The software used by the Company: (i) has accurately in all
material respects processed date information before, during and
after January 1, 2000, including, but not limited to, accepting
date input, providing date output and performing calculations on
dates or portions of dates; (ii) has functioned accurately in all
material respects, and without material interruption immediately
before, during and after January 1, 2000 without any material
change in operations associated with the advent of the new
century; (iii) responds to two (2) digit year date input in a way
that resolves the ambiguity as to century in disclosed, defined
and predetermined manner; and (iv) stores and provides output of
date information in ways that are unambiguous as to century.
5.26 DISCLOSURE
The Company has provided the Purchaser with all the information
reasonably available to the Company without undue expense that the
Purchaser has requested for deciding
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whether to purchase the Securities and all information that the
Company believes is reasonably necessary to enable the Purchaser
to make such decision. None of the Schedules attached to this
Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
6 REPRESENTATIONS AND WARRANTIES, ETC. OF THE PURCHASER
In order to induce the Company to sell the Securities, the Purchaser
represents and warrants to the Company that:
6.1 REGULATION S
6.1.1 The Securities to be issued and delivered in connection
with the transactions contemplated by this Agreement have
not been registered under the Securities Act or under the
securities laws of any state of the United States or the
laws of any other jurisdiction. The Purchaser acknowledges
that the Company is relying on the exemption from
registration under the Securities Act afforded by
Regulation S and that the Securities will be deemed
"restricted securities" within the meaning of Rule 144
under the Securities Act. Accordingly, the Securities to be
delivered pursuant to this Agreement (together with any
other shares in respect thereof received pursuant to
conversions, exchanges, stock split, stock dividends or
other reclassifications or changes thereof, or
consolidations or reorganizations of the Company) may not
be offered or sold, and no hedging transactions may be
engaged in, within the United States, except in accordance
with Regulation S or pursuant to a registration statement
filed on an appropriate form under the Securities Act and
declared effective by the Commission or pursuant to another
viable exemption from registration. All share certificates
representing the Securities will have imprinted thereon a
legend to such effect. The Company and its transfer agent,
if any, will refuse to register any transfer of all or any
portion of the Securities unless made in accordance with
the registration or exemptive provisions of the Securities
Act and Purchaser acknowledges, and each subsequent holder
will be deemed to have acknowledged, that the Company and
its transfer agent, if any, will not be required to accept
for registration or transfer any of the Securities, except
upon presentation of evidence satisfactory to the Company
and its transfer agent, if any, that the restrictions set
forth herein have been complied with. The Purchaser agrees
that all subsequent offers and sales by it of the
Securities shall be conducted as set forth herein.
6.1.2 The Purchaser is not an "AFFILIATE" (as defined in Rule 144
under the Securities Act) of the Company or acting on
behalf of the Company and, at the time of executing this
Agreement, was outside the United States and was not a U.S.
Person (and was not acquiring the Securities for the
account or benefit of a U.S. Person) within the meaning of
Regulation S. No offer to purchase or acquire the
Securities was made by the Purchaser in the United States.
6.1.3 The Purchaser acknowledges that the Company, the Company's
transfer agent, if any, and others will rely upon the truth
and accuracy
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of the representations and warranties, covenants and
agreements made herein and agrees that if any of the
acknowledgments, representations, warranties or agreements
deemed to have been made by its purchase or acquisition of
the Securities are no longer accurate, it shall promptly
notify the Company and its transfer agent, if any. If the
Purchaser is acquiring the Securities as a fiduciary or
agent for another person, the Purchaser represents that it
has full power to make the foregoing acknowledgements,
representations and agreements on behalf of each such other
person; and that each such other person is eligible to
purchase or acquire the Securities as applicable.
6.1.4 The Purchaser agrees that it will give to each person to
whom it transfers the Securities notice of any restrictions
on transfer of the Securities.
6.1.5 The Purchaser understands that no United States or foreign
federal or state agency has passed on or made any
recommendation or endorsement of the Securities.
6.1.6 In connection with the issuance of the Securities, the
Purchaser agrees to the inclusion of a legend, in
substantially the following form, on each certificate
representing Securities as set forth in Section 12.1
hereof.
6.2 ORGANIZATION AND STANDING
The Purchaser is a corporation duly incorporated and validly
existing under the laws of the jurisdiction of its incorporation
and has full corporate power and authority to enter into and
perform this Agreement and to carry out the transactions
contemplated by this Agreement.
6.3 AUTHORITY
The execution, delivery and performance by the Purchaser of this
Agreement and the other Transaction Documents are within the
Purchaser's corporate power and authority. The execution and
delivery of this Agreement and the other Transaction Documents by
the Purchaser and the performance by the Purchaser of its
obligations hereunder and thereunder, have been duly authorized by
all requisite corporate action and no other corporate proceedings
on the part of the Company other than those listed on Schedule 6.3
are necessary to authorize this Agreement and the other
Transaction Documents. This Agreement and the other Transaction
Documents have been duly executed and delivered by duly authorized
officers of the Purchaser and, assuming the due authorization,
execution and delivery thereof by all parties thereto other than
the Purchaser, constitute legal, valid and binding obligations of
the Purchaser, enforceable against it in accordance with its
terms, except as may be limited by bankruptcy, reorganization,
moratorium, fraudulent conveyance and insolvency laws and by other
laws affecting the rights of creditors generally and except as may
be limited by the availability of equitable remedies.
6.4 BROKERAGE FEES
The Purchaser has no contract, arrangement or understanding with
any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
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7 COVENANTS OF THE COMPANY
The Company covenants and agrees that from the date hereof until the
Closing Date, except with respect to Sections 7.2, 7.4, 7.6, 7.7, 7.8,
7.12 and 7.13 of this Agreement and, unless otherwise provided for in
this Agreement, or unless the Purchaser shall otherwise consent in
writing, it will do or cause the following:
7.1 ORDINARY COURSE
The Company's business shall be conducted only in the ordinary
course of business and in a manner consistent with past practice
and the business plan(s) approved by the Company's Board of
Directors. The Company shall use commercially reasonable efforts,
within the limits of its available resources, to preserve
substantially intact its business organization, and to maintain or
improve its profitability.
7.2 RESERVATION OF COMMON STOCK
The Company shall reserve and set apart and have at all times,
free from preemptive rights, the number of authorized but unissued
shares of Common Stock to conform to the Company's obligations
hereunder, under the Certificate of Designation, under the Common
Stock Purchase Warrant and under the Additional Common Stock
Purchase Warrant.
7.3 ISSUANCE OF SECURITIES
The Company shall not issue, deliver, sell, redeem, acquire,
authorize or propose to issue, deliver, sell, redeem, acquire or
authorize, any shares of its Capital Stock of any class or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares or convertible securities or other
ownership interest; provided that the Company shall be permitted
to issue shares of Common Stock upon exercise of any warrants or
employee share options or conversion of any securities convertible
into Common Stock, in each case issued by the Company prior to the
date hereof. The Company shall not amend its Charter Documents to
increase the number of authorized shares of Common Stock or
Preferred Stock thereunder without the consent of the Purchaser.
7.4 NASDAQ LISTING
The Company will use its best efforts to continue the listing of
the Common Stock on the Nasdaq National Market and to ensure that
the shares of Common Stock to be issued (i) upon conversion or
redemption, if any, of the Series C Preferred Stock, (ii) upon
exercise of the Common Stock Purchase Warrant, (ii) upon exercise
of any rights which have vested pursuant to the Additional Common
Stock Purchase Warrants and (iv) in payment of any dividends on
the Series C Preferred Stock are listed or authorized to be quoted
on the Nasdaq National Market or listed on any national securities
exchange on which shares of Common Stock are then listed, to the
extent that such listing is permitted at such time.
7.5 DIVIDENDS; CHANGES IN CAPITAL STOCK
While the Series C Preferred Stock is outstanding, the Company
shall not, nor shall it propose to: (i) declare, set aside, make
or pay any dividend or other distribution,
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payable in cash, stock, property or otherwise, with respect to any
of its Capital Stock; or (ii) recapitalize or otherwise modify its
Capital Stock.
7.6 FINANCIAL INFORMATION
Immediately following the date of execution of this Agreement, the
Company shall commence providing the Purchaser with quarterly
financial data to the extent that it is otherwise prepared by the
Company and that it is reasonably requested by the Purchaser.
7.7 RETURN AND OTHER TAX INFORMATION
Following the Closing Date and for so long as Purchaser shall hold
Capital Stock of the Company, and for a reasonable time
thereafter, the Company shall provide the Purchaser with such
cooperation and information as the Purchaser may reasonably
request with respect to (A) the filing of any Return, amended
Return, or claim for a refund of Taxes by the Purchaser, (B)
determining any potential or asserted Tax liability or a right to
a refund of Taxes under any Law, or (C) conducting or defending
any audit or other proceeding in respect of Taxes. Any information
obtained under this Section 7.7 shall be kept confidential, except
as may be otherwise necessary in connection with filing any
Return, amended Return, or claim for a refund of Taxes, or in
conducting or defending any audit or other proceeding in respect
of Taxes as may otherwise be required by any Law, rule, regulation
or accounting principal or practice.
7.8 STAMP TAXES
The Company shall be liable for, and shall pay when due, any
transfer, gains, documentary, sales, use, registration, stamp,
value added or other similar Taxes payable by reason of the
transactions contemplated by this Agreement or attributable to the
initial sale to the Purchaser of the Securities, and the Company
shall, at its own expense, file all necessary Returns and other
documentation with respect to all such Taxes.
7.9 FIRPTA
On or prior to the Closing Date, the Company shall provide the
Purchaser with a copy of a statement, issued by the Company
pursuant to U.S. Treasury Regulation Section 1.897-2(h),
certifying that neither the Series C Preferred Stock, the Common
Stock Purchase Warrant nor the Additional Common Stock Purchase
Warrant is a United States real property interest.
7.10 REGULATORY APPROVAL
The Company shall cooperate with the Purchaser by providing
information upon request of the Purchaser to the extent the
Purchaser receives any inquiry from any Governmental Authority in
connection with the transactions contemplated by this Agreement.
7.11 PUBLIC ANNOUNCEMENTS
Upon the execution of this Agreement, the Company and the
Purchaser will consult with each other with respect to the
issuance of a joint press release to be released by the Company
with respect to this Agreement and the transactions contemplated
hereby. Prior to the Closing, except as otherwise agreed to by the
parties, the parties shall not
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issue any report, statement or press release or otherwise make any
public statements with respect to this Agreement, except as in the
reasonable judgement of the party may be required by law or in
connection with the obligations of a publicly-held company. Upon
the Closing, the Company and the Purchaser will consult with each
other with respect to the issuance of a joint press release with
respect to the consummation of the transactions contemplated by
this Agreement.
7.12 NOTICE TO THE PURCHASER OF CERTAIN TRANSACTIONS
In case at any time:
7.12.1 the Company shall pay any dividend upon its outstanding
shares of Common Stock or Preferred Stock payable in shares
of Common Stock or Preferred Stock or make any distribution
(other than cash dividends out of earned surplus) to the
holders of its shares of Common Stock or Preferred Stock;
or
7.12.2 the Company shall offer for subscription pro rata to the
holders of its Common Stock or Preferred Stock any
additional shares of Common Stock or Preferred Stock or
other rights to acquire such Common Stock or Preferred
Stock; or
7.12.3 there shall be effected any recapitalization of the Company
or reclassification of the shares of Common Stock or
Preferred Stock of the Company, or any merger or
consolidation of the Company into or with any other
corporation or business entity and as a result of which the
Company is not the surviving corporation, or the sale or
transfer of all or substantially all of the assets of the
Company to any other corporation or business entity; or
7.12.4 there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give
written notice to the Purchaser of the date which is the record
date for such dividend, distribution or subscription rights, or on
which such recapitalization, reclassification, merger,
consolidation, sale, transfer, dissolution, liquidation or winding
up shall take place, as the case may be. Such notice shall also
specify the date as of which the holders of record of the
Company's classes of Common Stock or Preferred Stock shall
participate in such dividend, distribution or subscription rights,
or shall be entitled to exchange its Common Stock or Preferred
Stock for securities or other property deliverable upon such
recapitalization, reclassification, merger, consolidation, sale,
transfer, dissolution, liquidation or winding up, as the case may
be. Such written notice shall be given at least thirty (30) days
prior to the action in question and not less than ten (10) days
prior to the record date.
7.13 TAXES OF THE COMPANY
The Company shall timely prepare and file, or cause to be prepared
and filed, all material Returns for the Company and each
Subsidiary and timely pay, or cause to be paid, when due all Taxes
shown on such Returns. The Company and each Subsidiary shall also
pay when due all other Taxes for which the Company or Subsidiary
is liable, except Taxes which the Company or Subsidiary is
contesting in good faith.
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7.14 PASSIVE INVESTMENT. Neither the Company nor any Subsidiary
will become either a PFIC or a FPHC, unless the Purchaser
provides its prior written consent to the Company; provided
however, that such consent will not be withheld unless becoming
a PFIC or a FPHC could have a material adverse effect on the
consolidated Tax liability of the Company or any Subsidiary
subject to United States federal income tax on a net basis.
8 REGISTRATION RIGHTS
8.1 MANDATORY REGISTRATION
Within sixty (60) days from the Closing Date, the Company agrees
to file a Registration Statement on Form S-3 with the Commission
registering the Registrable Securities for sale under the
Securities Act. If the Company is unable to use Form S-3 to
register the Registrable Securities for resale, another form of
Registration Statement for which the Company is eligible shall be
used. Any Holder who does not wish to include its pro rata amount
of Registrable Securities in the Registration Statement to be
filed by the Company pursuant to this Section 8.1 shall provide
written notice to the Company prior to the date upon which such
filing is made with the Commission.
8.2 ACKNOWLEDGEMENT
By executing this Agreement, each Holder acknowledges that the
Company's obligation to register is limited to one Registration
Statement which becomes effective under the Securities Act.
Subject to Section 8.4 and provided that the Company complies with
its obligations under this Agreement, no further Registration
Statements (other than required amendments or supplements to the
original Registration Statement) will be filed for the benefit of
such holders.
8.3 EFFECTIVENESS OF REGISTRATION STATEMENT
The Company shall use best efforts to obtain effectiveness of a
Registration Statement as soon as practicable and shall continue
to use its best efforts to maintain such effectiveness for the
Registration Statement until either (i) there are no longer any
Securities or Registrable Securities outstanding or (ii) the
Company has provided written notice to all Holders that the
Company intends to withdraw or allow the lapse in effectiveness of
such Registration Statement and all such Holders have agreed to
such withdrawal or lapse in writing. Any Registration Statement
filed pursuant to this Agreement shall not be deemed to have been
effected unless it has become effective with the Commission.
Notwithstanding the foregoing, a Registration Statement will not
be deemed to have been effected if, after it has become effective
under the Securities Act, the registration is interfered with by
any stop order, injunction or other order or requirement of the
Commission or other governmental agency or any court proceeding
for any reason. The Company shall use its best efforts to prevent
the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, and, if such an order
is issued, to obtain the withdrawal of such order at the earliest
possible
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moment and to notify each Holder (and, in the event of an
underwritten offering, the managing underwriters) of the issuance
of such order and the resolution thereof.
8.4 MODIFICATIONS, AMENDMENTS FOR ADDITIONAL REGISTRABLE SECURITIES;
NEW REGISTRATION STATEMENT
The Company agrees and warrants that it will prepare and file with
the Commission any amendments in or modifications to such
Registration Statement (or any subsequent Registration Statement)
from time to time as necessary in order to ensure that all
Registrable Securities (including additional Registrable
Securities which are issuable as a result of (i) adjustments to
the conversion price of the Series C Preferred Stock or the
exercise price of the Common Stock Purchase Warrant or the
Additional Common Stock Purchase Warrant or (ii) the vesting of
rights pursuant to the Additional Common Stock Purchase Warrant)
may be resold pursuant to such Registration Statement.
Notwithstanding Section 8.2, in the event of any lapse in
effectiveness or withdrawal of such Registration Statement (other
than as provided for in Section 8.3 due to the fact that there are
no longer any Registrable Securities outstanding or pursuant to
the written consent of the Holders), the Company will file a new
Registration Statement with respect to the Registrable Securities
and obtain and maintain the effectiveness of such Registration
Statement in accordance with this Section 8.
8.5 REGISTRATION EXPENSES
The Company shall pay all Registration Expenses incurred in
connection with the registration of Registrable Securities
pursuant to this Section 8.
8.6 ELIGIBILITY FOR FORM S-3
The Company represents and warrants that it meets as of the date
hereof the requirements for the use of Form S-3 for the
registration of the resale by a Holder of Registrable Securities.
9 REGISTRATION PROCEDURES
9.1 In connection with the Company's obligation to effect the
registration of Registrable Securities under the Securities Act as
provided in Section 8, the Company, as expeditiously as possible
and subject to the terms and conditions herein, shall, as
expeditiously as is commercially reasonable:
9.1.1 Effect the registration of the Registration Statement
prepared and filed with the Commission pursuant to Section
8.1 above and cause such registration to become effective
as soon as practicable.
9.1.2 Prepare and file with the Commission such amendments and
supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary
to keep such Registration Statement effective (in
accordance with Section 8.2) and to comply with the
provisions of the Securities Act with respect to the
disposition of all Registrable Securities.
9.1.3 Furnish to the Holders such number of conformed copies of
such Registration Statement and of each such amendment and
supplement thereto (in each case
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including all exhibits), such number of copies of the
prospectus contained in such Registration Statement
(including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under the
Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, in each case, as
the Holders may reasonably request.
9.1.4 Register or qualify all Registrable Securities covered by
such Registration Statement under such other United States
state securities or blue sky laws of such jurisdictions as
the Holders shall reasonably request, to keep such
registration or qualification in effect for so long as such
registration remains in effect, and take any other action
which may be reasonably necessary or advisable to enable
the Holders to consummate the disposition of the
Registrable Securities owned by the Holders in such
jurisdictions, except that the Company shall not for any
such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this
Section 9.1.4 be obligated to be so qualified, subject
itself to taxation in any such jurisdiction, or consent to
general service of process in any such jurisdiction.
9.1.5 Immediately notify the Holders at any time when a
prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as
a result of which the prospectus included in such
Registration Statement, as then in effect, includes an
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of
the circumstances under which they were made, and promptly
prepare and furnish to the Holders a reasonable number of
copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances
under which they were made.
9.1.6 Comply with all applicable rules and regulations of the
Commission, and not file (or withdraw or correct) any
amendment or supplement to such Registration Statement or
prospectus to which the Holders shall have reasonably
objected in writing on the grounds that such amendment or
supplement does not comply in all material respects with
the requirements of the Securities Act or of the rules or
regulations thereunder.
9.1.7 In the event of any underwritten public offering enter into
and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter(s) of such offering.
9.1.8 Make available for inspection by any seller of Registrable
Securities as to which any registration is being effected,
any underwriter participating in any disposition pursuant
to the related Registration Statement, and any attorney,
accountant or other agent retained by any such seller or
any such underwriter
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(collectively, the "INSPECTORS"), all financial and other
records, pertinent corporate documents and properties of
the Company and its Subsidiaries, if any, as shall be
reasonably necessary to enable them to exercise their due
diligence responsibility, and shall cause the Company's and
its Subsidiaries' officers, directors and employees to
supply all information and respond to all inquiries
reasonably requested by any such Inspector in connection
with such Registration Statement.
9.1.9 Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that
such Registrable Securities are delivered to the
underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being
sold through underwriters, on the date that the
Registration Statement with respect to such securities
becomes effective, (1) an opinion, dated as of such date,
of the counsel representing the Company for the purposes of
such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of
the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (2) a "comfort"
letter dated as of such date, from the independent
certified public accountants of the Company, in form and
substance as is customarily given by independent certified
public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority
in interest of the Holders requesting registration,
addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
9.1.10 Promptly list all Registrable Securities covered by such
Registration Statement on any securities exchange or
automated inter-dealer quotation system on which any shares
of Common Stock are then listed or traded (including,
without limitation, the Nasdaq National Market and EASDAQ).
9.1.11 If necessary, appoint a transfer agent with respect to such
Registrable Securities.
9.2 The Holders agree that upon receipt of any notice from the Company
of the happening of any event of the kind described in Section
9.1.5, the Holders will forthwith discontinue their disposition of
Registrable Securities pursuant to the Registration Statement
relating to such Registrable Securities until the Holders' receipt
of the copies of the supplemented or amended prospectus
contemplated by Section 9.1.5 and, if so directed by the Company,
will deliver to the Company all copies, other than permanent file
copies, then in the Holders' possession of the prospectus relating
to such Registrable Securities current at the time of receipt of
such notice and that they will immediately notify the Company, at
any time when a prospectus relating to the registration of such
Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event as a result of which
information previously furnished by the Holders to the Company for
inclusion in such prospectus contains an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or
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necessary to make the statements therein not misleading in the
light of the circumstances under which they were made.
9.3 As a condition of the fulfillment of its obligations under this
Agreement, the Company may require the Holders, at their own
reasonable expense, to furnish the Company with such information
and undertakings regarding such Holders and the distribution of
such securities as the Company may from time to time reasonably
request in writing to the extent necessary in order to cause the
Registration Statement to comply with the Securities Act, and the
Holders, by their execution hereof, agree to provide such
information and make such undertakings as are requested.
9.4 In connection with the preparation and filing of each Registration
Statement under the Securities Act, the Company will give the
Holders, and their respective counsel and accountants, the
reasonable opportunity to participate in the preparation of such
Registration Statement, each prospectus included therein or filed
with the Commission and each amendment thereof or supplement
thereto, and will give each of them such reasonable access to its
books and records and such reasonable opportunities to discuss the
business of the Company with its officers and the independent
public accountants who have certified its financial statements as
shall be necessary to conduct a reasonable investigation within
the meaning of the Securities Act.
9.5 Promptly after a sale of Registrable Securities pursuant to the
Registration Statement (assuming that no stop order is in effect
with respect to the Registration Statement at the time of such
sale), the Company shall cooperate with the Holders and provide
the transfer agent for the Common Stock with such instructions and
legal opinions as may be required in order to facilitate the
issuance to the purchaser (or the Holder's broker) of new
unlegended certificates for such Registrable Securities.
10 TRANSFER OF REGISTRATION RIGHTS
The registration rights granted pursuant to this Agreement shall be
transferable to a transferee of any Securities or Registrable Securities,
provided that (i) the transferring Holder is transferring such Securities
or Registrable Securities in compliance with the terms and provisions of
this Agreement and the transferring Holder gives the Company prompt
written notice of such transfer, identifying the name and address of the
transferee and the securities involved and (ii) the transferee agrees in
writing to be bound by the terms and provisions of this Agreement.
11 CONDITIONS TO CLOSING
11.1 CONDITIONS TO THE COMPANY'S OBLIGATIONS TO CONSUMMATE THE CLOSING
The obligations of the Company to effect the sale and issuance of
the Securities shall be subject to the satisfaction of the
conditions set forth below at or before the Closing Date (which
conditions may be waived by the Company in writing):
11.1.1 The Purchaser shall have delivered to the Company at the
Closing the items set forth in Section 4.2., and
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11.1.2 The representations and warranties of the Purchaser forth
in Section 6 of this Agreement shall be true and correct as
of the date hereof and as of the Closing Date (except to
the extent specified by the Purchaser to be true and
correct as of an earlier date).
11.2 CONDITIONS TO THE PURCHASER'S OBLIGATIONS TO CONSUMMATE THE
CLOSING The obligations of the Purchaser to effect the
purchase of the Securities shall be subject to the
satisfaction of the conditions set forth below, at or
before the Closing Date (which conditions may be waived by
the Purchaser in writing).
11.2.1 The representations and warranties of the Company set forth
in Section 5 of this Agreement shall be true and correct as
of the date hereof and as of the Closing Date (except to
the extent specified by the Company to be true and correct
as of an earlier date) and the Purchaser shall have
received a certificate to such effect signed by the Chief
Executive Officer of the Company dated as of the Closing
Date.
11.2.2 The Company shall have performed, satisfied and complied in
all material respects with all covenants, agreements and
conditions required by this Agreement, and the Purchaser
shall have received a certificate to such effect signed by
the Chief Executive Officer of the Company dated as of the
Closing Date.
11.2.3 The Company shall have procured all regulatory approvals
and consents required by Law to be procured by it for the
transactions contemplated by this Agreement.
11.2.4 If required under Nasdaq rules, the Company shall have
obtained shareholder approval of the purchase of the
Securities by the Purchaser.
11.2.5 The Company shall deliver to the Purchaser at the Closing
the items set forth in Section 4.1.
11.2.6 The Company shall have delivered to the Purchaser a
Certificate dated as of a recent date prior to the Closing
Date issued by the Secretary of State of the State of
Delaware to the effect that the Company is legally and
validly existing and in good standing.
11.2.7 The Company shall have delivered to the Purchaser a
certificate executed by the Secretary of the Company dated
as of the Closing Date, certifying as to (a) the directors
resolutions authorizing the transactions contemplated by
this Agreement, (b) the Charter Documents, (c) the
incumbency and specimen signatures of the Chief Executive
Officer, President and Secretary of the Company, and (d)
such other matters as the Purchaser may reasonably request.
11.2.8 As of the Closing Date, there shall not have occurred any
event or condition which has had a Material Adverse Effect,
and the Purchaser shall have received a certificate to such
effect signed by the Chief Executive Officer of the Company
dated as of the date of the Closing Date.
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11.2.9 The Company shall have filed or caused to be filed the
Certificate of Designations relating to the Series C
Preferred Stock with the Secretary of State for the State
of Delaware on or prior to the Closing Date.
12 RESTRICTIONS ON TRANSFER
12.1 RESTRICTIVE LEGENDS
Except as otherwise permitted by this Section 12, each share
certificate constituting the Securities issued and sold pursuant
to this Agreement and any share certificate issued upon exchange
of the Series C Preferred Stock or exercise of the Common Stock
Purchase Warrant or the Additional Common Stock Purchase Warrant
for Common Stock shall be stamped or otherwise imprinted with a
legend in substantially the following form:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE OR OTHER SECURITIES LAWS, AND MAY NOT BE OFFERED, REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, WITHIN THE
UNITED STATES OR TO OR FOR THE ACCOUNT OF U.S. PERSONS UNLESS THE
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT
OFFER, REOFFER, SELL, ASSIGN, TRANSFER, PLEDGE, ENCUMBER OR
OTHERWISE DISPOSE OF OR DISTRIBUTE DIRECTLY OR INDIRECTLY THESE
SECURITIES IN THE UNITED STATES, ITS TERRITORIES, POSSESSIONS, OR
AREAS SUBJECT TO ITS JURISDICTION, OR TO OR FOR THE ACCOUNT OR
BENEFIT OF A U.S. PERSON, AT ANY TIME PRIOR TO TWO YEARS AFTER THE
ORIGINAL ISSUANCE OF THESE SECURITIES, EXCEPT (A) TO THE COMPANY
OR A SUBSIDIARY OF THE COMPANY, (B) IN CONJUNCTION WITH AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT, (C) IN COMPLIANCE WITH AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT, OR (D) IN ACCORDANCE WITH THE
PROVISIONS OF REGULATION S OF SUCH ACT, INCLUDING RULE 903, RULE
904 AND RULE 905 THEREUNDER, AND AGREES THAT ANY HEDGING
TRANSACTIONS INVOLVING THE SECURITIES WILL BE CONDUCTED IN
COMPLIANCE WITH REGULATION S UNDER SUCH ACT AND AGREES THAT IT
WILL GIVEN TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT
THE COMPANY, THE TRANSFER AGENT, AND THE REGISTRAR SHALL HAVE THE
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER, IN EACH OF THE
FOREGOING CASES, TO REQUIRE DELIVERY OF A CERTIFICATION OF
TRANSFER IN FORM SATISFACTORY TO THEM. AS USED HEREIN, THE TERMS
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
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12.2 NOTICE OF THE PROPOSED TRANSFER; OPINION OF COUNSEL
The Purchaser of each share certificate bearing the restrictive
legend set forth in Section 12.1 above ("RESTRICTED SECURITY")
agrees that prior to any transfer or attempted transfer of such
Restricted Security to give to the Company (a) written notice
describing the manner or circumstances of such transfer or
proposed transfer, and (b) an opinion of counsel, which is
knowledgeable in securities law matters, in form and substance
reasonably satisfactory to the Company, to the effect that the
proposed transfer of such Restricted Security may be effected
without registration of such Restricted Security under the
Securities Act. If the holder of the Restricted Security delivers
to the Company an opinion of counsel in form and substance
reasonably satisfactory to the Company that subsequent transfers
of such Restricted Security will not require registration under
the Securities Act, the Company will after such contemplated
transfer deliver new Securities for such Restricted Security which
do not bear the Securities Act legend set forth in Section 12.1
above. Except to the extent required by the Company's transfer
agent, the requirements for an opinion of counsel imposed by this
Section 12.2 upon the transferability of any particular Restricted
Security shall not apply (i) when such Restricted Security is sold
pursuant to an effective Registration Statement under the
Securities Act, (ii) when such Restricted Security is transferred
pursuant to Rule 144 or Rule 144A promulgated under the Securities
Act or (iii) when such Restricted Security is transferred pursuant
to Regulation S promulgated under the Securities Act. The
restrictions imposed by this Section 12 shall cease and terminate
upon the date which is two (2) years after the original issue date
of the Restricted Security. As used in this Section 12.2, the term
"transfer" encompasses any sale, transfer or other disposition of
any Securities referred to herein.
13 INDEMNIFICATION
13.1 INDEMNIFICATION, EXPENSES, ETC.
13.1.1 Except as otherwise provided in Section 13.2, the Company
agrees to indemnify and hold harmless the Purchaser, its
Affiliates and each of its and their respective directors,
officers, partners, principals, shareholders and attorneys
(individually, an "INDEMNIFIED PARTY" and, collectively,
the "INDEMNIFIED PARTIES") from and against any and all
losses, claims, damages, liabilities, costs (including
reasonable attorneys' fees and including any costs of
investigation) and expenses (collectively, "LOSSES") to
which any Indemnified Party may become subject, insofar as
such Losses arise out of or result from (i) any breach of
any representation or warranty made by the Company, or the
failure of the Company to fulfill any agreement or covenant
contained in this Agreement or any other Transaction
Document, or (ii) any proceeding against the Company or any
Indemnified Party brought by any third party arising out of
or in connection with this Agreement or the other
Transaction Documents.
13.1.2 If any Indemnified Party is entitled to indemnification
hereunder, such Indemnified Party shall give notice to the
Company of any claim or of the commencement of any
proceeding against the Company or any Indemnified Party
brought by any third party with respect to which such
Indemnified Party
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seeks indemnification pursuant hereto; provided, however,
that the delay to so notify the Company shall not relieve
the Company from any obligation or liability except to the
extent the Company is materially prejudiced by such delay.
The Company shall have the right, exercisable by giving
written notice to an Indemnified Party within thirty (30)
days after the receipt of written notice from such
Indemnified Party of such claim or proceeding, to assume,
at the expense of the Company, the defense of any such
claim or proceeding with counsel reasonably satisfactory to
such Indemnified Party. After notice from the Company to
the Indemnified Party of its election to assume the defense
of such claim or proceeding, the Company shall not be
liable to the Indemnified Party for any legal or other
expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable
costs of investigation; provided that the Indemnified Party
shall have the right to employ separate counsel to
represent the Indemnified Party which may be subject to
liability arising out of any claim in respect of which
indemnity may be sought by the Indemnified Party against
the Company, but the fees and expenses of such counsel
shall be borne by such Indemnified Party unless (i) the
Company and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) in the
reasonable opinion of counsel to such Indemnified Party,
representation of both parties by the same counsel would be
inappropriate due to actual or potential conflicts of
interest between them, it being understood, however, that
the Company shall not, in connection with any one such
claim or proceeding or separate but substantially similar
or related claims or proceedings in the same jurisdiction
arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more
than one separate firm of attorneys (together with
appropriate local counsel) at any time for all Indemnified
Parties. The Company shall not consent to entry of any
judgement or enter into any settlement that does not
include as an unconditional term thereof the giving by
claimant or plaintiff to such Indemnified Party or Parties
of a release from all liability in respect of such claim,
litigation or proceeding.
13.1.3 If the indemnification provided for in Section 13.1.1 is
unavailable or insufficient to hold harmless an Indemnified
Party in respect of any loss, claim, damage, liability,
cost or expense, then the indemnifying party, in lieu of
indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, claim, damage,
liability, cost or expense (i) in such proportion as is
appropriate to reflect the relative benefits received by
the Company on the one hand and the Purchaser on the other
hand from the sale and purchase of the Securities or (ii)
if the allocation provided by clause (i) is not permitted
by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in
clause (i) above, but also the relative fault of the
Company on the one hand and the Purchaser on the other hand
in connection with the events or facts which gave rise to
such loss, claim, damage, liability, cost or expense, as
well as any other equitable considerations. The relative
fault shall be determined by
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reference to, among other things, whether the events or
facts that gave rise to such loss, claim, damage,
liability, cost or expense relate to a breach of
representations and warranties or other covenants and
obligations under this Agreement and the other Transaction
Documents by the Company or the Purchaser and the intent of
the parties and their relative knowledge, access to
information and opportunity to correct or prevent such
events. The amount paid or payable by an Indemnified Party
as a result of such loss, claim, damage, liability, cost or
expense shall be deemed to include any reasonable and
documented legal or other expenses incurred by such
Indemnified Party in connection with investigation or
defending such claim.
13.2 ADDITIONAL INDEMNIFICATION OBLIGATIONS
13.2.1 The Company will indemnify each Holder, each of its
officers, directors and partners, legal counsel, and
accountants and each person controlling such Holder within
the meaning of Section 15 of the Securities Act, with
respect to which registration, qualification, or compliance
has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls within
the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages,
and liabilities (or actions, proceedings, or settlements in
respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other
document (including any related Registration Statement,
notification, or the like) incident to any such
registration, qualification, or compliance, or based on any
omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action
or inaction required of the Company in connection with any
such registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers,
directors, partners, legal counsel, and accountants and
each person controlling such Holder, each such underwriter,
and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any
such claim, loss, damage, liability, or action; provided,
that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be
specifically for use therein. It is agreed that the
indemnity agreement contained in this Section 13.2.1 shall
not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent
shall not be unreasonably withheld).
13.2.2 Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such
registration, qualification, or compliance is being
effected, severally and not jointly, indemnify the Company,
each of its directors, officers, partners, legal counsel,
and accountants and each
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underwriter, if any, of the Company's securities covered by
such a Registration Statement, each person who controls the
Company or such underwriter within the meaning of Section
15 of the Securities Act, each other such Holder, and each
of its officers, directors, and partners, and each person
controlling such Holder, against all claims, losses,
damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such
Registration Statement, prospectus, offering circular, or
other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading,
and will reimburse the Company and such Holders, directors,
officers, partners, legal counsel, and accountants,
persons, underwriters, or control persons for any legal or
any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage,
liability, or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made
in such Registration Statement, prospectus, offering
circular, or other document in reliance upon and in
conformity with written information furnished to the
Company by such Holder and stated to be specifically for
use therein; provided, however, that the obligations of
such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or
liabilities (or actions in respect thereof) if such
settlement is effected without the consent of such Holder
(which consent shall not be unreasonably withheld).
13.2.3 The Indemnified Party shall give notice to the Indemnifying
Party promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the
defense of such claim or any litigation resulting
therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in
such defense at such party's expense; and provided, further
that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 13.2, to the extent such
failure is not prejudicial. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with
the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by
claimant or plaintiff to such Indemnified Party or a
release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
13.2.4 If the indemnification provided for in this Section 13.2 is
held by a court of competent jurisdiction to be unavailable
to an Indemnified Party with respect to
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any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall
contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability,
claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying
Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or
alleged untrue statement or a material fact or the omission
to state a material fact relates to information supplied by
the Indemnifying Party or by the Indemnified Party and the
parties' relative intent, knowledge, access to information,
and opportunity to correct or prevent such statement or
omission.
13.3 CONTROLLING PROVISIONS
Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
13.4 "MARKET STAND-OFF" AGREEMENT
Each Holder hereby agrees that it shall not, to the extent
requested by the Company and an underwriter of securities of the
Company, sell or otherwise transfer or dispose of any Registrable
Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who
agree to be similarly bound) for one hundred eighty (180) days
following the effective date of a Registration Statement of the
Company filed under the Securities Act or such lesser period as is
agreed by the Company and any such underwriter (the so-called
"LOCK-UP PERIOD"); provided, however, that all officers and
directors of the Company shall be bound by and have entered into
similar agreements; and provided, further, that this Section 13.4
shall only apply to Holders of two (2) percent or more of the
Company's outstanding voting Capital Stock, and the lock-up period
shall be ninety (90) days or such lesser period as is agreed by
the Company and any such underwriter. In order to enforce the
foregoing covenant, the Company shall have the right to place
restrictive legends on the certificates representing the shares
subject to this Section 13.4 and to impose stop transfer
instructions with respect to the Registrable Securities and such
other shares of each Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end
of such period.
13.5 RULE 144 REPORTING
With a view to making available to the Holders the benefits of
certain rules and regulations of the SEC which may permit the sale
of the Securities to the public without registration, the Company
agrees to use its best efforts to:
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13.5.1 Make and keep public information available, as those terms
are understood and defined in Rule 144 or any similar or
analogous rule promulgated under the Securities Act, at all
times;
13.5.2 File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act
and the Exchange Act; and
13.5.3 So long as a Holder owns any Securities, furnish to such
Holder forthwith upon request (i) a written statement by
the Company as to its compliance with the reporting
requirements of Rule 144 and of the Securities Act and the
Exchange Act; (ii) a copy of the most recent annual or
quarterly report of the Company; and (iii) such other
reports and documents as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission
allowing it to sell any such securities without
registration.
13.6 TREATMENT OF INDEMNIFICATION PAYMENTS.
Any indemnification payment made pursuant to this Section 13 will
be treated by the Company and the Purchaser as an adjustment to
the Purchase Price for Tax purposes on all Returns and other
correspondence with any Governmental Authority.
14 MISCELLANEOUS
14.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
INDEMNIFICATION
All representations and warranties contained in this Agreement or
in the other Transaction Documents shall survive for a period of
one year from the date hereof, except for representations and
warranties relating to compliance with Laws, Taxes and Returns
contained in Section 5.16 of this Agreement, and the covenants
contained in Sections 7.7, 7.8, 7.9, 7.13 and 7.14 of this
Agreement, all of which shall survive until the expiration of any
applicable statute of limitations, and the indemnity agreements
contained in Section 13.1 and Section 13.2 of this Agreement;
provided, however, that such survival of representations and
warranties relating to compliance with Laws, Taxes and Returns and
of the covenants contained in Sections 7.7, 7.8 and 7.9 of this
Agreement, shall only survive beyond one year to the extent there
is any third party claim made directly against the Purchaser.
14.2 AMENDMENT AND WAIVER
This Agreement may be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may
be given, provided that the same are in writing and signed by the
Purchaser and the Company.
14.3 NOTICES, ETC.
Except as otherwise provided in this Agreement, notices and other
communications under this Agreement shall be in writing and shall
be delivered personally, sent by telecopier (with written
confirmation of receipt), mailed by registered or certified mail,
return receipt requested, or by a nationally recognized overnight
courier, postage prepaid, addressed:
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If to Purchaser, to:
Ubizen X.X.
Xxxxxxxxxxx 0X
X-0000
Xxxxxx, Xxxxxxx
Facsimile No.: x00 00 00 0000
Attn: Chief Financial Officer
with a copy to:
Linklaters
Xxxxxxx X. Xxxxx
1345 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
If to the Company, to:
VASCO Data Security International, Inc.
0000 Xxxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Facsimile No: (000) 000-0000
Attn:Chief Executive Officer
Chief Financial Officer
with a copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP
0000 00xx Xxxxxx XX
Xxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Any such notices which are mailed shall be deemed delivered five
(5) Business Days after mailing.
14.4 EXPENSES
Except as otherwise provided in this Agreement, whether or not the
transactions contemplated hereby are consummated, each party will
pay its own costs and expenses incurred in connection with the
negotiation, execution and closing of this Agreement and the other
Transaction Documents and the consummation of the transactions
contemplated hereby and thereby.
14.5 ENTIRE AGREEMENT
This Agreement and the other Transaction Documents embody the
entire agreement and understanding between the Purchaser and the
Company and supersede all prior agreements and understandings.
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14.6 SUCCESSORS AND ASSIGNS
Whenever in this Agreement any of the parties hereto are referred
to, such reference shall be deemed to include the successors and
assigns of such party; and all covenants, promises and agreements
by or on behalf of the respective parties which are contained in
this Agreement shall bind and inure to the benefit of the
successors and assigns of all other parties. The terms and
provisions of this Agreement and the other Transaction Documents
shall inure to the benefit of and shall be binding upon any
assignee or transferee of any Purchaser, and in the event of such
transfer or assignment, the rights and privileges herein conferred
upon any such Purchaser shall automatically extend to and be
vested in, and become an obligation of, such transferee or
assignee, all subject to the terms and conditions hereof.
14.7 TERMINATION
14.7.1 This Agreement may be terminated and the transactions
contemplated hereby may be abandoned:
(i) at any time prior to the Closing, by the mutual
written consent of the Company and the Purchaser;
(ii) at any time prior to the Closing, by the Company or
Purchaser upon notice given to the other if the
Closing shall not have taken place for any reason by
August 3, 2000; provided that the failure of the
Closing to occur on or before such date (or the
inability to satisfy such condition) is not the
result of the breach of the covenants, agreements,
representations or warranties hereunder of the party
seeking such termination; or
(iii) at any time prior to the Closing, by the Company or
the Purchaser upon written notice to the other party
if any court or Governmental Authority of competent
jurisdiction shall have issued a final permanent
order, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and the
time for appeal or reconsideration of such order
shall have expired.
14.7.2 In the event of the termination of this Agreement as
provided in Section 14.7.1, this Agreement shall forthwith
become wholly void and of no further force and effect and
there shall be no liability on the part of the Company, the
Purchaser or their respective officers and directors
(except as a set forth in Sections 13.1 and 14.4; provided,
however, that nothing contained in this sentence is
intended to eliminate the liability of a breaching party to
a non-breaching party who terminates this Agreement
pursuant to Section 14.7.1(ii) of this Agreement). The
obligations of the parties to this Agreement under Sections
13.1, 13.2 and 14.4 shall survive any such termination.
14.8 DESCRIPTIVE HEADINGS
The headings in this Agreement are for purposes of reference only
and shall not limit or otherwise affect the meaning hereof.
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14.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to any
choice-of-law principles thereof.
14.10 CONSENT TO JURISDICTION
Each of the Purchaser and the Company hereby irrevocably submits
to the non-exclusive jurisdiction of any court of the State of New
York or United States federal court sitting in the Borough of
Manhattan, New York, New York and any appellate court therefrom in
any action or proceeding arising out of or relating to this
Agreement, and the Company and the Purchaser hereby irrevocably
agree that all claims in respect of such action or proceeding may
be heard and determined in such court. The Company and the
Purchaser hereby irrevocably waive, to the fullest extent
permitted by applicable law, the defense of an inconvenient forum
to the maintenance of such action or proceeding.
14.11 COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
VASCO DATA SECURITY INTERNATIONAL, INC.,
a Delaware corporation
By:
-----------------------------------
Name:
Title:
UBIZEN N.V.,
a Belgian stock corporation
By:
-----------------------------------
Name:
Title:
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40
SCHEDULES TO
SECURITIES PURCHASE AGREEMENT
i
41
SCHEDULE 5.1
ORGANIZATION AND QUALIFICATION, AUTHORITY.
Vasco Data Security, Inc.
Vasco Data Security Europe NV/SA
Vasco Data Security NV/SA
Lintel Security NV/SA
Vasco Data Security France XX
xx
42
SCHEDULE 5.2
CORPORATE AUTHORIZATION.
None.
iii
43
SCHEDULE 5.3
NO CONFLICT; REQUISITE CONSENTS.
None.
iv
44
SCHEDULE 5.4
CAPITALIZATION.
The Company is a party to an arrangement whereby the Company could
potentially issue up to 325,000 shares of its Common Stock in connection with
the potential merger and acquisition of a California corporation.
The Company currently has outstanding warrants to purchase up to 680,943
shares of its Common Stock.
The Company currently has outstanding options to purchase up to 2,233,100
shares of its Common Stock.
The Company is a party to a convertible loan agreement in the principal
amount of $3,400,000 whereby the lender has the option to convert the loan into
shares of the Company's Common Stock.
v
45
SCHEDULE 5.5
LITIGATION; DEFAULTS.
None.
vi
46
SCHEDULE 5.6
NO MATERIAL ADVERSE EFFECT.
None.
vii
47
SCHEDULE 5.7
EMPLOYEE PROGRAMS.
The following have entered employment or consulting agreements with the Company:
Xxxxxxx Xxxxx
Xxxxxxxx Xxxxx
Xxx Xxxxxx
Xxxxx X. Xxxxxx, Xx.
Xxxxxxx Xxxx
Xxxxxx X. Xxxxxx
Xxxx Xxxxxx
Xxxxxx X. Xxxxx
Xxxxxx Xxxxxxx
Xxxxx Xxxxxx
Xxxx Xxxxxxxxx
Xxxxxxxxxxx Xxxxx Xxxxxxxxxx
Xxxxxx Xxxxxxxx
Xxx Xxxxxxxx Xxx
Xxxxxx Xxxxx
Xxxx Xxxxx
Xxxxx Xxxx
Xxxxx Xxxxxxxxx
Xxxxxx Xxxxxxx
Xxxxxx Xxxxxxx
Xxxxxxxx Xxxxxxx
Xxxxxx Xxxxxxxxx
Xxxxxx Xxxxx
Xxxxx Xxxxxx
Xxxxxx X. Xxxxxxxxxxx
Xxxxxxxx Xxxxxxx
Xxxxx Males
Xxxxxxx X. Apple
Xxxx Xxxxxxx
T. Xxxxxxx Xxxx
Xxxx X. Im
Xxxxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxxxxx
The Company has the following arrangements providing insurance coverage or
workers' compensation coverage:
Group Term Life Insurance and AD&D
Major Medical and Surgical Coverage
viii
48
Medical Health Care Coverage
Dental Health Care Coverage
Dependents Health Care Coverage
Dependents Dental Care Coverage
Dependents Life Insurance and AD&D
Prescription Drug Coverage
The Company has the following additional programs in place:
401(k) Plan
Stock Option Plan
ix
49
SCHEDULE 5.10
FINANCIAL STATEMENTS: NO UNDISCLOSED LIABILITIES.
None.
x
50
SCHEDULE 5.11
ENVIRONMENTAL REGULATION, ETC.
None.
xi
51
SCHEDULE 5.12
PROPERTIES AND ASSETS.
The Company or its Subsidiaries lease the following properties:
Koningin astridlaan 164
X-0000 Xxxxxx, Xxxxxxx
000, Xx Xxxxxx Xxxxx
00000 Xxxxxxxx, Xxxxxx
0000 X. Xxxxxx Xxxx
Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
xii
52
SCHEDULE 5.13
EMPLOYMENT PRACTICES.
None.
xiii
53
SCHEDULE 5.15
MATERIAL CONTRACTS.
None.
xiv
54
SCHEDULE 5.16
TAXES.
1. The Company and Vasco Data Security, Inc. filed applications for extensions
of time to file their Federal and state income tax returns for the year ended
December 31, 1999.
2. The Company's debt includes a term loan in the principal amount of $3.4
million which matures on September 30, 2002 and bears interest at a rate of
3.25% annually. The note is convertible into common stock of the Company. This
debt may constitute "corporate acquisition indebtedness" within the meaning of
Section 279 of the Code.
xv
55
SCHEDULE 5.17
LICENSES; COMPLIANCE WITH LAWS.
None.
xvi
56
SCHEDULE 5.18
TRANSACTIONS WITH AFFILIATES.
See Schedule 5.7
xvii
57
SCHEDULE 5.20
INSURANCE.
None.
xviii
58
SCHEDULE 5.21
SUBSTANTIAL CUSTOMERS AND SUPPLIERS.
None.
xix
59
SCHEDULE 5.22
REGISTRATION RIGHTS.
In connection with the sale of 3,285,714 shares of Common Stock in February 1999
by the Corporation in an offshore transaction, certain registration rights were
granted to the six purchasers. Those registration rights were waived as part of
the Corporation's listing on EASDAQ and abandoned contemporaneous repeat public
offering. The distribution compliance period of one year has terminated with
respect to such shares and they may be resold in the United States pursuant to
Rule 144.
xx
