PURCHASE AGREEMENT
Exhibit 10.1
THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 5th day of August, 2005 by
and among Visual Networks, Inc., a Delaware corporation (the “Company”), and the Investors set
forth on the signature pages affixed hereto (each an “Investor” and collectively the “Investors”).
Recitals
A. The Company and the Investors are executing and delivering this Agreement in reliance upon
the exemption from securities registration afforded by the provisions of Regulation D (“Regulation
D”), as promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the Securities
Act of 1933, as amended; and
B. The Investors wish to purchase from the Company, and the Company wishes to sell and issue
to the Investors, upon the terms and conditions stated in this Agreement, an aggregate principal
amount of $10,000,000 of the Company’s 5% Senior Secured Convertible Notes with a stated maturity
date of December 31, 2007 in the form attached hereto as Exhibit A (the “Notes”), which
Notes are convertible into shares of the Company’s Common Stock, par value $0.01 per share
(together with any securities into which such shares may be reclassified the “Common Stock”), at a
conversion price of $1.45 per share; and
C. Contemporaneous with the sale of the Notes, the parties hereto will execute and deliver a
Registration Rights Agreement, in the form attached hereto as Exhibit B (the “Registration
Rights Agreement”), pursuant to which the Company will agree to provide certain registration rights
under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder,
and applicable state securities laws.
In consideration of the mutual promises made herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere in this
Agreement, for the purposes of this Agreement, the following terms shall have the meanings set
forth below:
“Affiliate” means, with respect to any Person, any other Person which directly or
indirectly through one or more intermediaries Controls, is controlled by, or is under common
control with, such Person.
“Bank” means Silicon Valley Bank, its successors and assigns.
“Business Day” means a day, other than a Saturday or Sunday, on which banks in New
York City are open for the general transaction of business.
“Cash Purchase Price” means Eight Million Dollars ($8,000,000).
“Company’s Knowledge” means the actual knowledge of the executive officers (as defined
in Rule 405 under the 0000 Xxx) of the Company, after due inquiry.
“Confidential Information” means trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions, processes, procedures and techniques,
research and development information, computer program code, performance specifications, support
documentation, drawings, specifications, designs, business and marketing plans, and customer and
supplier lists and related information).
“Control” (including the terms “controlling”, “controlled by” or “under common control
with”) means the possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
“Conversion Shares” means the shares of Common Stock issuable upon the conversion of
the Notes.
“Effective Date” means the date on which the initial Registration Statement is
declared effective by the SEC.
“Effectiveness Deadline” means the date on which the initial Registration Statement is
required to be declared effective by the SEC under the terms of the Registration Rights Agreement.
“Existing Debt” means the Company’s outstanding obligations under the Line of Credit.
“Existing Notes” means the 5% Senior Secured Convertible Debentures issued on March
25, 2002 by the Company to: (a) Special Situations Private Equity Fund, L.P. with a principal
amount of One Million Five Hundred and Fifty Thousand Dollars ($1,550,000) and (b) Special
Situations Technology Fund, L.P. with a principal amount of Four Hundred and Fifty Thousand Dollars
($450,000).
“Intellectual Property” means all of the following: (i) patents, patent applications,
patent disclosures and inventions (whether or not patentable and whether or not reduced to
practice); (ii) trademarks, service marks, trade dress, trade names, corporate names, logos,
slogans and Internet domain names, together with all goodwill associated with each of the
foregoing; (iii) copyrights and copyrightable works; (iv) registrations, applications and renewals
for any of the foregoing; and (v) proprietary computer software (including but not limited to data,
data bases and documentation).
“Line of Credit” means the revolving line of credit agreement, dated as of June 21,
2005, with the Bank, and all ancillary agreements entered into in connection therewith,
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including, without limitation, any agreements creating a security interest in the property of the
Company or any Subsidiary.
“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise), business, or prospects of
the Company and its Subsidiaries taken as a whole, or (ii) the ability of the Company to perform
its obligations under the Transaction Documents.
“Nasdaq” means The Nasdaq Stock Market, Inc., including the Nasdaq SmallCap Market.
“Payoff Letter” means the payoff letter, dated August 2, 2005, from the Bank to the
Company, a true and complete copy of which has been provided to the Investors.
“Person” means an individual, corporation, partnership, limited liability company,
trust, business trust, association, joint stock company, joint venture, sole proprietorship,
unincorporated organization, governmental authority or any other form of entity not specifically
listed herein.
“Registration Statement” has the meaning set forth in the Registration Rights
Agreement.
“SEC Filings” has the meaning set forth in Section 4.6.
“Securities” means the Notes and the Conversion Shares.
“Security Agreement” means the Pledge and Security Agreement in the form attached
hereto as Exhibit C.
“Subsidiary” of any Person means another Person, an amount of the voting securities,
other voting ownership or voting partnership interests of which is sufficient to elect at least a
majority of its Board of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly or indirectly by such
first Person.
“Transaction Documents” means this Agreement, the Notes, the Security Agreement and
the Registration Rights Agreement.
“1933 Act” means the Securities Act of 1933, as amended, or any successor statute, and
the rules and regulations promulgated thereunder.
“1934 Act” means the Securities Exchange Act of 1934, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Notes. Subject to the terms and conditions of this
Agreement, on the Closing Date, each of the Investors shall severally, and not jointly, purchase,
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and the Company shall sell and issue to the Investors, the Notes in the respective principal
amounts set forth opposite the Investors’ names on the signature pages hereto in exchange for (i)
the Cash Purchase Price, payable as specified in Section 3 below, and (ii) the surrender and
cancellation of $2,000,000 in aggregate principal amount of the Existing Notes by the Investors as
specified on the signature pages hereto.
3. Closing. Upon confirmation that the other conditions to closing specified herein
have been satisfied or duly waived by the Investors, the Company shall deliver to Xxxxxxxxxx
Xxxxxxx PC, in trust, the Notes, registered in such name or names as the Investors may designate,
with instructions that such Notes are to be held for release to the Investors only upon (i) payment
to the Bank of the amount owed to the Bank calculated pursuant to the terms of the Payoff Letter
(the “Payoff Amount”), (ii) payment in full of the remaining Cash Purchase Price to the Company and
(iii) the surrender of $2,000,000 in aggregate principal amount of the Existing Notes. Upon such
receipt by Xxxxxxxxxx Xxxxxxx PC of the Notes, each Investor shall promptly, but no more than one
Business Day thereafter, (i) cause a wire transfer in same day funds to be sent to the account of
the Bank as instructed in the Payoff Letter, in an amount representing such Investor’s pro rata
portion of the Payoff Amount, (ii) cause a wire transfer in same day funds to be sent to the
account of the Company as instructed in writing by the Company, in an amount representing the
remainder of such Investor’s pro rata portion of the Cash Purchase Price as set forth on the
signature pages to this Agreement and (iii) deliver to Xxxxxxxxxx Xxxxxxx PC the Existing Notes to
be surrendered. On the date (the “Closing Date”) the Bank receives the Payoff Amount, the Company
receives the remaining Cash Purchase Price and Xxxxxxxxxx Xxxxxxx PC receives the Existing Notes to
be surrendered, the Notes shall be released to the Investors (the “Closing”). The Closing shall
take place at the offices of Xxxxxxxxxx Xxxxxxx PC, 1251 Avenue of the Xxxxxxxx, 00xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000, or at such other location and on such other date as the Company and the
Investors shall mutually agree.
4. Representations and Warranties of the Company. The Company hereby represents and
warrants to the Investors that, except as set forth in the schedules delivered herewith
(collectively, the “Disclosure Schedules”):
4. 1 Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power and authority to
carry on its business as now conducted and to own its properties. Each of the Company and its
Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or leasing of property
makes such qualification or leasing necessary unless the failure to so qualify has not had and
could not reasonably be expected to have a Material Adverse Effect. The Company’s Subsidiaries are
listed on Schedule 4.1 hereto.
4.2 Authorization. The Company has full power and authority and, except for approval
of the Proposal by its stockholders as contemplated in Section 7.9, has taken all requisite action
on the part of the Company, its officers, directors and stockholders necessary for (i) the
authorization, execution and delivery of the Transaction Documents, (ii) the authorization of the
performance of all obligations of the Company hereunder or thereunder, and (iii) the
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authorization, issuance (or reservation for issuance) and delivery of the Securities. The
Transaction Documents constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating
to or affecting creditors’ rights generally.
4.3 Capitalization. Schedule 4.3 sets forth (a) the authorized capital stock
of the Company as of the date hereof; (b) the number of shares of capital stock issued and
outstanding; (c) the number of shares of capital stock issuable pursuant to the Company’s stock
plans; and (d) the number of shares of capital stock issuable and reserved for issuance pursuant to
securities (other than the Notes) exercisable for, or convertible into or exchangeable for any
shares of capital stock of the Company. All of the issued and outstanding shares of the Company’s
capital stock have been duly authorized and validly issued and are fully paid, nonassessable and
free of pre-emptive rights and were issued in full compliance with applicable state and federal
securities law and any rights of third parties. Except as described on Schedule 4.3, all
of the issued and outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued and are fully paid, nonassessable and free of pre-emptive rights, were issued in
full compliance with applicable state and federal securities law and any rights of third parties
and are owned by the Company, beneficially and of record, subject to no lien, encumbrance or other
adverse claim. Except as described on Schedule 4.3, no Person is entitled to pre-emptive
or similar statutory or contractual rights with respect to any securities of the Company. Except
as described on Schedule 4.3, there are no outstanding warrants, options, convertible
securities or other rights, agreements or arrangements of any character under which the Company or
any of its Subsidiaries is or may be obligated to issue any equity securities of any kind and
except as contemplated by this Agreement, neither the Company nor any of its Subsidiaries is
currently in negotiations for the issuance of any equity securities of any kind. Except as
described on Schedule 4.3 and except for the Registration Rights Agreement, there are no
voting agreements, buy-sell agreements, option or right of first purchase agreements or other
agreements of any kind among the Company and any of the securityholders of the Company relating to
the securities of the Company held by them. Except as described on Schedule 4.3 and except
as provided in the Registration Rights Agreement, no Person has the right to require the Company to
register any securities of the Company under the 1933 Act, whether on a demand basis or in
connection with the registration of securities of the Company for its own account or for the
account of any other Person.
Except as described on Schedule 4.3, the issuance and sale of the Securities hereunder
will not obligate the Company to issue shares of Common Stock or other securities to any other
Person (other than the Investors) and will not result in the adjustment of the exercise,
conversion, exchange or reset price of any outstanding security.
Except as described on Schedule 4.3, the Company does not have outstanding stockholder
purchase rights or “poison pill” or any similar arrangement in effect giving any Person the right
to purchase any equity interest in the Company upon the occurrence of certain events.
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4.4 Valid Issuance. The Conversion Shares have been duly and validly authorized.
Upon the due conversion of the Notes, the Conversion Shares will be validly issued, fully paid and
nonassessable, and shall be free and clear of all encumbrances and restrictions (other than those
created by the Investors), except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws. The Company has reserved a sufficient number
of shares of Common Stock for issuance upon the conversion of the Notes, free and clear of all
encumbrances and restrictions, except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws and except for those created by the Investors.
4.5 Consents. Except for approval of the Proposal by its stockholders as contemplated
in Section 7.9, the execution, delivery and performance by the Company of the Transaction Documents
and the offer, issuance and sale of the Securities require no consent of, action by or in respect
of, or filing with, any Person, governmental body, agency, or official other than filings that have
been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable
state and federal securities laws which the Company undertakes to file within the applicable time
periods. Subject to the accuracy of the representations and warranties of each Investor set forth
in Section 5 hereof, the Company has taken all action necessary to exempt (i) the issuance and sale
of the Notes, (ii) the issuance of the Conversion Shares upon due conversion of the Notes, and
(iii) the other transactions contemplated by the Transaction Documents from the provisions of any
stockholder rights plan or other “poison pill” arrangement, any anti-takeover, business combination
or control share law or statute binding on the Company or to which the Company or any of its assets
and properties may be subject and any provision of the Company’s Certificate of Incorporation or
Bylaws that is or could reasonably be expected to become applicable to the Investors as a result of
the transactions contemplated hereby, including without limitation, the issuance of the Securities
and the ownership, disposition or voting of the Securities by the Investors or the exercise of any
right granted to the Investors pursuant to this Agreement or the other Transaction Documents. A
true and complete copy of the Payoff Letter has been delivered to the Investors and is in full
force and effect. The Payoff Amount, as calculated in accordance with the terms of the Payoff
Letter, will be sufficient to repay in full all amounts due and owing to the Bank and from and
after the payment of the Payoff Amount as contemplated hereby, the Bank will have no further right,
title or interest in any of the assets or properties of the Company or its Subsidiaries.
4.6 Delivery of SEC Filings; Business. The Company has made available to the
Investors through the XXXXX system, true and complete copies of the Company’s most recent Annual
Report on Form 10-K for the fiscal year ended December 31, 2004 (the “10-K”), and all other reports
filed by the Company pursuant to the 1934 Act since the filing of the 10-K and prior to the date
hereof (collectively, the “SEC Filings”). The SEC Filings are the only filings required of the
Company pursuant to the 1934 Act for such period. The Company and its Subsidiaries are engaged in
all material respects only in the business described in the SEC Filings and the SEC Filings contain
a complete and accurate description in all material respects of the business of the Company and its
Subsidiaries, taken as a whole.
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4.7 Use of Proceeds. The net proceeds of the sale of the Notes hereunder shall be
used by the Company to repay the Existing Debt and for working capital and general corporate
purposes.
4.8 No Material Adverse Change. Since December 31, 2004, except as identified and
described in the SEC Filings or as described on Schedule 4.8, there has not been:
(i) any change in the consolidated assets, liabilities, financial condition or operating
results of the Company from that reflected in the financial statements included in the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, except for changes in the
ordinary course of business which have not had and could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate;
(ii) any declaration or payment of any dividend, or any authorization or payment of any
distribution, on any of the capital stock of the Company, or any redemption or repurchase of any
securities of the Company;
(iii) any material damage, destruction or loss, whether or not covered by insurance to any
assets or properties of the Company or its Subsidiaries;
(iv) any waiver, not in the ordinary course of business, by the Company or any Subsidiary of a
material right or of a material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company or a Subsidiary, except in the ordinary course of business and which is
not material to the assets, properties, financial condition, operating results or business of the
Company and its Subsidiaries taken as a whole (as such business is presently conducted and as it is
proposed to be conducted);
(vi) any change or amendment to the Company’s Certificate of Incorporation or Bylaws, or
material change to any material contract or arrangement by which the Company or any Subsidiary is
bound or to which any of their respective assets or properties is subject;
(vii) any material labor difficulties or labor union organizing activities with respect to
employees of the Company or any Subsidiary;
(viii) any material transaction entered into by the Company or a Subsidiary other than in the
ordinary course of business;
(ix) the loss of the services of any key employee, or material change in the composition or
duties of the senior management of the Company or any Subsidiary;
(x) the loss or threatened loss of any customer which has had or could reasonably be expected
to have a Material Adverse Effect; or
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(xi) any other event or condition of any character that has had or could reasonably be
expected to have a Material Adverse Effect.
4.9 SEC Filings; S-3 Eligibility.
(a) At the time of filing thereof, the SEC Filings complied as to form in all material
respects with the requirements of the 1934 Act and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not misleading.
(b) Each registration statement and any amendment thereto filed by the Company since January
1, 2002 pursuant to the 1933 Act and the rules and regulations thereunder, as of the date such
statement or amendment became effective, complied as to form in all material respects with the 1933
Act and did not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements made therein not
misleading; and each prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its issue
date and as of the closing of any sale of securities pursuant thereto did not contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the circumstances under
which they were made, not misleading.
(c) The Company is eligible to use Form S-3 to register the Registrable Securities (as such
term is defined in the Registration Rights Agreement) for sale by the Investors as contemplated by
the Registration Rights Agreement.
4.10 No Conflict, Breach, Violation or Default. Subject to the approval of the
Proposal by its stockholders as contemplated in Section 7.9, the execution, delivery and
performance of the Transaction Documents by the Company and the issuance and sale of the Securities
will not conflict with or result in a breach or violation of any of the terms and provisions of, or
constitute a default under (i) the Company’s Certificate of Incorporation or the Company’s Bylaws,
both as in effect on the date hereof (true and complete copies of which have been made available to
the Investors through the XXXXX system), or (ii)(a) any statute, rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having jurisdiction over the
Company, any Subsidiary or any of their respective assets or properties, or (b) any agreement or
instrument to which the Company or any Subsidiary is a party or by which the Company or a
Subsidiary is bound or to which any of their respective assets or properties is subject.
4.11 Tax Matters. The Company and each Subsidiary has timely prepared and filed all
tax returns required to have been filed by the Company or such Subsidiary with all appropriate
governmental agencies and timely paid all taxes shown thereon or otherwise owed by it. The
charges, accruals and reserves on the books of the Company in respect of taxes for all fiscal
periods are adequate in all material respects, and there are no material unpaid assessments against
the Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the assessment of any
additional taxes, penalties or interest for any fiscal period or audits by any
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federal, state or local taxing authority except for any assessment which is not material to the
Company and its Subsidiaries, taken as a whole. All taxes and other assessments and levies that
the Company or any Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party when due. There
are no tax liens or claims pending or, to the Company’s Knowledge, threatened against the Company
or any Subsidiary or any of their respective assets or property. Except as described on
Schedule 4.11, there are no outstanding tax sharing agreements or other such arrangements
between the Company and any Subsidiary or other corporation or entity.
4.12 Title to Properties. Except as disclosed in the SEC Filings, the Company and
each Subsidiary has good and marketable title to all real properties and all other properties and
assets owned by it, in each case free from liens, encumbrances and defects that would materially
affect the value thereof or materially interfere with the use made or currently planned to be made
thereof by them; and except as disclosed in the SEC Filings, the Company and each Subsidiary holds
any leased real or personal property under valid and enforceable leases with no exceptions that
would materially interfere with the use made or currently planned to be made thereof by them.
4.13 Certificates, Authorities and Permits. The Company and each Subsidiary possess
adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by it, and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or such Subsidiary,
could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate.
4.14 Labor Matters.
(a) Except as set forth on Schedule 4.14, the Company is not a party to or bound by
any collective bargaining agreements or other agreements with labor organizations. The Company has
not violated in any material respect any laws, regulations, orders or contract terms, affecting the
collective bargaining rights of employees, labor organizations or any laws, regulations or orders
affecting employment discrimination, equal opportunity employment, or employees’ health, safety,
welfare, wages and hours.
(b) (i) There are no labor disputes existing, or to the Company’s Knowledge, threatened,
involving strikes, slow-downs, work stoppages, job actions, lockouts or any other disruptions of or
by the Company’s employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company’s Knowledge, threatened before the National Labor Relations Board or any
other federal, state or local labor commission relating to the Company’s employees, (iii) no demand
for recognition or certification heretofore made by any labor organization or group of employees is
pending with respect to the Company and (iv) to the Company’s Knowledge, the Company enjoys good
labor and employee relations with its employees and labor organizations.
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(c) The Company is, and at all times has been, in compliance in all material respects with all
applicable laws respecting employment (including laws relating to classification of employees and
independent contractors) and employment practices, terms and conditions of employment, wages and
hours, and immigration and naturalization. There are no claims pending against the Company before
the Equal Employment Opportunity Commission or any other administrative body or in any court
asserting any violation of Title VII of the Civil Rights Act of 1964, the Age Discrimination Act of
1967, 42 U.S.C. §§ 1981 or 1983 or any other federal, state or local Law, statute or ordinance
barring discrimination in employment.
(d) Except as disclosed in the SEC Filings or as described on Schedule 4.14, the
Company is not a party to, or bound by, any employment or other contract or agreement that contains
any severance, termination pay or change of control liability or obligation, including, without
limitation, any “excess parachute payment,” as defined in Section 2806(b) of the Internal Revenue
Code.
(e) Except as specified in Schedule 4.14, each of the Company’s employees is a Person
who is either a United States citizen or a permanent resident entitled to work in the United
States. To the Company’s Knowledge, the Company has no liability for the improper classification
by the Company of such employees as independent contractors or leased employees prior to the
Closing.
4.15 Intellectual Property.
(a) All Intellectual Property of the Company and its Subsidiaries is currently in compliance
with all legal requirements (including timely filings, proofs and payments of fees) and is valid
and enforceable. Except as described on Schedule 4.15, no Intellectual Property of the
Company or its Subsidiaries which is necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted
has been or is now involved in any cancellation, dispute or litigation, and, to the Company’s
Knowledge, no such action is threatened. No patent of the Company or its Subsidiaries has been or
is now involved in any interference, reissue, re-examination or opposition proceeding.
(b) All of the licenses and sublicenses and consent, royalty or other agreements concerning
Intellectual Property which are necessary for the conduct of the Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted
to which the Company or any Subsidiary is a party or by which any of their assets are bound (other
than generally commercially available, non-custom, off-the-shelf software application programs
having a retail acquisition price of less than $10,000 per license) (collectively, “License
Agreements”) are valid and binding obligations of the Company or its Subsidiaries that are parties
thereto and, to the Company’s Knowledge, the other parties thereto, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors’ rights generally, and, to the Company’s Knowledge, there exists no event
or condition which will result in a material
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violation or breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License Agreement.
(c) The Company and its Subsidiaries own or have the valid right to use all of the
Intellectual Property that is necessary for the conduct of the Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted
and for the ownership, maintenance and operation of the Company’s and its Subsidiaries’ properties
and assets, free and clear of all liens, encumbrances, adverse claims or obligations to license all
such owned Intellectual Property and Confidential Information, other than licenses entered into in
the ordinary course of the Company’s and its Subsidiaries’ businesses. The Company and its
Subsidiaries have a valid and enforceable right to use all third party Intellectual Property and
Confidential Information used or held for use in the respective businesses of the Company and its
Subsidiaries.
(d) Except as described in the SEC Filings, the conduct of the Company’s and its Subsidiaries’
businesses as currently conducted does not infringe or otherwise impair or conflict with
(collectively, “Infringe”) any Intellectual Property rights of any third party or any
confidentiality obligation owed to a third party, and, to the Company’s Knowledge, the Intellectual
Property and Confidential Information of the Company and its Subsidiaries which are necessary for
the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted
or as currently proposed to be conducted are not being Infringed by any third party. There is no
litigation or order pending or outstanding or, to the Company’s Knowledge, threatened or imminent,
that seeks to limit or challenge or that concerns the ownership, use, validity or enforceability of
any Intellectual Property or Confidential Information of the Company and its Subsidiaries and the
Company’s and its Subsidiaries’ use of any Intellectual Property or Confidential Information owned
by a third party, and, to the Company’s Knowledge, there is no valid basis for the same.
(e) The consummation of the transactions contemplated hereby and by the other Transaction
Documents will not result in the alteration, loss, impairment of or restriction on the Company’s or
any of its Subsidiaries’ ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be conducted.
(f) The Company and its Subsidiaries have taken reasonable steps to protect the Company’s and
its Subsidiaries’ rights in their Intellectual Property and Confidential Information. Each
employee, consultant and contractor who has had access to Confidential Information which is
necessary for the conduct of the Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted has executed an agreement to maintain
the confidentiality of such Confidential Information and has executed appropriate agreements that
are substantially consistent with the Company’s standard forms thereof. To the Company’s
Knowledge, except under confidentiality obligations, there has been no material disclosure of any
of the Company’s or its Subsidiaries’ Confidential Information to any third party.
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4.16 Environmental Matters. Neither the Company nor any Subsidiary is in violation of
any statute, rule, regulation, decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), owns or operates any real property
contaminated with any substance that is subject to any Environmental Laws, is liable for any
off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim
relating to any Environmental Laws, which violation, contamination, liability or claim has had or
could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate;
and there is no pending or, to the Company’s Knowledge, threatened investigation that might lead to
such a claim.
4.17 Litigation. Except as described in the SEC Filings or on Schedule 4.17,
there are no pending actions, suits or proceedings against or affecting the Company, its
Subsidiaries or any of its or their properties; and to the Company’s Knowledge, no such actions,
suits or proceedings are threatened or contemplated.
4.18 Financial Statements. The financial statements included in each SEC Filing
present fairly, in all material respects, the consolidated financial position of the Company as of
the dates shown and its consolidated results of operations and cash flows for the periods shown,
and such financial statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis (“GAAP”) (except as may be disclosed
therein or in the notes thereto, and, in the case of quarterly financial statements, as permitted
by Form 10-Q under the 1934 Act). Except as set forth in the financial statements of the Company
included in the SEC Filings filed prior to the date hereof or as described on Schedule
4.18, neither the Company nor any of its Subsidiaries has incurred any liabilities, contingent
or otherwise, except those incurred in the ordinary course of business, consistent (as to amount
and nature) with past practices since the date of such financial statements, none of which,
individually or in the aggregate, have had or could reasonably be expected to have a Material
Adverse Effect.
4.19 Insurance Coverage. The Company and each Subsidiary maintains in full force and
effect insurance coverage that is customary for comparably situated companies for the business
being conducted and properties owned or leased by the Company and each Subsidiary, and the Company
reasonably believes such insurance coverage to be adequate against all liabilities, claims and
risks against which it is customary for comparably situated companies to insure.
4.20 Compliance with Nasdaq Continued Listing Requirements. The Company is in
compliance with applicable Nasdaq continued listing requirements. There are no proceedings pending
or, to the Company’s Knowledge, threatened against the Company relating to the continued listing of
the Common Stock on Nasdaq and the Company has not received any notice of, nor to the Company’s
Knowledge is there any basis for, the delisting of the Common Stock from Nasdaq.
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4.21 Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim against or upon the
Company, any Subsidiary or an Investor for any commission, fee or other compensation pursuant to
any agreement, arrangement or understanding entered into by or on behalf of the Company, other than
as described in Schedule 4.21.
4.22 No Directed Selling Efforts or General Solicitation. Neither the Company nor any
Person acting on its behalf has conducted any general solicitation or general advertising (as those
terms are used in Regulation D) in connection with the offer or sale of any of the Securities.
4.23 No Integrated Offering. Neither the Company nor any of its Affiliates, nor any
Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any
Company security or solicited any offers to buy any security, under circumstances that would
adversely affect reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the Securities under the 1933
Act.
4.24 Private Placement. Assuming that the representations and warranties of the
Investors in Section 5 hereof are true and accurate, the offer and sale of the Securities to the
Investors as contemplated hereby is exempt from the registration requirements of the 1933 Act.
4.25 Questionable Payments. Neither the Company nor any of its Subsidiaries nor, to
the Company’s Knowledge, any of their respective current or former stockholders, directors,
officers, employees, agents or other Persons acting on behalf of the Company or any Subsidiary,
has, since January 1, 2002, on behalf of the Company or any Subsidiary or in connection with their
respective businesses: (a) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from corporate funds; (c)
established or maintained any unlawful or unrecorded fund of corporate monies or other assets; (d)
made any false or fictitious entries on the books and records of the Company or any Subsidiary; or
(e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment
of any nature.
4.26 Transactions with Affiliates. Except as disclosed in the SEC Filings or as
disclosed on Schedule 4.26, none of the officers or directors of the Company and, to the
Company’s Knowledge, none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than as holders of stock options and/or warrants, and for
services as employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any officer, director or
such employee or, to the Company’s Knowledge, any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director, trustee or partner.
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4.27 Internal Controls. The Company is in material compliance with the provisions of
the Xxxxxxxx-Xxxxx Act of 2002 currently applicable to the Company. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and
designed such disclosure controls and procedures to ensure that material information relating to
the Company, including the Subsidiaries, is made known to the certifying officers by others within
those entities, particularly during the period in which the Company’s most recently filed period
report under the 1934 Act, as the case may be, is being prepared. The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and procedures as of the end of
the period covered by the most recently filed periodic report under the 1934 Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic report under the
1934 Act the conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no significant changes in the Company’s internal controls (as such term is
defined in Item 308 of Regulation S-K) or, to the Company’s Knowledge, in other factors that could
significantly affect the Company’s internal controls. The Company maintains and will continue to
maintain a standard system of accounting established and administered in accordance with GAAP and
the applicable requirements of the 0000 Xxx.
4.28 Disclosures. Neither the Company nor any Person acting on its behalf has
provided the Investors or their agents or counsel with any information that constitutes or might
constitute material, non-public information. The written materials delivered to the Investors in
connection with the transactions contemplated by the Transaction Documents do not contain any
untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they were made, not
misleading.
5. Representations and Warranties of the Investors. Each of the Investors hereby
severally, and not jointly, represents and warrants to the Company that:
5.1 Organization and Existence. Such Investor is a validly existing corporation,
limited partnership or limited liability company and has all requisite corporate, partnership or
limited liability company power and authority to invest in the Securities pursuant to this
Agreement.
5.2 Authorization. The execution, delivery and performance by such Investor of the
Transaction Documents to which such Investor is a party have been duly authorized and will each
constitute the valid and legally binding obligation of such Investor, enforceable against such
Investor in accordance with their respective terms, subject to bankruptcy, insolvency,
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fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating
to or affecting creditors’ rights generally.
5.3 Purchase Entirely for Own Account. The Securities to be received by such Investor
hereunder will be acquired for such Investor’s own account, not as nominee or agent, and not with a
view to the resale or distribution of any part thereof in violation of the 1933 Act, and such
Investor has no present intention of selling, granting any participation in, or otherwise
distributing the same in violation of the 1933 Act without prejudice, however, to such Investor’s
right at all times to sell or otherwise dispose of all or any part of such Securities in compliance
with applicable federal and state securities laws. Nothing contained herein shall be deemed a
representation or warranty by such Investor to hold the Securities for any period of time. Such
Investor is not a broker-dealer registered with the SEC under the 1934 Act or an entity engaged in
a business that would require it to be so registered.
5.4 Investment Experience. Such Investor acknowledges that it can bear the economic
risk and complete loss of its investment in the Securities and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and risks of the
investment contemplated hereby.
5.5 Disclosure of Information. Such Investor has had an opportunity to receive all
information related to the Company requested by it and to ask questions of and receive answers from
the Company regarding the Company, its business and the terms and conditions of the offering of the
Securities. Such Investor acknowledges receipt of copies of the SEC Filings. Neither such
inquiries nor any other due diligence investigation conducted by such Investor shall modify, amend
or affect such Investor’s right to rely on the Company’s representations and warranties contained
in this Agreement.
5.6 Restricted Securities. Such Investor understands that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without registration under the
1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, except as provided below, certificates evidencing
the Securities may bear the following or any similar legend:
(a) “The securities represented hereby may not be transferred unless (i) such securities have
been registered for sale pursuant to the Securities Act of 1933, as amended, (ii) such securities
may be sold pursuant to Rule 144(k), or (iii) the Company has received an opinion of counsel
reasonably satisfactory to it that such transfer may lawfully be made without registration under
the Securities Act of 1933 or qualification under applicable state securities laws.”
(b) If required by the authorities of any state in connection with the issuance of sale of the
Securities, the legend required by such state authority.
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5.8 Qualified Institutional Buyer. Such Investor is a qualified institutional buyer
as defined in Rule 144A(a) under the 0000 Xxx.
5.9 No General Solicitation. Such Investor did not learn of the investment in the
Securities as a result of any public advertising or general solicitation.
5.10 Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim against or upon the
Company, any Subsidiary or an Investor for any commission, fee or other compensation pursuant to
any agreement, arrangement or understanding entered into by or on behalf of such Investor.
5.11 Prohibited Transactions. During the last thirty (30) days prior to the date
hereof, neither such Investor nor any Affiliate of such Investor which (x) had knowledge of the
transactions contemplated hereby, (y) has or shares discretion relating to such Investor’s
investments or trading or information concerning such Investor’s investments, including in respect
of the Securities, or (z) is subject to such Investor’s review or input concerning such Affiliate’s
investments or trading (collectively, “Trading Affiliates”) has, directly or indirectly, effected
or agreed to effect any short sale, whether or not against the box, established any “put equivalent
position” (as defined in Rule 16a-1(h) under the 0000 Xxx) with respect to the Common Stock,
granted any other right (including, without limitation, any put or call option) with respect to the
Common Stock or with respect to any security that includes, relates to or derived any significant
part of its value from the Common Stock or otherwise sought to hedge its position in the Securities
(each, a “Prohibited Transaction”). Prior to the earliest to occur of (i) the termination of this
Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline, such Investor shall not,
and shall cause its Trading Affiliates not to, engage, directly or indirectly, in a Prohibited
Transaction. Such Investor acknowledges that the representations, warranties and covenants
contained in this Section 5.11 are being made for the benefit of the Investors as well as the
Company and that each of the other Investors shall have an independent right to assert any claims
against such Investor arising out of any breach or violation of the provisions of this Section
5.11.
6. Conditions to Closing.
6.1 Conditions to the Investors’ Obligations. The obligation of each Investor to
purchase the Notes at the Closing is subject to the fulfillment to such Investor’s satisfaction, on
or prior to the Closing Date, of the following conditions, any of which may be waived by such
Investor (as to itself only):
(a) The representations and warranties made by the Company in Section 4 hereof qualified as to
materiality shall be true and correct at all times prior to and on the Closing Date, except to the
extent any such representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct as of such earlier date, and, the
representations and warranties made by the Company in Section 4 hereof not qualified as to
materiality shall be true and correct in all material respects at all times prior to and on the
Closing Date, except to the extent any such representation or warranty expressly
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speaks as of an earlier date, in which case such representation or warranty shall be true and
correct in all material respects as of such earlier date. The Company shall have performed in all
material respects all obligations and covenants herein required to be performed by it on or prior
to the Closing Date.
(b) The Company shall have obtained any and all consents, permits, approvals, registrations
and waivers necessary or appropriate for consummation of the purchase and sale of the Securities
and the consummation of the other transactions contemplated by the Transaction Documents, all of
which shall be in full force and effect.
(c) The Company shall have executed and delivered the Registration Rights Agreement.
(d) No judgment, writ, order, injunction, award or decree of or by any court, or judge,
justice or magistrate, including any bankruptcy court or judge, or any order of or by any
governmental authority, shall have been issued, and no action or proceeding shall have been
instituted by any governmental authority, enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents.
(e) The Company shall have delivered a Certificate, executed on behalf of the Company by its
Chief Executive Officer or its Chief Financial Officer, dated as of the Closing Date, certifying to
the fulfillment of the conditions specified in subsections (a), (b), (d) and (h) of this Section
6.1.
(f) The Company shall have delivered a Certificate, executed on behalf of the Company by its
Secretary, dated as of the Closing Date, certifying the resolutions adopted by the Board of
Directors of the Company approving the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Securities, certifying the current versions of the
Certificate of Incorporation and Bylaws of the Company and certifying as to the signatures and
authority of persons signing the Transaction Documents and related documents on behalf of the
Company.
(g) The Investors shall have received an opinion from DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP, the
Company’s counsel, dated as of the Closing Date, in form and substance reasonably acceptable to the
Investors and addressing such legal matters as the Investors may reasonably request.
(h) No stop order or suspension of trading shall have been imposed by Nasdaq, the SEC or any
other governmental or regulatory body with respect to public trading in the Common Stock.
6.2 Conditions to Obligations of the Company. The Company’s obligation to sell and
issue the Notes at the Closing is subject to the fulfillment to the satisfaction of the Company on
or prior to the Closing Date of the following conditions, any of which may be waived by the
Company:
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(a) The representations and warranties made by the Investors in Section 5 hereof, other than
the representations and warranties contained in Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the
“Investment Representations”), shall be true and correct in all material respects when made, and
shall be true and correct in all material respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investment Representations shall be
true and correct in all respects when made, and shall be true and correct in all respects on the
Closing Date with the same force and effect as if they had been made on and as of said date. The
Investors shall have performed in all material respects all obligations and covenants herein
required to be performed by them on or prior to the Closing Date.
(b) The Investors shall have executed and delivered the Registration Rights Agreement.
(c) The Investors shall have (i) delivered the Cash Purchase Price to the Company and (ii)
surrendered $2,000,000 in aggregate principal amount of the Existing Notes to Xxxxxxxxxx Xxxxxxx PC
as provided in Section 3.
6.3 Termination of Obligations to Effect Closing; Effects.
(a) The obligations of the Company, on the one hand, and the Investors, on the other hand, to
effect the Closing shall terminate as follows:
(i) Upon the mutual written consent of the Company and the Investors;
(ii) By the Company if any of the conditions set forth in Section 6.2 shall have become
incapable of fulfillment, and shall not have been waived by the Company;
(iii) By an Investor (with respect to itself only) if any of the conditions set forth in
Section 6.1 shall have become incapable of fulfillment, and shall not have been waived by the
Investor; or
(iv) By either the Company or any Investor (with respect to itself only) if the Closing has
not occurred on or prior to August 15, 2005;
provided, however, that, except in the case of clause (i) above, the party seeking to terminate its
obligation to effect the Closing shall not then be in breach of any of its representations,
warranties, covenants or agreements contained in this Agreement or the other Transaction Documents
if such breach has resulted in the circumstances giving rise to such party’s seeking to terminate
its obligation to effect the Closing.
(b) In the event of termination by the Company or any Investor of its obligations to effect
the Closing pursuant to this Section 6.3, written notice thereof shall forthwith be given to the
other Investors and the other Investors shall have the right to terminate
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their obligations to effect the Closing upon written notice to the Company and the other Investors.
Nothing in this Section 6.3 shall be deemed to release any party from any liability for any breach
by such party of the terms and provisions of this Agreement or the other Transaction Documents or
to impair the right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents.
7. Covenants and Agreements of the Company.
7.1 Reservation of Common Stock. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for the purpose of
providing for the conversion of the Notes, such number of shares of Common Stock as shall from time
to time equal the number of Conversion Shares in accordance with their terms.
7.2 Reports. The Company will furnish to the Investors and/or their assignees such
information relating to the Company and its Subsidiaries as from time to time may reasonably be
requested by the Investors and/or their assignees; provided, however, that the Company shall not
disclose material nonpublic information to the Investors, or to advisors to or representatives of
the Investors, unless prior to disclosure of such information the Company identifies such
information as being material nonpublic information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such material nonpublic
information for review and any Investor wishing to obtain such information enters into an
appropriate confidentiality agreement with the Company with respect thereto.
7.3 No Conflicting Agreements. The Company will not take any action, enter into any
agreement or make any commitment that would conflict or interfere in any material respect with the
Company’s obligations to the Investors under the Transaction Documents.
7.4 Insurance. The Company shall not materially reduce the insurance coverages
described in Section 4.19.
7.5 Compliance with Laws. The Company will comply in all material respects with all
applicable laws, rules, regulations, orders and decrees of all governmental authorities.
7.6 Listing of Underlying Shares and Related Matters. The Company shall take all
necessary action to cause the Conversion Shares to be listed on The Nasdaq SmallCap Market promptly
following the approval, if any, of the Proposal at the Stockholders Meeting (as defined below).
Further, if the Company applies to have its Common Stock or other securities traded on any other
principal stock exchange or market, it shall include in such application the Conversion Shares and
will take such other action as is necessary to cause such Common Stock to be so listed. The
Company will use commercially reasonable efforts to continue the listing and trading of its Common
Stock on Nasdaq and, in accordance, therewith, will use commercially reasonable efforts to comply
in all respects with the Company’s reporting, filing and other obligations under the bylaws or
rules of such market or exchange, as applicable.
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7.7 Termination of Covenants. The provisions of Sections 7.2 through 7.5 shall
terminate and be of no further force and effect on the date on which the Company’s obligations
under the Registration Rights Agreement to register or maintain the effectiveness of any
registration covering the Registrable Securities (as such term is defined in the Registration
Rights Agreement) shall terminate.
7.8 Removal of Legends. Upon the earlier of (i) registration for resale pursuant to
the Registration Rights Agreement and receipt by the Company of the Investor’s written confirmation
that such Securities will not be disposed of except in compliance with the prospectus delivery
requirements of the 1933 Act or (ii) Rule 144(k) becoming available the Company shall, upon an
Investor’s written request, promptly cause certificates evidencing the Investor’s Securities to be
replaced with certificates which do not bear such restrictive legends, and Conversion Shares
subsequently issued upon due conversion of the Notes shall not bear such restrictive legends
provided the provisions of either clause (i) or clause (ii) above, as applicable, are satisfied
with respect to such Conversion Shares. When the Company is required to cause unlegended
certificates to replace previously issued legended certificates, if unlegended certificates are not
delivered to an Investor within three (3) Business Days of submission by that Investor of legended
certificate(s) to the Company’s transfer agent together with a representation letter in customary
form, the Company shall be liable to the Investor for liquidated damages in an amount equal to 1.5%
of the aggregate purchase price of the Securities evidenced by such certificate(s) for each thirty
(30) day period (or portion thereof) beyond such three (3) Business Day that the unlegended
certificates have not been so delivered.
7.9 Proxy Statement; Stockholders Meeting. (a) Promptly following the execution and
delivery of this Agreement the Company shall take all action necessary to call a meeting of its
stockholders (the “Stockholders Meeting”), which shall occur not later than the 100th
day after the date hereof (the “Stockholders Meeting Deadline”), for the purpose of seeking
approval of the Company’s stockholders for (i) the issuance and sale to the Investors of the
Securities pursuant to Nasdaq Marketplace Rule 4350(i)(1)(B) (the “Proposal”). In connection
therewith, the Company will promptly prepare and file with the SEC proxy materials (including a
proxy statement and form of proxy) for use at the Stockholders Meeting and, after receiving and
promptly responding to any comments of the SEC thereon, shall promptly mail such proxy materials to
the stockholders of the Company. Each Investor shall promptly furnish in writing to the Company
such information relating to such Investor and its investment in the Company as the Company may
reasonably request for inclusion in the Proxy Statement. The Company will comply with Section
14(a) of the 1934 Act and the rules promulgated thereunder in relation to any proxy statement (as
amended or supplemented, the “Proxy Statement”) and any form of proxy to be sent to the
stockholders of the Company in connection with the Stockholders Meeting, and the Proxy Statement
shall not, on the date that the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to stockholders or at the time of the Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the
statements made therein not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the solicitation of proxies or
the Stockholders Meeting which has become false or misleading. If the Company should discover at
any time prior to the Stockholders Meeting, any event relating to the Company or any of its
Subsidiaries or any of their respective affiliates,
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officers or directors that is required to be set forth in a supplement or amendment to the Proxy
Statement, in addition to the Company’s obligations under the 1934 Act, the Company will promptly
inform the Investors thereof.
(b) Subject to their fiduciary obligations under applicable law (as determined in good faith
by the Company’s Board of Directors after consultation with the Company’s outside counsel), the
Company’s Board of Directors shall recommend to the Company’s stockholders that the stockholders
vote in favor of the Proposal (the “Company Board Recommendation”) and take all commercially
reasonable action (including, without limitation, the hiring of a proxy solicitation firm of
nationally recognized standing) to solicit the approval of the stockholders for the Proposal unless
the Board of Directors shall have modified, amended or withdrawn the Company Board Recommendation
pursuant to the provisions of the immediately succeeding sentence. The Company covenants that the
Board of Directors of the Company shall not modify, amend or withdraw the Company Board
Recommendation unless the Board of Directors (after consultation with the Company’s outside
counsel) shall determine in the good faith exercise of its business judgment that maintaining the
Company Board Recommendation would violate its fiduciary duty to the Company’s stockholders.
Whether or not the Company’s Board of Directors modifies, amends or withdraws the Company Board
Recommendation pursuant to the immediately preceding sentence, the Company shall in accordance with
Section 146 of the Delaware General Corporation Law and the provisions of its Certificate of
Incorporation and Bylaws, (i) take all action necessary to convene the Stockholders Meeting as
promptly as practicable, but no later than the Stockholders Meeting Deadline, to consider and vote
upon the approval of the Proposal and (ii) submit the Proposal at the Stockholders Meeting to the
stockholders of the Company for their approval.
7.10 Director Designee.
(a) So long as Special Situations Fund III, L.P. (“SSF”) and/or one or more of its Affiliates
collectively own Notes, SSF shall have the right to designate one person for election to the board
of directors of the Company (the “SSF Designee”). The Company shall use its commercially
reasonable efforts to cause the SSF Designee to be elected to the Company’s board of directors.
SSF shall have the right to remove or replace any SSF Designee by giving notice to such SSF
Designee and the Company. The Company shall use its commercially reasonable efforts to effect the
removal or replacement of any such SSF Designee.
(b) Subject to any limitations imposed by applicable law, the SSF Designee shall be entitled
to the same perquisites, including stock options, reimbursement of expenses and other similar
rights in connection with such person’s membership on the Board of Directors of the Company, as
every other non-employee member of the Board of Directors of the Company.
7.11 Release of Bank Liens. Promptly following the Closing Date, the Company shall,
at its own expense, take or assist the Investors in taking all actions necessary or desirable in
the reasonable judgment of the Investors to effect the termination and release of any lien, claim,
security interest or encumbrance in favor of the Bank on the assets and properties of the Company
or any Subsidiary, including, but not limited to, causing the Bank to execute and
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deliver to the order of the Investors one or more UCC-3 termination statements or other appropriate
documents or instruments terminating any security interest the Bank may have in the assets and
properties of the Company or any Subsidiary.
8. Survival and Indemnification.
8.1 Survival. The representations, warranties, covenants and agreements contained in
this Agreement shall survive the Closing of the transactions contemplated by this Agreement.
8.2 Indemnification. The Company agrees to indemnify and hold harmless each Investor
and its Affiliates and their respective directors, officers, employees and agents from and against
any and all losses, claims, damages, liabilities and expenses (including without limitation
reasonable attorney fees and disbursements and other expenses incurred in connection with
investigating, preparing or defending any action, claim or proceeding, pending or threatened and
the costs of enforcement thereof) (collectively, “Losses”) to which such Person may become subject
as a result of any breach of representation, warranty, covenant or agreement made by or to be
performed on the part of the Company under the Transaction Documents, and will reimburse any such
Person for all such amounts as they are incurred by such Person.
8.3 Conduct of Indemnification Proceedings. Promptly after receipt by any Person
(the “Indemnified Person”) of notice of any demand, claim or circumstances which would or might
give rise to a claim or the commencement of any action, proceeding or investigation in respect of
which indemnity may be sought pursuant to Section 8.2, such Indemnified Person shall promptly
notify the Company in writing and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Person, and shall assume the
payment of all fees and expenses; provided, however, that the failure of any
Indemnified Person so to notify the Company shall not relieve the Company of its obligations
hereunder except to the extent that the Company is materially prejudiced by such failure to notify.
In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless:
(i) the Company and the Indemnified Person shall have mutually agreed to the retention of such
counsel; or (ii) in the reasonable judgment of counsel to such Indemnified Person representation of
both parties by the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of any proceeding
effected without its written consent, which consent shall not be unreasonably withheld, but if
settled with such consent, or if there be a final judgment for the plaintiff, the Company shall
indemnify and hold harmless such Indemnified Person from and against any loss or liability (to the
extent stated above) by reason of such settlement or judgment. Without the prior written consent
of the Indemnified Person, which consent shall not be unreasonably withheld, the Company shall not
effect any settlement of any pending or threatened proceeding in respect of which any Indemnified
Person is or could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of such Indemnified
Person from all liability arising out of such proceeding.
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9. Miscellaneous.
9.1 Successors and Assigns. This Agreement may not be assigned by a party hereto
without the prior written consent of the Company or the Investors, as applicable, provided,
however, that an Investor may assign its rights and delegate its duties hereunder in whole or in
part to an Affiliate or to a third party acquiring some or all of its Securities in a private
transaction without the prior written consent of the Company or the other Investors, after notice
duly given by such Investor to the Company provided, that no such assignment or obligation shall
affect the obligations of such Investor hereunder. The provisions of this Agreement shall inure to
the benefit of and be binding upon the respective permitted successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
9.2 Counterparts; Faxes. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the
same instrument. This Agreement may also be executed via facsimile, which shall be deemed an
original.
9.3 Titles and Subtitles. The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given as hereinafter described
(i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii)
if given by telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed
given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such
notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally
recognized overnight air courier, then such notice shall be deemed given one Business Day after
delivery to such carrier. All notices shall be addressed to the party to be notified at the
address as follows, or at such other address as such party may designate by ten days’ advance
written notice to the other party:
If to the Company:
Visual Networks, Inc.
0000 Xxxxxxx Xxxx
Xxxxxxxxx Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Chief Financial Officer
Fax: (000) 000-0000
0000 Xxxxxxx Xxxx
Xxxxxxxxx Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Chief Financial Officer
Fax: (000) 000-0000
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With a copy to:
DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Fax: (000) 000-0000
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Fax: (000) 000-0000
If to the Investors:
to the addresses set forth on the signature pages hereto.
9.5 Expenses. The parties hereto shall pay their own costs and expenses in connection
herewith, except that the Company shall pay the reasonable fees and expenses of Xxxxxxxxxx Xxxxxxx
PC not to exceed $35,000. Such expenses shall be paid not later than the Closing. The Company
shall reimburse the Investors upon demand for all reasonable out-of-pocket expenses incurred by the
Investors, including without limitation reimbursement of attorneys’ fees and disbursements, in
connection with any amendment, modification or waiver of this Agreement or the other Transaction
Documents. In the event that legal proceedings are commenced by any party to this Agreement
against another party to this Agreement in connection with this Agreement or the other Transaction
Documents, the party or parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys’ fees and other reasonable
out-of-pocket costs and expenses incurred by the prevailing party in such proceedings.
9.6 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written consent of the Company
and the Investors holding Notes representing at least 50% of the principal amount of Notes then
outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Securities purchased under this Agreement at the time outstanding, each
future holder of all such Securities, and the Company.
9.7 Publicity. Except as set forth below, no public release or announcement
concerning the transactions contemplated hereby shall be issued by the Company or the Investors
without the prior consent of the Company (in the case of a release or announcement by the
Investors) or the Investors (in the case of a release or announcement by the Company) (which
consents shall not be unreasonably withheld), except as such release or announcement may be
required by law or the applicable rules or regulations of any securities exchange or securities
market, in which case the Company or the Investors, as the case may be, shall allow the Investors
or the Company, as applicable, to the extent reasonably practicable in the circumstances,
reasonable time to comment on such release or announcement in advance of such issuance. By 8:30
a.m. (New York City time) on the trading day immediately following both (i) the full execution of
this Agreement by the Company and the Investors and (ii) the Closing Date, the Company shall issue
a press release disclosing the execution of definitive agreements relating to, or the consummation
of, the transactions contemplated by this Agreement, as applicable. No
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later than the third trading day following the Closing Date, the Company will file a Current Report
on Form 8-K attaching the press release described in the foregoing sentence as well as copies of
the Transaction Documents. In addition, the Company will make such other filings and notices in
the manner and time required by the SEC or Nasdaq. Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Investor, or include the name of any Investor in any
filing with the SEC (other than the Registration Statement and any exhibits to filings made in
respect of this transaction in accordance with periodic filing requirements under the 0000 Xxx) or
any regulatory agency or Nasdaq, without the prior written consent of such Investor, except to the
extent such disclosure is required by law or trading market regulations, in which case the Company
shall provide the Investors with prior notice of such disclosure.
9.8 Severability. Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof but shall be
interpreted as if it were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which renders any
provision hereof prohibited or unenforceable in any respect.
9.9 Entire Agreement. This Agreement, including the Exhibits and the Disclosure
Schedules, and the other Transaction Documents constitute the entire agreement among the parties
hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the subject matter
hereof and thereof.
9.10 Further Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be required to carry
out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein
contained.
9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement
shall be governed by, and construed in accordance with, the internal laws of the State of New York
without regard to the choice of law principles thereof. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the courts of the State of New York located in New York
County and the United States District Court for the Southern District of New York for the purpose
of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the
transactions contemplated hereby. Service of process in connection with any such suit, action or
proceeding may be served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably
consents to the jurisdiction of any such court in any such suit, action or proceeding and to the
laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of
venue of any such suit, action or proceeding brought in such courts and irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH
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RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.
9.12 Independent Nature of Investors’ Obligations and Rights. The obligations of each
Investor under any Transaction Document are several and not joint with the obligations of any other
Investor, and no Investor shall be responsible in any way for the performance of the obligations of
any other Investor under any Transaction Document. The decision of each Investor to purchase
Securities pursuant to the Transaction Documents has been made by such Investor independently of
any other Investor. Nothing contained herein or in any Transaction Document, and no action taken
by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Investor acknowledges that no other
Investor has acted as agent for such Investor in connection with making its investment hereunder
and that no Investor will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction Documents. Each
Investor shall be entitled to independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and
it shall not be necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors has been provided
with the same Transaction Documents for the purpose of closing a transaction with multiple
Investors and not because it was required or requested to do so by any Investor.
[signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized
officers to execute this Agreement as of the date first above written.
| The Company: | VISUAL NETWORKS, INC. | |||
| By: | /s/ Xxxxxxxx X. Xxxxxx | |||
| Name: XXXXXXXX X. XXXXXX Title: CEO |
||||
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| The Investors: | SPECIAL SITUATIONS FUND III, L.P. | |||
| By: | /s/ Xxxxx X. Greenhouse | |||
| Name: Xxxxx X. Greenhouse Title: General Partner |
||||
Principal Amount of Notes: $4,195,151 |
||
Cash Purchase Price: $4,195,151 |
||
Address for Notice: |
||
| 000 X. 00xx Xxxxxx | ||
| 00xx Xxxxx | ||
| Xxx Xxxx, XX 00000 | ||
| with a copy to: | ||
| Xxxxxxxxxx Xxxxxxx PC | ||
| 00 Xxxxxxxxxx Xxxxxx | ||
| Xxxxxxxx, XX 00000 | ||
| Attn: Xxxx X. Xxxxxxxx, Esq. | ||
| Telephone: 000.000.0000 | ||
| Facsimile: 973.597.2400 |
| SPECIAL SITUATIONS CAYMAN FUND, L.P. | ||||
| By: | /s/ Xxxxx X. Greenhouse | |||
| Name: Xxxxx X. Greenhouse Title: General Partner |
||||
Principal Amount of Notes: $1,277,401 Cash Purchase Price: $1,277,401 |
||
Address for Notice: |
||
| 000 X. 00xx Xxxxxx | ||
| 00xx Xxxxx | ||
| Xxx Xxxx, XX 00000 |
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| with a copy to: | ||
| Xxxxxxxxxx Xxxxxxx PC | ||
| 00 Xxxxxxxxxx Xxxxxx | ||
| Xxxxxxxx, XX 00000 | ||
| Attn: Xxxx X. Xxxxxxxx, Esq. | ||
| Telephone: 000.000.0000 | ||
| Facsimile: 973.597.2400 |
| SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P. | ||||
| By: | /s/ Xxxxx X. Greenhouse | |||
| Name: Xxxxx X. Greenhouse Title: General Partner |
||||
Principal Amount of Notes: $3,685,340
Cash Purchase Price: $2,135,340
Principal Amount of Existing Notes Surrendered: $1,550,000
Cash Purchase Price: $2,135,340
Principal Amount of Existing Notes Surrendered: $1,550,000
| 000 X. 00xx Xxxxxx | ||
| 00xx Xxxxx | ||
| Xxx Xxxx, XX 00000 | ||
| with a copy to: | ||
| Xxxxxxxxxx Xxxxxxx PC | ||
| 00 Xxxxxxxxxx Xxxxxx | ||
| Xxxxxxxx, XX 00000 | ||
| Attn: Xxxx X. Xxxxxxxx, Esq. | ||
| Telephone: 000.000.0000 | ||
| Facsimile: 973.597.2400 |
| SPECIAL SITUATIONS TECHNOLOGY FUND, L.P. | ||||
| By: | /s/ Xxxxx X. Greenhouse | |||
| Name: Xxxxx X. Greenhouse Title: General Partner |
||||
Principal Amount of Notes: $130,291
Cash Purchase Price: $130,291
Cash Purchase Price: $130,291
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Address for Notice:
| 000 X. 00xx Xxxxxx | ||
| 00xx Xxxxx | ||
| Xxx Xxxx, XX 00000 | ||
| with a copy to: | ||
| Xxxxxxxxxx Xxxxxxx PC | ||
| 00 Xxxxxxxxxx Xxxxxx | ||
| Xxxxxxxx, XX 00000 | ||
| Attn: Xxxx X. Xxxxxxxx, Esq. | ||
| Telephone: 000.000.0000 | ||
| Facsimile: 973.597.2400 |
| SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P. | ||||
| By: | /s/ Xxxxx X. Greenhouse | |||
| Name: Xxxxx X. Greenhouse Title: General Partner |
||||
Principal Amount of Notes: $711,818
Cash Purchase Price: $261,818
Principal Amount of Existing Notes Surrendered: $450,000
Cash Purchase Price: $261,818
Principal Amount of Existing Notes Surrendered: $450,000
Address for Notice:
| 000 X. 00xx Xxxxxx | ||
| 00xx Xxxxx | ||
| Xxx Xxxx, XX 00000 | ||
| with a copy to: | ||
| Xxxxxxxxxx Xxxxxxx PC | ||
| 00 Xxxxxxxxxx Xxxxxx | ||
| Xxxxxxxx, XX 00000 | ||
| Attn: Xxxx X. Xxxxxxxx, Esq. | ||
| Telephone: 000.000.0000 | ||
| Facsimile: 973.597.2400 |
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