Exhibit 10.1
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NOTE PURCHASE AGREEMENT
AMONG
SERVICEWARE TECHNOLOGIES, INC.
AS ISSUER,
AND
THE PURCHASERS LISTED ON SCHEDULE 1 HERETO
MAY 6, 2002
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TABLE OF CONTENTS
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PAGE
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Article I DEFINITIONS.............................................................................................4
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1.1 Defined Terms...........................................................................................4
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1.2 Terms Generally........................................................................................11
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1.3 Use of Defined Terms...................................................................................11
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1.4 Accounting Terms; GAAP.................................................................................11
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Article II PURCHASE AND SALE OF THE NOTES........................................................................12
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Article III REPRESENATIONS AND WARRANTIES OF THE COMPANY..........................................................9
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3.1 Corporate Existence....................................................................................12
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3.2 Corporate Power and Authorization......................................................................12
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3.3 Binding Obligations....................................................................................13
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3.4 No Violation...........................................................................................13
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3.5 Consents...............................................................................................13
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3.6 Capitalization.........................................................................................13
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3.7 Sec Documents and Financial Statements.................................................................14
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3.8 Absence of Certain Changes or Events...................................................................14
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3.9 Liabilities; Indebtedness..............................................................................15
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3.10 Litigation.............................................................................................15
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3.11 Specified Contract and Commitments.....................................................................16
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3.12 Title to Properties; Condition of Assets...............................................................17
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3.13 Compliance With Laws...................................................................................17
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3.14 Taxes..................................................................................................17
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3.15 Employee Benefit Matters...............................................................................18
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3.16 Investment Company Act.................................................................................19
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3.17 No Restrictions on Affiliates..........................................................................19
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3.18 Subsidiaries...........................................................................................19
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3.19 Environmental Matters..................................................................................20
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3.20 Intellectual Property, Etc.............................................................................20
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3.21 No Public Offer........................................................................................21
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3.22 Insurance..............................................................................................21
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3.23 Certain Transactions...................................................................................21
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3.24 Use of Proceeds........................................................................................22
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3.25 Certain Employee Matters...............................................................................22
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3.26 No Material Misstatements or Omissions.................................................................22
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3.27 Fees and Commissions...................................................................................23
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3.28 Common Stock Ownership.................................................................................23
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Article IV REPRESENTATIONS AND WARRANTIES OF PURCHASERS..........................................................23
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4.1 Representations and Warranties of Each Purchaser.......................................................23
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Article V CONDITIONS TO PURCHASE.................................................................................25
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5.1 Conditions to Obligations of Purchasers on Each Closing Date...........................................25
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5.2 Conditions to Obligations of the Company on Each Closing Date..........................................27
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Article VI AFFIRMATIVE AND NEGATIVE COVENANTS....................................................................28
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6.1 Securities Laws........................................................................................28
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6.2 Press Releases.........................................................................................28
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6.3 Financial Statements, Reports, Etc.....................................................................28
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6.4 Litigation and Other Notices...........................................................................29
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6.5 Related Party Transactions.............................................................................29
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6.6 Dividends..............................................................................................29
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6.7 Compliance.............................................................................................29
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6.8 Further Assurances.....................................................................................29
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6.9 Current Public Information.............................................................................30
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6.10 SEC Reporting..........................................................................................30
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6.11 Stockholder Approvals..................................................................................30
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6.12 Incurrence of Indebtedness.............................................................................30
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6.13 Reservation of Shares..................................................................................30
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Article VII TRANSFER OF SECURITIES...............................................................................31
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7.1 Restriction on Transfer................................................................................31
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7.2 Restrictive Legends....................................................................................31
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7.3 Notice of Transfer.....................................................................................31
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Article VIII MISCELLANEOUS.......................................................................................32
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8.1 Notices................................................................................................32
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8.2 Survival of Agreement..................................................................................33
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8.3 Successors and Assigns.................................................................................34
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8.4 Fees, Costs and Expenses...............................................................................34
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8.5 Indemnification........................................................................................34
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8.6 Governing Law; Consent to Jurisdiction.................................................................36
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8.7 Waivers; Amendments....................................................................................37
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8.8 Independence of Covenants..............................................................................37
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8.9 No Fiduciary Relationship..............................................................................37
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8.10 Remedies Independent...................................................................................38
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8.11 Construction...........................................................................................38
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8.12 Severability...........................................................................................38
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8.13 Counterparts...........................................................................................38
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8.14 Headings...............................................................................................38
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8.15 Entire Agreement.......................................................................................38
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EXHIBITS
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EXHIBIT A-1 - Form of Note for Initial Tranche
EXHIBIT A-2 - Form of Note for Second Tranche
EXHIBIT B - Form of Registration Rights Agreement
EXHIBIT C - Form of Opinion
SCHEDULES
SCHEDULE 1 - Purchasers
SCHEDULE 3.1 - Corporate Existence
SCHEDULE 3.4 - Violations
SCHEDULE 3.6 - Capitalization
SCHEDULE 3.7 - SEC Documents and Financial Statements
SCHEDULE 3.8 - Absence of Certain Changes or Events
SCHEDULE 3.9 - Liabilities
SCHEDULE 3.10 - Litigation
SCHEDULE 3.11 - Specified Contracts
SCHEDULE 3.12 - Properties
SCHEDULE 3.13 - Compliance with Laws
SCHEDULE 3.14 - Taxes
SCHEDULE 3.19 - Environmental Matters
SCHEDULE 3.20 - Intellectual Property
SCHEDULE 3.23 - Certain Transactions
SCHEDULE 3.27 - Fees and Commissions
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NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT, dated as of May 6, 2002 by and among
SERVICEWARE TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY"), X.X.
XXXXXXXXX, TOWBIN PRIVATE EQUITY PARTNERS II, L.P. ("PEP") and the other
purchasers listed on SCHEDULE 1 hereto (each of such other purchasers and PEP
being referred to as a "PURCHASER" and collectively as the "PURCHASERS").
WHEREAS, the Company desires to issue and sell to the Purchasers and
the Purchasers desire to purchase from the Company an aggregate of $3,000,000 in
principal amount of the Company's 10% Senior Unsecured Convertible Notes (the
"NOTES") on the terms and conditions set forth in this Agreement.
WHEREAS, the Notes will be purchased in two tranches, with the first
tranche to consist of $1,425,000 of Notes ("First Tranche") to close
simultaneously with the execution of this Agreement and the second tranche to
consist of $1,575,000 of Notes ("Second Tranche") to close after stockholder
ratification of the transactions contemplated hereby has been obtained (the
"APPROVAL").
WHEREAS, the proceeds of the Notes shall be used to fund working
capital and general corporate purposes.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS.
As used in this Agreement, the following terms shall have the following
respective meanings:
"AFFILIATE" means, with respect to any specified Person, any
other Person that, directly or indirectly, through one or more intermediaries,
Controls, is Controlled by or is under common Control with such Person.
"AGREEMENT" means this Agreement, together with all Schedules,
Exhibits and Annexes attached hereto, as amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
"APPLICABLE LAW" means all provisions of laws, statutes,
ordinances, rules, regulations, permits, certificates or Orders of any
Governmental Authority applicable to the Person in question or any of its assets
or property, and all Orders of all courts and arbitrators in
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proceedings or actions in which the Person in question is a party or by which
any of its assets or properties are bound.
"ARTICLES OF INCORPORATION" means the articles of
incorporation of the Company, as amended and in effect at the time in question.
"AUTHORIZED OFFICER" means the Chief Executive Officer or
Chief Financial Officer of the Company.
"BANKRUPTCY CODE" means the United States Code entitled
"Bankruptcy", as now or hereafter in effect, or any successor thereto.
"BENEFIT PLANS" means, collectively, the Plans and Benefit
Programs or Agreements.
"BENEFIT PROGRAM OR AGREEMENT" means each personnel policy,
stock option plan, collective bargaining agreement, workers' compensation
agreement or arrangement, bonus plan or arrangement, incentive award plan or
arrangement, vacation policy, severance pay plan, policy or agreement, deferred
compensation agreement or arrangement, executive compensation or supplemental
income arrangement, consulting agreement, employment agreement, and each other
employee benefit plan, agreement, arrangement, program, practice or
understanding, which is not covered by the definition of "Plan" and which is
sponsored, maintained or contributed to by the Company, any Subsidiary or any
ERISA Affiliate of the Company for the benefit of the employees, former
employees, independent contractors or agents of the Company or any of its
Subsidiaries or ERISA Affiliates, including, without limitation, the Company's
2000 Stock Incentive Plan, the ServiceWare, Inc. Amended and Restated Stock
Option Plan, the Company's Employee Stock Purchase Plan and the reservation of
shares for the grant of nonqualified options to employees, directors and
consultants.
"BOARD" means the board of directors of the Company.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which banks are authorized or required to be closed in New York, New
York; PROVIDED, HOWEVER, that any determination of a Business Day relating to a
securities exchange or other securities market means a Business Day on which
such exchange or market is open for trading.
"BYLAWS" means the bylaws of the Company, as amended and in
effect at the time in question.
"CAPITAL STOCK" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person, but
excluding any debt securities convertible into such equity.
"CLOSING" means the issuance and purchase of the Notes on a
Closing Date.
"CLOSING DATE" has the meaning given to such term in Article
II.
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"CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations issued thereunder, as from time to time in effect,
or any successor thereto.
"COMMISSION" means the United States Securities and Exchange
Commission (or a successor thereto).
"COMMON STOCK" means the common stock, $.01 par value per
share, of the Company.
"COMPANY" has the meaning given to such term in the Preamble
to this Agreement.
"CONTINGENT OBLIGATIONS" means, as to any Person, without
duplication, any obligation of such Person guaranteeing or intended to guarantee
any Indebtedness, leases, dividends or other obligations ("PRIMARY OBLIGATIONS")
of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business not to exceed $50,000 in the aggregate. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the maximum amount that such
Person may be obligated to expend pursuant to the terms of such Contingent
Obligation or, if such Contingent Obligation is not so limited, the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"CONTROL" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"DEFAULT" means any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, become an Event
of Default.
"EMPLOYEE STOCK PURCHASE PLAN" means the Company's benefit
plan maintained under Code Section 423.
"ENVIRONMENTAL LAWS" means all federal, state, local and
foreign statutes, rules, regulations, codes, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, consents, decrees or judgments, all contractual obligations and
all common law concerning public health and safety, worker health and safety,
and pollution or protection of the environment (including, without limitation,
ambient air,
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surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation all those relating to the presence, use,
manufacture, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any Hazardous Materials,
each as amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules and regulations from time to
time promulgated and rulings issued thereunder.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) that would be treated together with the Company or any of its
Subsidiaries as a single employer under Title IV or Section 302 of ERISA or
Section 412 of the Code at the time of the occurrence or existence of any
circumstances, event or condition giving rise to any liability under Title IV or
Section 302 of ERISA or Section 412 of the Code.
"EVENT OF DEFAULT" has the meaning given to such term in the
Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal
or other governmental department, commission, board, bureau, regulatory body,
agency or instrumentality, any market authority or self-regulatory organization
or any court or tribunal, in each case whether of the United States (including,
without limitation, the National Association of Securities Dealers and the
Nasdaq Stock Market) or a foreign nation or any political subdivision thereof,
or of any other country.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code,
ordinance, Order, rule, regulation, franchise, permit, certificate, license,
authorization, determination or other direction or requirement (including but
not limited to any of the foregoing which relate to Environmental Laws, energy
regulations and occupational, safety and health standards or controls) of any
Governmental Authority.
"HAZARDOUS MATERIALS" shall mean all explosive substances or
wastes, chemical substances or mixtures, pesticides, toxic chemicals, petroleum
products or byproducts, asbestos, noise or radiation, or radioactive substances
or wastes, hazardous or toxic substances or wastes, chemicals, contaminants,
pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated
biphenyls ("PCBS") or PCB-containing materials or equipment, radon gas,
infectious or medical wastes and all other substances or wastes of any nature
regulated pursuant to any Applicable Law.
"INDEBTEDNESS" of any Person means, without duplication, (i)
all indebtedness of such Person for borrowed money or evidenced by bonds,
debentures, notes, guarantees or similar instruments, (ii) the deferred purchase
price of assets or services which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person, (iii) the face
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amount of all letters of credit issued for the account of such Person and,
without duplication, all unreimbursed drafts drawn thereunder, (iv) all
Indebtedness of a second Person secured by any Lien on any property owned by
such first Person, whether or not such Indebtedness has been assumed by such
first Person, (v) all capitalized lease obligations of such Person, (vi) all
obligations of such Person to pay a specified purchase price for goods or
services whether or not delivered or accepted, I.E., take-or-pay and similar
obligations, (vii) any obligation of such Person issued or assumed as the
deferred purchase price of property assets or services, (viii) any interest rate
or currency swap or similar hedging arrangement, and (ix) all Contingent
Obligations of such Person; provided that Indebtedness shall not include trade
payables, accrued expenses, accrued dividends, stock redemption payments,
royalty payments, accrued retirees or employees benefits, deferred taxes and
accrued income taxes, in each case arising in the ordinary course of business
not to exceed in the aggregate $500,000. For purposes of clause (iv) above
(where the relevant Indebtedness has not been assumed by such first Person), the
amount of Indebtedness is equal to the lesser of the amount of Indebtedness
secured or the fair market value of the property subject to the Lien.
"INDEMNIFIED PERSON" has the meaning given to such term in
SECTION 8.5(a).
"INVESTMENT" means all investments in the property or assets
of any Person, in cash or property, whether by any advance, loan, extension of
credit by the Company or any of its Subsidiaries, (by way of guaranty or
otherwise) or capital contribution, or purchase of stock, bonds, notes,
debentures or other securities or any assets constituting the purchase of a
business or line of business.
"LEASED PROPERTY" has the meaning given to such term in
SECTION 3.12(b).
"LIEN" means any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on common law, statute or contract including, but not
limited to, any mortgage, lien, pledge, lease, encumbrance or charge. The term
"LIEN" shall also include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property. For the purpose of the
Agreement, the Company shall be deemed to be the owner of any Property which it
has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
"LOSSES" has the meaning given to such term in SECTION 8.5(a).
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect
on the business, assets, liabilities (actual or contingent), operations, results
of operations, condition (financial or other) or prospects of the Company
earnings, business affairs or prospects of the Company and its Subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business, (b) any material impairment of the ability of the Company to perform
any of its obligations under any Note Document, or (c) any material impairment
of any rights of or benefits available to the Purchasers under any Note
Document.
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"MULTIEMPLOYER PLAN" has the meaning set forth in Section
4001(a)(3) of ERISA.
"NOTE DOCUMENTS" means this Agreement, the Notes, the
Registration Rights Agreement and any other document or instrument executed and
delivered by the Company in connection with the Notes or this Agreement.
"NOTES" has the meaning given to such term in the recitals to
this Agreement, in substantially the form of EXHIBIT A hereto.
"OBLIGATIONS" means all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to the Purchasers pursuant to the terms of this Agreement, or any other
Note Document, including without limitation, interest accruing after the filing
of a petition pursuant to any bankruptcy law, whether or not such interest
accrues after the filing of such petition for purposes of the Bankruptcy Code or
is an allowed claim in such proceeding and any obligations and duties of the
Company under the Registration Rights Agreement.
"ORDERS" means any judgment, writ, decree, injunction, order,
stipulation, compliance agreement or settlement agreement issued or imposed by,
or entered into with, a Governmental Authority or arbitrator, whether or not
having the force of law.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding the any or all of its functions under ERISA.
"PERMITS" shall mean all licenses, permits, exceptions,
franchises, accreditations, privileges, rights, variances, waivers, approvals
and other authorizations (including, without limitation, those relating to
Environmental Laws) of, by or from Governmental Authorities necessary for the
conduct of the business of the Company.
"PERSON" shall be construed as broadly as possible and
includes a natural person, corporation, limited liability company, partnership,
joint venture, trust, unincorporated association or other organization and a
Governmental Authority.
"PLAN" means an employee benefit plan, other than a
Multiemployer Plan, (i) which is maintained for employees of the Company, any
Subsidiary of the Company or any ERISA Affiliate and which is subject to Title
IV of ERISA; or (ii) with respect to which the Company, any Subsidiary of the
Company or any ERISA Affiliate could be subject to any liability under Title IV
of ERISA (including Section 4069 of ERISA).
"PROPERTY" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible including,
without limitation, Intellectual Property, as such term is defined in Section
3.20 of this Agreement.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated the Closing Date, among the Company and the Purchasers, in
substantially the form of EXHIBIT B hereto.
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"RELEASE" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, depositing, dispersing, emanating or migrating of any Hazardous
Material in, into, onto or through the environment.
"REPORTABLE EVENT" means (i) the occurrence of a "reportable
event" described in Section 4043 of ERISA (other than a "reportable event" not
subject to the provision for 30-day notice to the PBGC) or (ii) the provision or
filing of a notice of intent to terminate a Plan other than in a standard
termination within the meaning of Section 4041 of ERISA, or (iii) the
institution of proceedings to terminate a Plan by the PBGC, or (iv) the
existence of any "accumulated funding deficiency" or "liquidity shortfall"
(within the meaning of Section 302 of ERISA or Section 412 of the Code), whether
or not waived, the filing of an application pursuant to Section 412(e) of the
Code or Section 304 of ERISA for any extension of an amortization period, or (v)
the occurrence or existence of any other event or condition which might
reasonably be expected to constitute grounds for the termination of, or the
appointment of a trustee to administer, any Plan other than in a standard
termination within the meaning of Section 4041 of ERISA or the imposition of any
lien on the assets of the Company under ERISA, including as a result of the
operation of Section 4069 of ERISA.
"REQUISITE PURCHASERS" means Purchasers holding Notes
representing more than 50% of the then outstanding aggregate principal balance
of the Notes.
"RESTRICTED SECURITIES" means the Notes and any shares of
Common Stock received in respect thereof, in each case which have not then been
sold to the public pursuant to (a) registration under the Securities Act or (b)
Rule 144 (or similar or successor rule) promulgated under the Securities Act.
"SALE PRICE" on any date means the closing sale price per
share of Common Stock (or, if no closing sale price is reported, the average of
the bid and ask prices or, if more than one in either case, the average of the
average bid and average ask prices) on such date as reported in composite
transactions for the principal United States securities exchange on which the
Common Stock is traded or, if the Common Stock is not listed on a United States
national or regional securities exchange, (i) as reported by the National
Association of Securities Dealers Automated Quotation System or by the National
Quotation Bureau Incorporated, or (ii) if such bid and ask prices are not
reported by the National Association of Securities Dealers Automated Quotation
System or by the National Quotation Bureau Incorporated, in a manner to be
determined by the Company on the basis of such quotation as the Board considers
appropriate in its reasonable discretion.
"SEC DOCUMENTS" has the meaning given to such term in Section
3.7.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK OPTION PLANS" means all of the Company's benefit plans
maintained under Code Section 422.
"SUBSIDIARY" means, with respect to any Person, (i) any other
Person of which more than fifty percent (50%) of the shares of stock or other
interests entitled to vote in the election of directors or comparable Persons
performing similar functions (excluding shares or
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other interests entitled to vote only upon the failure to pay dividends thereon
or other contingencies) are at the time owned or controlled, directly or
indirectly through one or more Subsidiaries, by such Person and (ii) any
"Significant Subsidiary" (as such term is defined in Rule 1-02 of SEC Regulation
S-X) of such Person.
"TRANSFER" means any sale, transfer, assignment, or other
disposition of any interest in, with or without consideration, any security,
including any disposition of any security or of any interest therein which would
constitute a sale thereof within the meaning of the Securities Act.
"US$" AND "UNITED STATES DOLLARS" shall each mean lawful
currency of the United States.
"UNDERFUNDING" means, with respect to any Plan, the excess, if
any, of the "projected benefit obligations" (within the meaning of Statement of
Financial Accounting Standards 87) under such Plan over the fair market value of
the assets held under the Plan.
"UNITED STATES" means the United States of America.
"WITHDRAWAL LIABILITY" has the meaning given such term under
Plan I of Subtitle E of Title IV of ERISA.
1.2 TERMS GENERALLY.
The definitions in SECTION 1.1 shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
"INCLUDE", "INCLUDES" and "INCLUDING" shall be deemed to be followed by the
phrase "WITHOUT LIMITATION".
1.3 USE OF DEFINED TERMS.
Terms defined in this Agreement and used in any Exhibit, Schedule,
Certificate, Annex or any other Note Document or other document delivered in
connection with this Agreement, shall have the meanings assigned herein unless
otherwise defined or the context otherwise requires.
1.4 ACCOUNTING TERMS; GAAP.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing.
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ARTICLE II
PURCHASE AND SALE OF THE NOTES
On each Closing Date, the Company shall issue, sell and deliver to each
Purchaser, and each Purchaser, severally solely as to itself and not jointly,
shall purchase from the Company, upon satisfaction of the conditions set forth
in Section 5.1 hereof (or waiver in writing of such conditions by such
Purchaser), a duly executed Note (payable to the order of such Purchaser) in the
principal amount equal to the amount set forth opposite such Purchaser's name on
SCHEDULE 1 for the purchase price set forth opposite its name for such Closing
Date, payable by wire transfer of immediately available funds to an account
designated by the Company. The Closing for the First Tranche shall occur
simultaneously with the execution of this Agreement. The Closing for the Second
Tranche shall occur, provided the Approval has been obtained, on or prior to
June 30, 2002, or such later date as the Company and the Purchasers shall
mutually agree to in writing at the offices of the Company or such other
location as the parties may agree. Each date of a Closing is referred to herein
as a "Closing Date".
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers
as follows:
3.1 CORPORATE EXISTENCE.
The Company and each Subsidiary of the Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all necessary corporate power and
authority to conduct its business as it is now being conducted, and as presently
proposed to be conducted, and to own, operate and lease the properties and
assets it currently owns, operates and holds under lease. The Company and each
Subsidiary of the Company that is incorporated in the United States is duly
qualified to do business and is in good standing in each jurisdiction in which
the nature of its business activities or its ownership or leasing of property
makes such qualification necessary, which jurisdictions are set forth on
SCHEDULE 3.1, and each Subsidiary of the Company that is incorporated or formed
outside of the United States has all necessary qualifications to do business in
each jurisdiction in which the nature of its business activities or its
ownership or leasing of property makes such qualification necessary, except
where the failure to be so qualified would not have a Material Adverse Effect.
SCHEDULE 3.1 sets forth a list of each Subsidiary of the Company. On or before
the date hereof, the Company has delivered or made available to the Purchasers
true and complete copies of its Articles of Incorporation and Bylaws as in
effect on the Closing Date.
3.2 CORPORATE POWER AND AUTHORIZATION.
The Company has all requisite power and authority to issue the Notes
and to execute, deliver, and perform this Agreement and the other Note
Documents, and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the other Note Documents and
the consummation of the transactions to be performed by the
12
Company contemplated hereby and thereby have been duly and validly authorized by
all necessary action on the part of the Board, and no other corporate
proceedings (other than stockholder approval prior to the closing of the Second
Tranche) are necessary to authorize the execution and delivery of this Agreement
and the other Note Documents by the Company or to consummate the transactions to
be performed by the Company hereunder and thereunder, including, without
limitation, the issuance, sale and delivery of the Notes and the Common Stock to
be issued upon conversion of the Notes (the "CONVERSION SHARES").
3.3 BINDING OBLIGATIONS.
Each of this Agreement and the other Note Documents when executed and
delivered by the Company, shall constitute a legal, valid and binding obligation
of the Company enforceable in accordance with their respective terms, except
insofar as the enforceability thereof may be limited (i) by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) by general
principles of equity and public policy (regardless of whether considered at law
or in equity). When issued and delivered to the Purchasers at the Closing upon
payment therefor as provided in this Agreement and the Notes, the Notes will be
duly authorized and validly issued and will be free of any Liens or encumbrances
other than Liens or encumbances created by Purchasers.
3.4 NO VIOLATION.
Except as provided in SCHEDULE 3.4, the execution and delivery by the
Company of this Agreement and the other Note Documents, the consummation of the
transactions provided for herein and therein and contemplated hereby and
thereby, and the fulfillment by the Company of the terms hereof and thereof,
will not (a) conflict with or result in a breach of any provision of the
Articles of Incorporation or Bylaws of the Company or any Subsidiary of the
Company, (b) result in any default or in any violation or modification of the
terms of any Indebtedness, mortgage, indenture, instrument contract or
agreement, of the Company or any Subsidiary of the Company or in the creation of
any Lien upon any of the properties or assets owned by the Company or any
Subsidiary of the Company, or (c) violate any Governmental Requirement or Permit
applicable to the Company or any Subsidiary of the Company.
3.5 CONSENTS.
All consents, approvals, licenses, qualifications, Orders or
authorizations of, or filings with, any Governmental Authority, and all consents
under any material contracts, agreements, or instruments by which the Company is
bound or to which it is subject, and required in connection with the Company's
valid execution, delivery, or performance of this Agreement and the other Note
Documents, and the consummation of the transactions contemplated hereby and
thereby, has been obtained or made. The sale of the Notes and the subsequent
conversion of the Notes into Conversion Shares are not and will not be subject
to any preemptive rights or rights of first refusal that have not been properly
waived.
3.6 CAPITALIZATION.
(a) Immediately following the Closing, the authorized Capital
Stock of the Company shall consist of (i) 100,000,000 shares of Common Stock of
which 23,828,167 shares
13
were duly and validly issued and outstanding, as of December 31, 2001, and
6,069,620 shares shall be duly and validly reserved for issuance pursuant to the
Benefit Plans, and (ii) 5,000,000 shares of Preferred Stock, none of which has
been issued or is outstanding. All of the outstanding shares of Common Stock are
duly authorized, validly issued, fully paid and nonassessable.
(b) Except for up to an aggregate of 6,069,620 shares of Common
Stock reserved for issuance pursuant to the Company's Benefit Plans and except
as disclosed on SCHEDULE 3.6, there are no outstanding subscriptions, warrants,
options, calls, commitments, preemptive rights or other rights (including rights
of first refusal) to purchase or acquire, or securities convertible into or
exchangeable for, any Capital Stock of the Company or any Subsidiary of the
Company.
3.7 SEC DOCUMENTS AND FINANCIAL STATEMENTS.
Except as disclosed in SCHEDULE 3.7, since January 1, 2001, the Company
has timely filed with the Commission all forms, reports, schedules, statements
and other documents required to be filed by it under the Exchange Act, or the
Securities Act (such documents, as supplemented and amended since the time of
filing, collectively, the "SEC DOCUMENTS"). The SEC Documents, including,
without limitation, any financial statements or schedules included or
incorporated by reference therein, at the time filed (and, in the case of
registration statements, on the dates of effectiveness) (i) as of its filing did
not contain any untrue 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 light of the circumstances under which they were made, not
misleading, and (ii) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the rules and regulations thereunder. The financial statements of the Company
together with any related schedules and notes included in the SEC Documents at
the time filed (and, in the case of registration statements, on the dates of
effectiveness) complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto, were prepared in accordance with GAAP applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto), and fairly present (subject in the case of unaudited
statements to normal, recurring audit adjustments) the combined financial
position of the Company and its Subsidiaries, as of the dates thereof and the
combined results of operations, statements of stockholder equity, and cash flows
for the periods then ended. The balance sheet for the Company included in its
annual report on Form 10-K for the year ended December 31, 2001 is referred to
herein as the "RECENT BALANCE SHEET".
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the date of the Recent Balance Sheet, the Company and its
Subsidiaries have conducted their respective businesses only in the ordinary
course consistent with prior practice, and there has not been (a) any Material
Adverse Effect, (b) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
the Company's Capital Stock, (c) any split, combination or reclassification of
any of the Capital Stock of the Company or any issuance or the authorization of
any issuance of any other securities in respect of, in lieu of or in
substitution for shares of Capital Stock of the Company,
14
(d) except as set forth in SCHEDULE 3.8, (i) any granting by the Company or any
Subsidiary of the Company to any officer, director, consultant or employee of
the Company of any material increase in compensation, (ii) any granting by the
Company or any Subsidiary of the Company to any officer, director or consultant
or an employee who earned more than $155,000 (in salary, bonus and other cash
compensation) in the most recent fiscal year or is currently earning (on an
annualized basis) more than $155,000 (in salary, bonus and other cash
compensation), of any material increase in severance or termination pay or (iii)
any entry by the Company or any Subsidiary of the Company into any written or
oral employment agreement, or any severance or termination agreement or
arrangement with any officer, director or consultant or an employee who earned
more than $155,000 (in salary, bonus and other cash compensation) in the most
recent fiscal year or is currently earning (on an annualized basis) more than
$155,000 (in salary, bonus and other cash compensation), (e) any damage,
destruction or loss to property, whether or not covered by insurance, that,
individually or in the aggregate, has not been cured and may be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect,
(f) any material change in accounting methods, principles or practices by the
Company or any Subsidiary of the Company other than those required by GAAP, (g)
any delivery of a notice of non-renewal or any other failure to renew any
contracts, commitments, agreements, understandings or arrangements of any kind
between the Company or any Subsidiary of the Company, on the one hand, and its
customers, on the other hand, which are material, individually or in the
aggregate or (h) any loss of any employee who earned more than $155,000 in the
most recent fiscal year (in salary, bonus and other cash compensation).
3.9 LIABILITIES; INDEBTEDNESS.
Except for current liabilities incurred in the ordinary course of
business and that would not, individually or in the aggregate, have a Material
Adverse Effect, the Company does not have any liabilities, direct or contingent
(including but not limited to liability with respect to any of the Benefit Plans
or any Environmental Law) other than those provided for in the Recent Balance
Sheet. Except as disclosed on the Recent Balance Sheet or in the audited
financial statements of the Company, the Company has no Indebtedness.
3.10 LITIGATION.
Except as provided in SCHEDULE 3.10, there is no Order, action, suit or
proceeding, or any governmental inquiry investigation or any arbitration, in
each case pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries or any of the assets or property of the
Company or any of its Subsidiaries (i) which challenges the legality,
enforceability or validity of this Agreement or any other Note Document, or (ii)
which, might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to affect materially and adversely the
properties of assets of the Company or its Subsidiaries or the consummation of
the transactions contemplated in this Agreement and the other Note Documents, or
impair the ability or obligation of the Company to perform fully on a timely
basis any obligations which it has or will have under this Agreement or the
other Note Documents. The foregoing includes, without limitation, actions
pending or threatened in writing (or any basis therefor known to the Company)
involving the prior employment of any of the employees of the Company and its
Subsidiaries, their use in connection with the respective businesses of the
Company and its Subsidiaries of any information or techniques allegedly
15
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. The aggregate of all pending legal or
governmental proceedings to which the Company or any Subsidiary is the subject
which are not described in the SEC Documents, including ordinary routine
litigation incidental to the business of the Company or any Subsidiary, could
not reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary is a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any Governmental Authority. There is no
action, suit, proceeding or investigation by the Company or any of its
Subsidiaries currently pending or which the Company or any of its Subsidiaries
intends to initiate.
3.11 SPECIFIED CONTRACT AND COMMITMENTS.
(a) Except as set forth in the SEC Documents or on SCHEDULE 3.11
and except for the Note Documents to be entered into pursuant to or in
connection with this Agreement, neither the Company nor any Subsidiary of the
Company has any (i) employment or consulting contract involving annual payments
by the Company in excess of $155,000 and not cancelable without liability on
sixty days' notice or less; (ii) capital redemption or purchase agreements;
(iii) agreements providing for the indemnification of other parties for such
parties' negligence or other fault or the sharing of the tax liability of other
parties; (iv) collective bargaining agreements; (v) agreement for capital
expenditures, the acquisition of commodities, equipment or material or the
construction of fixed assets which individually are expected to require
aggregate future payments by the Company in excess of $150,000 and all of which
in the aggregate would be expected to require future payments in excess of
$500,000; (vi) agreements containing covenants limiting or restricting the
freedom of the Company to compete in any line of business or territory or with
any person or entity; (vii) indentures, mortgages, promissory notes, loan
agreements, guaranties or other agreements or commitments for the borrowing of
money or any related security agreements; (viii) voting trust or other agreement
or understanding with respect to the voting of its Capital Stock; (ix)
contracts, commitments, agreements, understandings or arrangements of any kind
to which the Company or any Subsidiary of the Company is a party relating to the
issuance of any Capital Stock of the Company or any Subsidiary of the Company or
any rights, warrants or options to purchase shares of Capital Stock of the
Company or any Subsidiary of the Company, or any other security convertible into
or exchangeable for Capital Stock of the Company or any Subsidiary of the
Company, other than the Note Documents and the Benefit Plans; or (x) agreement
with respect to any of its Capital Stock which grants registration rights to any
Person other than the Note Documents; or any agreements, understandings,
instruments, contracts, or proposed transactions that involve the (A) transfer
or license any Intellectual Property (as such term is defined in SECTION 3.20 of
this Agreement) to or from the Company or its Subsidiaries (other than licenses
to customers in the ordinary course of business or licences arising from the
purchase by the Company or its Subsidiaries of "off the shelf" or other standard
products) or (B) indemnification by the Company or its Subsidiaries with respect
to infringements of proprietary rights (other than indemnification obligations
arising from purchase, sale or license agreements entered into in the ordinary
course of business)(collectively, "SPECIFIED CONTRACTS"). None of the Specified
Contracts have been amended or modified except as set forth on SCHEDULE 3.11.
(b) All of the Specified Contracts are in full force and effect
and constitute legal, valid and binding obligations of the Company and each of
its Subsidiaries, and, to the knowledge
16
of the Company, the other parties thereto, enforceable in all material respects
in accordance with their respective terms, except insofar as the enforceability
thereof may be limited (i) by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and (ii) by general principles of equity and public policy (regardless
of whether considered at law or in equity). None of the Company, any of its
Subsidiaries or, to the knowledge of the Company, any other party to any
Specified Contract, is in default in complying with any provisions thereof, and
no condition or event or fact exists which, with notice, lapse of time or both
would constitute a default thereunder on the part of the Company or any
Subsidiary of the Company or, to the knowledge of the Company, any other party
thereto, except for any such default, condition, event or fact that,
individually or in the aggregate, would not have a Material Adverse Effect.
3.12 TITLE TO PROPERTIES; CONDITION OF ASSETS.
(a) Neither the Company nor any Subsidiary of the Company owns any
real property.
(b) Except as set forth in SCHEDULE 3.12, none of the real
property leased by the Company or any of its Subsidiaries (the "LEASED
PROPERTY") is material to the Company and its Subsidiaries taken as a whole. The
Company or such Subsidiary is the owner and holder of all the leasehold estates
purported to be granted by such leases and is in compliance with all material
terms of each such lease.
(c) The Leased Property constitutes all real property used or
occupied by the Company or any Subsidiary of the Company.
(d) The material personal properties and assets of the Company and
its Subsidiaries are in good repair and operating condition, ordinary wear and
tear excepted, and are sufficient for the conduct of the business of the Company
and Subsidiaries as presently and proposed to be conducted.
3.13 COMPLIANCE WITH LAWS.
Neither the Company nor any Subsidiary of the Company is in violation
of, and to the knowledge of the Company, none is under investigation with
respect to or has been threatened to be charged with or given notice of any
violation of, in each case, by any Governmental Authority, any Applicable Law,
except as set forth on SCHEDULE 3.13. The Company and its Subsidiaries possess
all Permits and the Permits are valid and in full force and effect. Neither the
Company nor any Subsidiary of the Company is in default under, and no condition
exists that with notice or lapse of time or both would constitute a default
under, the Permits and none of the Permits will be terminated or impaired or
become terminable, in whole or in part, as a result of the transactions
contemplated hereby.
3.14 TAXES.
Except as disclosed in SCHEDULE 3.14, the Company and each Subsidiary
of the Company has filed all tax returns and reports required to be filed by it
(which returns and reports are true and complete) and has paid all taxes,
assessments, fees, imposts, duties and other charges due
17
and required to be paid by it. The Recent Balance Sheet reflects an adequate
reserve for all taxes payable by the Company or any Subsidiary of the Company
for all taxable periods and portions thereof through the date of such Recent
Balance Sheet and there has been no tax liability incurred by the Company or any
Subsidiary of the Company since such date other than in the ordinary course of
business. The provision for tax liability incurred since the date of the Recent
Balance Sheet is adequate as of the date hereof. No deficiencies for any taxes
which remain outstanding have been proposed, asserted or assessed against the
Company or any Subsidiary of the Company, and no requests for waivers of the
time to assess any such taxes are pending. Except as disclosed in SCHEDULE 3.14,
no tax return or report of the Company or any Subsidiary of the Company has been
or is currently being examined by the United States Internal Revenue Service or
any other Governmental Authority. As used in this Agreement, "TAXES" shall mean
all federal, state, local and foreign income, property, sales, payroll,
employment, excise, withholding and other taxes, tariffs or other governmental
charges in the nature of a tax as well as any interest, penalties and additions
to tax.
3.15 EMPLOYEE BENEFIT MATTERS.
(a) Neither the Company, any Subsidiary of the Company nor any
ERISA Affiliate contributes to or has an obligation to contribute to, nor has
the Company, any Subsidiary of the Company or any ERISA Affiliate at any time
contributed to or had an obligation to contribute to, a Multiemployer Plan.
(b) All obligations, whether arising by operation of law or by
contract, required to be performed in connection with the Benefit Plans have
been performed, and there have been no defaults, omissions or violations by any
party with respect to any Benefit Plan or law applicable thereto, except such as
could not reasonably be expected to result in a Material Adverse Effect.
(c) Each Benefit Plan of the Company, each Subsidiary of the
Company and each ERISA Affiliate that is intended to be qualified under Section
401(a) of the Code (A) satisfies the requirements of such Section, (B) has
received a favorable determination letter from the Internal Revenue Service
regarding such qualified status, and (C) has not, since receipt of the most
recent favorable determination letter, been amended or operated in a way that
would adversely affect such qualified status and, to the extent such letter does
not cover amendments required by law, both the time for adopting such amendments
if not previously adopted and filing such amendments with the Internal Revenue
Service if not previously filed has not expired.
(d) The execution and delivery of this Agreement and the other
Note Documents and the consummation of the transactions contemplated hereby and
thereby will not (i) require the Company, any Subsidiary of the Company or any
ERISA Affiliate to make a larger contribution to, or pay greater benefits under,
any Benefit Plan than it otherwise would, or (ii) create or give rise to any
additional vested rights or service credits under any Benefit Plan.
(e) Neither the Company, any Subsidiary of the Company or any
ERISA Affiliate is a party to any agreement nor has the Company, any Subsidiary
of the Company or any ERISA Affiliate established any policy or practice
requiring it to make a payment or provide any other form of compensation or
benefit to any person performing services for the Company, any Subsidiary of the
Company or any ERISA Affiliate upon termination of such services that would
18
not be payable or provided in the absence of the consummation of the
transactions contemplated by this Agreement and the other Note Documents.
(f) No Reportable Event has occurred, is planned or is reasonably
expected to occur, with respect to any Plan and no condition or event currently
exists or currently is expected to occur that could result in any such
Reportable Event. No amendment with respect to which security is required under
Section 307 of ERISA or Section 401(a)(29) of the Code has been made or is
reasonably expected to be made to any Plan. The Company and each ERISA Affiliate
has made all contributions required to be made by such person to each Plan as
and when such contributions have become due. No Plan has any Underfunding that
is reasonably likely to have a Material Adverse Effect.
3.16 INVESTMENT COMPANY ACT.
The Company is not, and will not be as a result of the transactions
contemplated by this Agreement and the other Note Documents, an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
3.17 NO RESTRICTIONS ON AFFILIATES.
The Company is not a party to any agreement that would purport to
impose restrictions or limitations on the Purchasers or any of their Affiliates.
3.18 SUBSIDIARIES.
(a) SCHEDULE 3.1 sets forth a list of all of the Subsidiaries of
the Company. All of the outstanding shares of Capital Stock of the Subsidiaries
of the Company are owned of record and beneficially by the Company, free and
clear of all Liens.
(b) All outstanding shares of Capital Stock of Subsidiaries are
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. There are no bonds, debentures, notes or other indebtedness
of any Subsidiary of the Company having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which stockholders of Subsidiaries may vote. There are no securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company or any Subsidiary of the Company is a party or
by which any of them is bound obligating the Company or any Subsidiary of the
Company to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of Capital Stock or other voting securities of any Subsidiary
of the Company or obligating the Company or any Subsidiary of the Company to
issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. There are no
outstanding obligations of the Company or any Subsidiary of the Company to
repurchase, redeem or otherwise acquire any shares of Capital Stock of any
Subsidiary of the Company.
(c) Except for the Company's interest in its Subsidiaries, neither
the Company nor any Subsidiary of the Company owns, directly or indirectly, any
interest or Investment in the form of debt or equity in any Person, and neither
the Company nor any Subsidiary of the Company is subject to any obligation or
requirement to provide for or to make any Investment in any Person.
19
3.19 ENVIRONMENTAL MATTERS.
Except as disclosed in SCHEDULE 3.19, the Company and each Subsidiary
of the Company is in compliance with and has all permits, authorizations and
approvals required under all applicable Environmental Laws except such as could
not reasonably be expected to result in a Material Adverse Effect. There has
been no Release or threatened Release, in, on, under or affecting any property
owned, leased, controlled or operated by the Company or any Subsidiary of the
Company or by the Company or any of its Subsidiaries into the environment. There
is no pending, or, to the knowledge of the Company, threatened action, suit,
demand, demand letter, claim, lien, notice of noncompliance or violation,
investigation, proceeding or inquiry of or against the Company or any Subsidiary
of the Company by any Governmental Authority or other Person relating to any
actual or potential violations or liability under any Environmental Law. Neither
the Company nor any Subsidiary of the Company has assumed any liabilities or
obligations arising under Environmental Laws in connection with properties or
facilities previously owned, leased or operated by the Company or any Subsidiary
of the Company or their predecessors. To the knowledge of the Company, there are
no underground or aboveground storage tanks, incinerators or surface
impoundments at, on or about, under or within any property, owned, leased,
controlled or operated by the Company or any Subsidiary of the Company, and no
such tanks, incinerators or impoundments have been removed from any such
property. Neither the Company nor any Subsidiary of the Company has used any
waste disposal site, or otherwise disposed of, transported, or arranged for the
transportation of, any Hazardous Materials to any place or location, with
respect to which it has incurred or, in the future, could reasonably be expected
to incur, liability under any Environmental Law. Except as disclosed in SCHEDULE
3.19, there are no events or circumstances that might reasonably be expected to
form the basis of an order for clean-up or remediation, or an action, suit or
proceeding by a Person or Governmental Authority against or affecting the
Company or any of its Subsidiaries relating to Hazardous Materials or any
Environmental Laws.
3.20 INTELLECTUAL PROPERTY, ETC.
(a) The Company or its Subsidiaries own or possess patents, patent
applications, licenses, trademarks, trademark registrations, trademark
applications, servicemarks, servicemark registrations, servicemark applications,
trade names, copyright, copyright registrations, trade secrets, know how
(including any unpatented and/or unpatentable proprietary or confidential
information, systems, procedures or formulae), inventions or other intellectual
property (collectively, the "INTELLECTUAL PROPERTY") that are necessary for the
operation of their respective businesses as presently conducted and as currently
proposed to be conducted. No claim is pending or, to the knowledge of the
Company, threatened to the effect that the Company or its Subsidiaries infringe
upon or conflict with the asserted rights of any other person under any
Intellectual Property, and, to the knowledge of the Company, there is no basis
for any such claim (whether or not pending or threatened). No claim is pending
or, to the knowledge of the Company, threatened to the effect that any such
Intellectual Property owned or licensed by the Company or its Subsidiaries or
which the Company or its Subsidiaries otherwise has the right to use, is invalid
or unenforceable by the Company or its Subsidiaries, or is inadequate to protect
the interests of the Company and its Subsidiaries and, to the knowledge of the
Company, there is no basis for any such claim (whether or not pending or
threatened).
20
(b) Neither the Company nor any of its Subsidiaries is aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or its Subsidiaries or that would
conflict with the respective businesses of the Company and its Subsidiaries as
presently or proposed to be conducted. Neither the execution nor delivery of
this Agreement or the other Note Documents, nor the carrying on of the business
of the Company and its Subsidiaries as presently or proposed to be conducted,
will, to the knowledge of the Company, conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of their respective employees
is now obligated. The Company does not reasonably believe that it is or will be
necessary to utilize any Intellectual Property of any of its employees made
prior to their employment by the Company or its Subsidiaries, except for
Intellectual Property that has been assigned to the Company or its Subsidiaries
and which is disclosed in SCHEDULE 3.20 hereto.
3.21 NO PUBLIC OFFER.
Assuming the accuracy of the representations and warranties of the
Purchasers contained in Section 4.1 of this Agreement, the offer, sale and
issuance of the Notes will be exempt from the registration requirements of
Section 5 of the Securities Act, and the Notes will have been registered or
qualified (or be exempt from registration or qualification) under applicable
state securities laws. Neither the Company nor anyone acting on its behalf has
offered to any Person securities of the Company, nor any part thereof, nor any
instruments convertible, exercisable, or exchangeable into such securities, or
has solicited from any Person any offer to acquire the same, in a manner so as
to make the transactions contemplated by this Agreement not exempt from the
registration requirements of Section 5 of the Securities Act or any state
securities laws.
3.22 INSURANCE.
The Company and its Subsidiaries maintain property, casualty, general
liability and other insurance policies with coverage limits in amounts and with
carriers as in each case are customary in accordance with sound business
practices and which the Company reasonably believes are adequate in the
circumstances. The Company has given in a timely manner to its insurers all
notices required to be given under such insurance policies with respect to all
material claims and actions covered by insurance, and no insurer has denied
coverage of any such claims or actions or reserved its rights in respect of or
rejected any of such claims. Neither the Company nor any Subsidiary of the
Company has received any notice or other communication from any such insurer
canceling or materially amending any of such insurance policies, and no such
cancellation is pending or threatened.
3.23 CERTAIN TRANSACTIONS.
Except as set forth on SCHEDULE 3.23, (a) neither the Company
nor any of its Subsidiaries is indebted directly or indirectly or has any
obligations to any of their respective
21
officers, directors or stockholders or to their respective spouses or children
in any amount whatsoever, except for reasonable employee and director expense
reimbursements and accrued directors' fees incurred in the ordinary course of
business, (b) none of such officers, directors or stockholders, or any members
of their immediate families, are indebted to the Company or any Subsidiary of
the Company or have any direct or indirect ownership interest in any Person with
which the Company or any Subsidiary of the Company has a business relationship
(other than ownership interests of less than 5% in a publicly traded company),
or any Person that competes with the Company or any Subsidiary of the Company
(other than ownership interests of less than 5% in a publicly traded
competitor), and (c) no officer, director or 10% shareholder, or any member of
his immediate family, has a direct or material indirect financial interest in
any material contract with the Company or any Subsidiary of the Company other
than in the Benefit Plans.
3.24 USE OF PROCEEDS.
All proceeds from the issuance of the Notes will be used by the Company
only in accordance with the provisions of the second paragraph of the recitals
to this Agreement. No part of the proceeds from the issuance of the Notes will
be used by the Company to purchase or carry any "margin securities" as that term
is defined in Regulation T, U or X of the Federal Reserve System, each as from
time to time in effect and any successor to all or a portion thereof
establishing margin requirements.
3.25 CERTAIN EMPLOYEE MATTERS.
To the Company's knowledge, no employee of the Company or any
Subsidiary of the Company, nor any consultant with whom the Company or any
Subsidiary of the Company has contracted, is in violation of any term of any
employment contract, proprietary information agreement or any other agreement
relating to the right of any such individual to be employed by, or to contract
with, the Company or any Subsidiary of the Company because of the nature of the
business to be conducted by the Company or any Subsidiary of the Company; and to
the Company's knowledge the continued employment by the Company or any
Subsidiary of the Company of its present employees, and the performance of the
contracts of the Company and its Subsidiaries with its independent contractors,
will not result in any such violation. Neither the Company nor any of its
Subsidiaries has received any notice alleging that any such violation has
occurred. The Company is not aware that any officer or key employee, or that any
group of key employees, intends to terminate his, her or their employment with
the Company or any Subsidiary of the Company, nor does the Company or any
Subsidiary of the Company have a present intention to terminate the employment
of any officer or key employee.
3.26 NO MATERIAL MISSTATEMENTS OR OMISSIONS.
Neither this Agreement nor any of the Note Documents contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading. There is no fact or
information relating to the business, prospects, condition (financial or
otherwise), affairs, operations, or assets of the Company or its Subsidiaries
that has not been disclosed to the Purchasers in writing by the Company that
could result in a Material
22
Adverse Effect, including, without limitation, through disclosure in the SEC
Documents. The financial statements and other related financial data furnished
to the Purchasers by or at the direction of the Company in connection with the
negotiation of this Agreement do not contain any material misstatement of fact
and, when considered with all other written statements furnished to the
Purchasers in that connection, such financial statements, related financial data
and reserve reports do not omit to state a material fact or any fact necessary
to make the statements contained therein not misleading. The circumstances and
events that are not required to be identified on the Schedules hereto by reason
of the materiality qualifications contained in the representations and
warranties in this Article III, or which are otherwise within such
qualifications, in the aggregate do not have, and could not reasonably be
expected to have, a Material Adverse Effect on the Company when taken in the
context of all of the assets, obligations and operations of the Company.
3.27 FEES AND COMMISSIONS.
Except as set forth on SCHEDULE 3.27, the Company has not retained, nor
are any fees due from the Company to, any intermediary retained by such party,
any finder, broker, agent, financial advisor, or other intermediary, in
connection with the transactions contemplated by this Agreement and the other
Note Documents.
3.28 COMMON STOCK OWNERSHIP.
Prior to the Approval, the shares issuable upon conversion of the First
Tranche of the Notes shall represent less than 20% of the Company's outstanding
Common Stock as of the Closing Date for such Notes. The Company has not issued
any other securities which would be required to be integrated with the sale of
the Notes pursuant to this Agreement or the issuance of the shares of Common
Stock upon conversion of the Notes for purposes of the rules of the Nasdaq Stock
Market.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
4.1 REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER.
Each Purchaser represents and warrants to the Company, severally solely
as to itself and not jointly, as of the date hereof as follows:
(a) PURCHASE FOR ITS OWN ACCOUNT. Such Purchaser is purchasing the
Notes for its own account, without a view to the distribution thereof in
violation of the Securities Act, all without prejudice, however, to the right of
such Purchaser at any time, in accordance with this Agreement or the Note
Documents, lawfully to sell or otherwise to dispose of all or any part of the
Notes held by it.
(b) ACCREDITED PURCHASER. Such Purchaser is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act.
23
(c) AUTHORITY, ETC. Such Purchaser has the power and authority to
enter into and perform this Agreement and the other Note Documents and the
execution and performance hereof have been duly authorized by all proper and
necessary action; this Agreement and the other Note Documents constitute the
valid and legally binding obligation of such Purchaser, enforceable against it
in accordance with its terms, except insofar as the enforceability thereof may
be limited (i) by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and (ii) by general principles of equity and public policy (regardless of
whether considered at law or in equity).
(d) SECURITIES ACT COMPLIANCE. Such Purchaser understands that the
Company has not registered the Notes under the Securities Act, and each
Purchaser agrees that the Notes may not be sold or transferred or offered for
sale or transfer by it without registration under the Securities Act or the
availability of an exemption therefrom, all as more fully provided in Article
VIII hereof.
(e) ACCESS TO INFORMATION; KNOWLEDGE AND EXPERIENCE. Such
Purchaser (i) has been furnished with or has had access to the information such
Purchaser has requested from the Company, (ii) has had an opportunity to discuss
with management of the Company the business and financial affairs of the Company
and (iii) has such knowledge and experience in business and financial matters
and with respect to investments in securities similar to the Notes that it is
capable of evaluating the risks and merits of this investment. Such Purchaser's
representations in this subsection shall in no way limit the enforceability of
any representation made by the Company in any of the Note Documents.
(f) LIQUIDITY. Such Purchaser has no need for liquidity in its
investment in the Notes and is able to bear the economic risk of its investment
in the Notes and the complete loss of all of such investment.
(g) RISKS. Such Purchaser recognizes that an investment in the
Company involves certain risks, and has taken full cognizance of, and
understands all of, the risk factors related to the purchase of the Notes,
including, without limitation, the following: (i) the risk factors and
additional business risks disclosed in the SEC Documents, and (ii) the fact that
the Company needs additional capital at this time to continue its operations.
(h) DOMICILE. Each individual Purchaser maintains his or her
principal residence in the state indicated on SCHEDULE I hereto. Each Purchaser
that is an entity maintains its principal business at the office indicated on
SCHEDULE I hereto.
(i) The Purchasers covenant and agree that they will not seek to
convert any Notes prior to the Approval.
24
ARTICLE V
CONDITIONS TO PURCHASE
5.1 CONDITIONS TO OBLIGATIONS OF PURCHASERS ON EACH CLOSING DATE.
The obligations of the Purchasers to purchase the Notes on each Closing
Date hereunder is subject to the satisfaction of the following conditions:
(a) OFFICERS' CERTIFICATE. On each Closing Date, the Purchasers
shall have received a certificate dated such date signed by an Authorized
Officer stating that all of the applicable conditions set forth in this SECTION
5.1 have been satisfied or waived as of such date, the provisions of which shall
be reasonably satisfactory to PEP.
(b) ORGANIZATIONAL DOCUMENTATION, ETC. On or prior to each Closing
Date, PEP shall have received true and complete certified copies of the
following documents of the Company, the provisions of which shall be reasonably
satisfactory to PEP:
(i) a copy of the Articles of Incorporation, which shall be
certified and be accompanied by a good standing certificate from the
jurisdiction of the Company's organization and good standing
certificates from the jurisdictions in which it is required to be
qualified to do business as a foreign corporation, each to be dated a
recent date prior to each Closing Date; and
(ii) a copy of the Bylaws, certified as of each Closing Date
by its corporate secretary.
(c) CORPORATE PROCEEDINGS. All corporate and legal proceedings and
all instruments and agreements in connection with the transactions contemplated
by the Note Documents shall be satisfactory in form and substance to PEP, and
the Purchasers shall have received all information and copies of all
certificates, documents and papers, including records of corporate proceedings
and governmental approvals, if any, which the Purchasers reasonably may have
requested from the Company or any Subsidiary thereof in connection therewith,
such documents and papers where appropriate to be certified by proper corporate
or governmental authorities. Without limiting the foregoing, PEP shall have
received resolutions of the Board approving and authorizing such documents and
actions as are contemplated hereby in form and substance reasonably satisfactory
to PEP including without limitation the execution and delivery of all Note
Documents to be executed by the Company, certified by its corporate secretary or
an assistant secretary as being in full force and effect without modification or
amendment.
(d) NOTE PURCHASE AGREEMENT. The Purchasers shall have received,
in form and substance satisfactory to them and their counsel, a duly executed
copy of this Agreement and the other Note Documents, together with such
additional documents, instruments and certificates as PEP shall require in
connection therewith, each in form and substance satisfactory to PEP.
(e) AMOUNT OF AGGREGATE PURCHASE. The Purchasers shall have
purchased an aggregate of $1,425,000 of Notes at the Closing for the First
Tranche of Notes and, provided the Approval is obtained, agree to purchase an
additional $1,575,000 of Notes at the Closing of the Second Tranche of Notes.
25
(f) NOTES. There shall have been delivered to the Purchasers the
Notes executed by the Company, substantially in the form attached as Exhibit A-1
for Notes purchased at the Closing for the First Tranche of Notes and in the
form attached as Exhibit A-2 for Notes to be purchased at the Closing for the
Second Tranche of Notes.
(g) NO DEFAULT. No Default or Event of Default shall exist.
(h) NO LITIGATION. No action, proceeding, judgment, investigation,
order, regulation or legislation shall have been instituted, threatened or
proposed before any court, Governmental Authority or legislative body to enjoin,
restrain or prohibit, or to obtain damages in respect of, or which is related to
or arises out of this Agreement or the consummation of the transactions
contemplated hereby.
(i) OPINION OF COUNSEL. On the Closing Date, the Purchasers shall
have received an opinion addressed to the Purchasers and dated the Closing Date,
in form and substance satisfactory to the Purchasers, from Ellis, Funk,
Xxxxxxxx, Xxxxxxxx & Dokson, P.C., counsel to the Company, which opinion shall
be in the form of EXHIBIT C hereto.
(j) REQUISITE APPROVALS. Prior to each Closing Date, the Company
shall have obtained copies of all required governmental and third party
consents, licenses, Permits, waivers and approvals including the Nasdaq National
Market and Nasdaq SmallCap Market, as applicable, relating to the transactions
contemplated by this Agreement and the other Note Documents, which consents,
licenses, Permits, waivers and approvals shall be in effect and in form and
substance acceptable to PEP.
(k) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF COVENANTS. Each
representation and warranty of the Company contained herein and in the other
Note Documents and in any certificates or other instruments delivered pursuant
to any of the foregoing shall be correct in all material respects (except where
any representation or warranty has already been qualified as to materiality, in
which case such representation or warranty shall be correct in all respects) as
though made on and as of each Closing Date. The Company shall have satisfied
each of the conditions precedent set forth herein on and as of each Closing
Date.
(l) FINANCIAL STATEMENTS. Prior to the Closing Date, the
Purchasers shall have received true and complete copies of the financial
statements referred to in Section 3.7 of this Agreement.
(m) LEGAL MATTERS. All matters relating to this Agreement and the
other Note Documents and the transactions contemplated hereby and thereby shall
be satisfactory to PEP.
(n) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated by this Agreement and the other
Loan Documents that are to occur on or before each Closing Date shall have
occurred, all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to PEP and its counsel, and PEP
and its counsel shall have received all such counterpart originals or certified
copies of such documents as they may reasonably request.
26
(o) STOCKHOLDER APPROVAL. Stockholder approval of the issuance of
the Notes to the Purchasers shall be a condition to the Closing of the Second
Tranche of Notes.
(p) CONVERSION PRICE FOR SECOND TRANCHE. As a condition to the
closing of the Second Tranche of Notes, the Company and PEP shall have agreed
upon the Conversion Price for the Second Tranche of Notes, which Conversion
Price shall not be less than 60% of the average Sale Price of the Common Stock
during the last ten (10) trading days preceding the Closing Date for the Second
Tranche of Notes.
(q) NO MATERIAL ADVERSE EFFECT. The Company shall not have
suffered a Material Adverse Effect from and after the date of this Agreement.
(r) FEES TO AGENT. On the Closing Date for the First Tranche of
Notes, the Company shall pay to X.X. Xxxxxxxxx, Towbin ("Agent") a
non-refundable cash fee of $125,000. On the Closing Date for the Second Tranche
of Notes, the Company shall pay to Agent an additional non-refundable cash fee
of $125,000.
(s) MISCELLANEOUS. Such other conditions precedent deemed
appropriate by PEP.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY ON EACH CLOSING DATE.
The obligations of the Company to issue the Notes on each Closing Date
hereunder is subject to the satisfaction of the following conditions:
(a) NOTE PURCHASE AGREEMENT. The Company shall have received, in
form and substance satisfactory to it and its counsel, a duly executed copy of
this Agreement.
(b) AMOUNT OF AGGREGATE PURCHASE. The Purchasers shall have
purchased an aggregate of $1,425,000 of Notes at the Closing for the First
Tranche of Notes and, provided the Approval is obtained, the Purchasers shall
have purchased an additional $1,575,000 of Notes at the Closing of the Second
Tranche of Notes.
(c) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF COVENANTS. Each
representation and warranty of the Purchasers contained herein shall be correct
in all material respects (except where any representation or warranty has
already been qualified as to materially, in which case such representation or
warranty shall be correct in all respects) as though made on and as of each
Closing Date. The Purchasers shall have satisfied each of the conditions
precedent set forth herein on and as of each Closing Date.
(d) CONVERSION PRICE FOR SECOND TRANCHE. As a condition to the
closing of the Second Tranche of Notes, the Company and PEP shall have agreed
upon the Conversion Price for the Second Tranche of Notes, which Conversion
Price shall not be less than 60% of the average Sale Price of the Common Stock
during the last ten (10) trading days preceding the Closing Date for the Second
Tranche of Notes.
27
ARTICLE VI
AFFIRMATIVE AND NEGATIVE COVENANTS
The Company covenants and agrees with each Purchaser that,
until the principal of and interest on each Note, all fees and all other
expenses or amounts payable under the Notes shall have been paid in full, unless
the Requisite Purchasers shall otherwise consent in writing, the Company will,
and will cause each of its Subsidiaries to, comply with each of the following
covenants. Thereafter, the Company further agrees with each Purchaser that the
Company will, and will cause each of its Subsidiaries to, comply with each of
the covenants set forth in Sections 6.1, 6.7, 6.9 and 6.10 hereunder until all
of its Obligations are satisfied.
6.1 SECURITIES LAWS.
The Company will comply with all applicable federal and state
securities laws, rules, regulations and Orders in connection with the conversion
of the Notes. The Company will continue to use good faith efforts to continue
the listing or trading of the Common Stock on the Nasdaq National Market, Nasdaq
SmallCap Market, the OTC Bulletin Board or any other relevant market or
quotation system, if applicable. However, the Company cannot assure the
Purchasers that the Company's Common Stock will not be delisted from the Nasdaq
National Market and/or Nasdaq SmallCap Market. The Company will comply with the
Company's reporting, filing, listing and other requirements thereunder
including, without limitation, the listing of the Common Stock issuable upon
conversion of the Notes or other obligations under the rules of the Nasdaq Stock
Market, National Association of Securities Dealers or any other relevant market
or quotation system.
6.2 PRESS RELEASES.
The Company shall not, except to the extent required by Applicable Law,
or any regulation promulgated under the Exchange Act or the Securities Act,
issue any press release or otherwise make any public statement or announcement
with respect to this Agreement that identifies any Purchaser without the prior
written consent of such Purchaser, which shall not be unreasonably withheld. In
the event the Company is required by Applicable Law or regulation to issue a
press release or otherwise make a public statement or announcement with respect
to this Agreement, the other Note Documents or the transaction contemplated
hereby prior to or after the Closing that identifies the Purchasers, the Company
shall consult with the Purchasers on the form and substance of such press
release or other disclosure and provide the Purchasers with reasonable prior
written notice of the complete content of such disclosure and the reasons
therefor.
6.3 FINANCIAL STATEMENTS, REPORTS, ETC.
Furnish to each Purchaser holding Notes with an outstanding aggregate
principal amount at least equal to $500,000 promptly after the same becomes
available, but in any event by no later than ten (10) days from the filing
thereof, copies of all periodic and other SEC Documents reports, proxy
statements, other materials and amendments to any of the foregoing filed by the
28
Company or any Subsidiary of the Company with the Commission, or with the Nasdaq
National Market, Nasdaq SmallCap Market, OTC Bulletin Board and any national
securities exchange, or distributed to its stockholders, as the case may be.
6.4 LITIGATION AND OTHER NOTICES.
Upon the Company obtaining knowledge thereof, furnish to each Purchaser
prompt written notice of the following:
(a) any continuing Event of Default or Default, specifying the
nature and extent thereof and the corrective action (if any) taken or proposed
to be taken with respect thereto;
(b) the filing or commencement of, or any written threat or
written notice of intention of any person to file or commence, any action, suit
or proceeding, whether at law or in equity or by or before any Governmental
Authority, against the Company or any Affiliate thereof that if adversely
determined could reasonably be expected to result in a Material Adverse Effect;
and
(c) any development that has resulted in, or could reasonably be
expected to result in, a Material Adverse Effect.
6.5 RELATED PARTY TRANSACTIONS.
The Company shall not enter into any material transactions with
directors, officers or greater than five-percent shareholders on terms more
favorable to such directors, officers or greater than five-percent shareholders
than would be used with any unrelated third parties on an arms-length basis.
6.6 DIVIDENDS.
No dividend, whether in cash or property, shall be paid or declared,
nor shall any other distribution be made, on any Common Stock of the Company,
nor shall any shares of Common Stock of the Company be purchased, redeemed, or
otherwise acquired for value by the Company.
6.7 COMPLIANCE.
The Company shall comply with all applicable laws and regulations,
where failure to comply would create a Material Adverse Effect.
6.8 FURTHER ASSURANCES.
From time to time hereafter, the Company shall execute and deliver, and
shall cause its Subsidiaries to execute and deliver, such additional
instruments, certificates or documents, and shall take all such actions, as PEP
may reasonably request, for the purposes of implementing or effectuating the
Note Documents.
29
6.9 CURRENT PUBLIC INFORMATION.
The Company will file all reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
SEC thereunder, and will use commercially reasonable best efforts to take such
further action as any Holder may reasonably request, all to the extent required
to enable such Holders to sell Registrable Securities pursuant to Rule 144
adopted by the SEC under the Securities Act (as such rule may be amended from
time to time) or any similar rule or regulation hereafter adopted by the SEC.
6.10 SEC REPORTING.
The Company shall remain current in its SEC reporting obligations, and
use its best efforts to remain eligible to file with the Securities and Exchange
Commission a Form S-3 registration statement for a secondary offering.
6.11 STOCKHOLDER APPROVALS.
(a) The Company will solicit stockholder ratification and approval
of the transactions contemplated hereby at the Company's 2002 annual meeting of
stockholders, currently anticipated to be held on June 11, 2002. The Company's
Board of Directors will recommend approval of the transactions contemplated
hereby by the stockholders of the Company.
(b) The Company agrees that it will seek stockholder approval of
any other stock issuances for which stockholder approval is required by the
rules of the Nasdaq Stock Market.
6.12 INCURRENCE OF INDEBTEDNESS.
The Company shall not incur any indebtedness or grant any liens on
Company assets that are not approved by the Board.
6.13 RESERVATION OF SHARES.
The Company agrees that it will duly and validly reserve at all times
the Notes are outstanding a sufficient number of shares of Common Stock for
issuance upon conversion into Common Stock of the principal amount and accrued
interest under the Notes (including any additional Notes issued in payment of
interest thereunder) without any further action required on the part of the
Company (other than the Approval). When issued in accordance with the terms of
this Agreement and the other Note Documents, such shares will be duly and
validly issued, fully paid and nonassessable and will be free of any Liens or
encumbrances other than Liens or encumbances created by Purchasers.
30
ARTICLE VII
TRANSFER OF SECURITIES
7.1 RESTRICTION ON TRANSFER.
The Restricted Securities shall not be transferable except a holder of
Restricted Securities may transfer such Restricted Securities (i) to any
Affiliate of such holder or (ii) upon the conditions specified in this Article
VII, which conditions are intended to insure compliance with the provisions of
the Securities Act in respect of the transfer thereof.
7.2 RESTRICTIVE LEGENDS.
Each certificate for the Restricted Securities and each certificate for
any such securities issued to subsequent transferees of any such certificate
shall (unless otherwise permitted by the provisions of Section 7.3 hereof) be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE BLUE
SKY LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
SUBJECT TO THE CONDITIONS SPECIFIED IN THE NOTE PURCHASE
AGREEMENT, DATED AS OF MAY__, 2002, AMONG THE ISSUER HEREOF
AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF
THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER
HEREOF."
7.3 NOTICE OF TRANSFER.
(a) Each holder shall, prior to any Transfer of any Restricted
Securities (other than a Transfer referenced in clause (i) of Section 7.1
above), give written notice to the Company of such holder's intention to effect
such Transfer and to comply in all other respects with the provisions of this
Section 7.3 in making such proposed Transfer. Each such notice shall describe
the manner and circumstances of the proposed Transfer. Upon the reasonable
request by the Company, the holder delivering such notice shall deliver at the
expense of the Company a written opinion, addressed to the Company, of counsel
for such holder (which may be one of its internal counsels), stating that in the
opinion of such counsel (which opinion shall be reasonably
31
satisfactory to the Company) such proposed Transfer does not involve a
transaction requiring registration of such Restricted Securities under the
Securities Act or applicable state securities laws. Such holder shall thereupon
be entitled to Transfer the Restricted Securities in accordance with the terms
of the notice delivered to the Company, if the Company does not reasonably
object to such Transfer and request such opinion, within five days after
delivery of such notice or, if the Company does request such opinion, upon its
receipt thereof. Each certificate or other instrument evidencing the securities
issued upon the Transfer of any Restricted Securities (and each certificate or
other instrument evidencing any untransferred balance of such Restricted
Securities) shall bear the legend set forth in Section 7.2 above unless (i) such
opinion of counsel is to the effect that registration of any future Transfer is
not required by the applicable provisions of the Securities Act or (ii) the
Company shall have waived the requirement of such legend.
(b) Notwithstanding the foregoing provisions of this Section 7.3,
the restrictions imposed by this Section 7.3 upon the transferability of any
Restricted Securities shall cease and terminate when (i) any such Restricted
Securities are sold or otherwise disposed of pursuant to an effective
registration statement under the Securities Act or as otherwise contemplated by
paragraph (a) above in a manner that does not require that the Restricted
Securities so transferred continue to bear the legend set forth in Section 7.2
above or (ii) the holder of such Restricted Securities has met the requirements
for Transfer of such Restricted Securities under Rule 144(k). Whenever the
restrictions imposed by this Section shall terminate, upon the written request
of the holder of any Restricted Securities as to which such restrictions have
terminated, as promptly as practicable but in any event within ten (10) Business
Days of receipt of such request, the Company shall, without charge, issue,
register and deliver a new instrument not bearing the restrictive legend set
forth in Section 7.2 above and not containing any other reference to the
restrictions imposed by this Section.
ARTICLE VIII
MISCELLANEOUS
8.1 NOTICES.
All notices, demands and requests of any kind to be delivered to any
party hereto in connection with this Agreement shall be (a) delivered
personally, (b) sent by nationally-recognized overnight courier, (c) sent by
first class, registered or certified mail, return receipt requested or (d) sent
by facsimile, in each case to such party at its address as follows:
(i) if to the Company, to:
ServiceWare Technologies, Inc.
000 Xxxxxxxxx Xxxxxx
Xxxxx 000 Xxxxx
Xxxxxxx, XX 00000
Attention: Chief Executive Officer
Telephone No.: (000) 000-0000
Telecopier No.: (412)
32
with a copy to:
Ellis, Funk, Xxxxxxxx, Xxxxxxxx & Dokson, P.C.
0000 Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
(ii) if to any Purchaser, to such Purchaser's address set
forth in SCHEDULE 1 hereto.
with a copy to:
Mintz Xxxxx Xxxx Xxxxxx Xxxxxxx and Xxxxx P.C.
Chrysler Center
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx Xxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
Any notice, demand or request so delivered shall constitute
valid notice under this Agreement and shall be deemed to have been received (A)
on the day of actual delivery in the case of personal delivery, (B) on the next
Business Day after the date when sent in the case of delivery by
nationally-recognized overnight courier, (C) upon receipt in the case of mailing
or (D) upon receipt in the case of a facsimile transmission. Any party hereto
may from time to time by notice in writing served upon the other as aforesaid
designate a different mailing address or a different person to which all such
notices, demands or requests thereafter are to be addressed.
8.2 SURVIVAL OF AGREEMENT.
All agreements, representations and warranties contained herein or made
in writing by or on behalf of the Company in connection with the transactions
contemplated hereby shall survive the execution and delivery of this Agreement
and the other Note Documents. No termination or cancellation (regardless of
cause or procedure) of this Agreement shall in any way affect or impair the
powers, obligations, duties, rights and liabilities of the parties hereto in any
way with respect to any transaction or event occurring prior to such termination
or cancellation, or any of the representations contained in this Agreement and
the other Note Documents and all such undertakings, agreements, covenants,
warranties and representations shall unless otherwise provided herein survive
such termination or cancellation until payment in full of the Notes and
performance of all Obligations and all other monetary amounts due under this
Agreement. The Company further agrees that to the extent the Company makes a
payment or payments to the Purchasers under this Agreement or any other Note
Document, which payment or payments or
33
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy, insolvency or similar state or United States
federal law, common law or equitable cause, then, to the extent of such payment
or repayment, the Obligation or part thereof intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
received by the Purchasers. The Purchasers shall be entitled to rely upon, and
shall be deemed to have relied upon, all representations, warranties and
covenants to be performed prior to the Closing Date contained in any Note
Document, notwithstanding any knowledge of the Purchasers to the contrary, or
any contrary information delivered to the Purchasers by the Company or any other
Person.
8.3 SUCCESSORS AND ASSIGNS.
Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and permitted assigns
of such party, and all covenants, promises and agreements by or on behalf of the
Company or the Purchasers that are contained in this Agreement or any other Note
Document shall bind and inure to the benefit of their respective successors and
permitted assigns except that the Company shall not assign its rights or
obligations hereunder without the consent of the Requisite Purchasers. Each
Purchaser shall have the right, subject to the provisions of Article VII hereof,
to assign or otherwise transfer its rights under this Agreement or any Notes
held by it.
8.4 FEES, COSTS AND EXPENSES.
All fees, costs and expenses (including attorneys' fees and expenses)
incurred by the parties hereto in connection with the preparation, negotiation
and execution of this Agreement, the other Note Documents and the consummation
of the transactions contemplated hereby and thereby, shall be the sole and
exclusive responsibility of such party, except that the Company shall pay the
reasonable legal fees of Xxxxx Xxxxx Xxxx Xxxxxx Xxxxxxx and Xxxxx P.C., counsel
to PEP. In addition, the Company shall pay the reasonable cost of PEP's counsel
to prepare, file and amend (as necessary) any Schedules 13D or 13G or Forms 3, 4
or 5 required to be filed by PEP with the SEC to report the transactions
contemplated hereby and the conversion of the Notes into Common Stock.
8.5 INDEMNIFICATION.
(a) In addition to all rights and remedies available to the
Purchasers at law or in equity, the Company shall indemnify the Purchasers, each
subsequent holder of the Notes and their respective affiliates, stockholders,
officers, directors, employees, agents, representatives, counsel, successors and
permitted assigns (collectively, the "INDEMNIFIED PERSONS") and save and hold
each of them harmless against and pay on behalf of or reimburse such party as
and when incurred for any loss, liability, demand, claim, action, cause of
action, cost, damage, deficiency, tax (including any taxes imposed with respect
to such indemnity payments), penalty, fine or expense, whether or not arising
out of any claims by or on behalf of any company or any third party, including
interest, penalties, reasonable attorneys' fees and expenses and all amounts
paid in investigation, defense or settlement of any of the foregoing
(collectively, "LOSSES")
34
which any such party may suffer, sustain or become subject to, as a
result of, in connection with, relating or incidental to or by virtue of:
(i) any misrepresentation or breach of warranty on the part of
the Company under Article III of this Agreement;
(ii) without duplication of subsection (a)(i) above, any
misrepresentation in or omission from any of the representations,
warranties, statements, schedules and exhibits hereto, certificates or
other instruments or documents furnished to Purchasers by the Company
made in or pursuant to this Agreement;
(iii) any nonfulfillment or breach of any covenant or
agreement on the part of the Company under this Agreement or any other
Note Document; and
(iv) any action, demand, proceeding, investigation or claim by
any third party (including, without limitation, Governmental
Authorities) against or affecting the Company which, if successful,
would give rise to or evidence the existence of or relate to a breach
of any of the representations, warranties or covenants of the Company
under this Agreement or any other Note Document.
(b) All indemnification rights hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby indefinitely, regardless of any investigation,
inquiry or examination made for or on behalf of, or any knowledge of the
Purchasers and/or any of the Indemnified Persons or the acceptance by the
Purchasers of any certificate or opinion. In addition, for purposes of
determining whether there has been a breach, and the amount of any Losses that
are the subject matter of a claim for indemnification hereunder, each
representation and warranty contained in this Agreement shall be read without
regard and without giving effect to any materiality or knowledge standard or
qualification contained in such representation or warranty.
(c) If for any reason the indemnity provided for in this Section
8.5 is unavailable to any Indemnified Person or is insufficient to hold each
such Indemnified Person harmless from all such Losses arising with respect to
the transactions contemplated by this Agreement, then the Company shall
contribute to the amount paid or payable for such Losses in such proportion as
is appropriate to reflect not only the relative benefits received by the Company
on the one hand and such Indemnified Person on the other but also the relative
fault of the Company and the Indemnified Person as well as any relevant
equitable considerations. In addition, the Company agrees to reimburse any
Indemnified Person upon demand for all reasonable expenses (including legal
counsel fees) incurred by such Indemnified Person or any such other Person in
connection with investigating, preparing or defending any such action or claim.
The indemnity, contribution and expenses reimbursement obligations that the
Company has under this Section 8.5 shall be in addition to any liability that
the Company may otherwise have. The Company further agrees that the
indemnification and reimbursement commitments set forth in this Agreement shall
apply whether or not the Indemnified Person is a formal party to any such
lawsuits, claims or other proceedings.
35
(d) Any indemnification of the Purchasers or any other Indemnified
Person by the Company pursuant to this Section 8.5 shall be effected by wire
transfer of immediately available funds from the Company to an account
designated by the Purchasers or any other Indemnified Person within fifteen (15)
days after the determination of an obligation to the Company to make such
indemnification pursuant to this Section 8.5.
8.6 GOVERNING LAW; CONSENT TO JURISDICTION.
(a) ALL QUESTIONS CONCERNING THE CONSTRUCTION, INTERPRETATION AND
VALIDITY OF THIS AGREEMENT, THE NOTES AND THE OTHER NOTE DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR
RULE (WHETHER IN THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD
CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF
NEW YORK.
(b) THE PARTIES TO THIS AGREEMENT AGREE THAT NON-EXCLUSIVE
JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY HERETO PURSUANT TO
THIS AGREEMENT SHALL LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF
NEW YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO
IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH COURTS FOR THEMSELVES AND IN
RESPECT OF THEIR PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES HERETO
IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY
OBJECTION THAT SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE
RESOLUTION OF SUCH ACTION.
(c) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE PURCHASERS TO
BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION.
(d) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT, THE NOTES, THE OTHER NOTE DOCUMENTS OR ANY DOCUMENTS RELATED THERETO.
36
8.7 WAIVERS; AMENDMENTS.
(a) No failure or delay of the Purchasers in exercising any power
or right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Purchasers hereunder are cumulative and not exclusive of any
rights or remedies which they would otherwise have. No waiver of any provision
of this Agreement or any other Note Document or consent to any departure by the
Company therefrom shall in any event be effective unless the same shall be
authorized as provided in paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on the Company in any case shall entitle the Company
to any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Company and the Requisite Purchasers; PROVIDED that no such
amendment, waiver or modification shall (i) reduce the principal amount of any
Note or reduce the rate of interest thereon, or reduce any other amounts payable
hereunder, without the written consent of each Purchaser affected thereby, (ii)
postpone the scheduled date of payment of the principal amount of any Note, or
any interest thereon, or any other amounts payable hereunder, or reduce the
amount of, waive or excuse any such payment, without the written consent of each
Purchaser affected thereby, (iii) change any of the provisions of this Section
8.7 or the definition of "Requisite Purchasers" or any other provision hereof
specifying the number or percentage of Purchasers required to waive, amend or
modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Purchaser, or (iv) increase the
obligations of any Purchaser or otherwise disproportionately adversely affect
any of the rights of any Purchaser under this Agreement, without the written
consent of each Purchaser affected thereby.
8.8 INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given in any jurisdiction independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
8.9 NO FIDUCIARY RELATIONSHIP.
No provision in this Agreement or in any of the other Note Documents
and no course of dealing between the parties shall be deemed to create any
fiduciary duty by the Purchasers of the Company. Each Purchaser agrees that
neither any Purchaser nor the respective controlling persons, officers,
directors, partners, agents, employees or attorneys of any Purchaser shall be
liable to any other Purchaser for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Notes and the shares
of Common Stock issuable upon conversion thereof.
37
8.10 REMEDIES INDEPENDENT.
The amounts payable by the Company at any time hereunder and under the
Notes to each Purchaser shall be separate and independent debt and each holder
of a Note shall be entitled to protect and enforce its rights arising out of
this Agreement and the Notes held by it and it shall not be necessary for any
other holder to consent to, or be joined as an additional party in, any
proceedings for such purposes.
8.11 CONSTRUCTION.
The Company and the Purchasers acknowledge that each of them has had
the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the other Note Documents with its legal
counsel and that this Agreement and the other Note Documents shall be construed
as if jointly drafted by the Purchasers and the Company.
8.12 SEVERABILITY.
Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under Applicable Law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any Applicable Law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, and such invalid, void or otherwise unenforceable
provisions shall be null and void. It is the intent of the parties, however,
that any invalid, void or otherwise unenforceable provisions be automatically
replaced by other provisions which are as similar as possible in terms to such
invalid, void or otherwise unenforceable provisions but are valid and
enforceable to the fullest extent permitted by law.
8.13 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute but one contract.
8.14 HEADINGS.
Article and Section headings used herein are for convenience of
reference only and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
8.15 ENTIRE AGREEMENT.
This Agreement and the other Note Documents contain the entire
agreement of the parties and supersede any and all prior agreements among the
parties with respect to the subject matter hereof.
* * * *
38
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their authorized officers, all as of the day
and year first above written.
COMPANY
-------
SERVICEWARE TECHNOLOGIES, INC.
By:
--------------------------------------------------
Name:
Title:
PURCHASERS
----------
X.X. XXXXXXXXX, TOWBIN PRIVATE
EQUITY PARTNERS II, L.P.
By:
--------------------------------------------------
Name:
Title:
X.X. XXXXXXXXX, TOWBIN PRIVATE
EQUITY PARTNERS II-Q, L.P.
By:
--------------------------------------------------
Name:
Title:
X.X. XXXXXXXXX, TOWBIN CAPITAL
PARTNERS I, L.P.
By:
--------------------------------------------------
Name:
Title:
XXXXXXXX AND XXXXXXXX X.
XXXXXXXXX FOUNDATION, INC.
By:
--------------------------------------------------
Name:
Title:
39
-----------------------------------------------------
XXXXXXX XXXXXX
NATIONAL CITY RETIREMENT ACCOUNT
FBO XXXXXXX XXXXXX
By:
--------------------------------------------------
Name:
Title:
40
SCHEDULE 1
----------
INVESTORS AND ADDRESSES FOR NOTICES
-----------------------------------
PURCHASER PRINCIPAL AMOUNT OF
NOTES PURCHASED
----------------------------------------------------------------------------- --------------------- -------------------
First Tranche Second Tranche
----------------------------------------------------------------------------- --------------------- -------------------
X.X. Xxxxxxxxx, Towbin Private Equity Partners II, L.P.(1) $ 132,146 $ 149,734
----------------------------------------------------------------------------- --------------------- -------------------
X.X. Xxxxxxxxx, Towbin Private Equity Partners II-Q, L.P.(1) 867,854 983,360
----------------------------------------------------------------------------- --------------------- -------------------
X.X. Xxxxxxxxx, Towbin Capital Partners I, L.P.(1) 265,000 300,270
----------------------------------------------------------------------------- --------------------- -------------------
Xxxxxxxx and Xxxxxxxx X. Xxxxxxxxx Foundation, Inc.(1) 125,000 141,636
----------------------------------------------------------------------------- --------------------- -------------------
Xxxxxxx X. Xxxxxx(2) 25,000 -0-
----------------------------------------------------------------------------- --------------------- -------------------
National City Bank of Pennsylvania, Trustee under the Agreement dated June 10,000 -0-
29, 1981, Xxxxxxxx Ingersoll, P.C. Retirement Plan Share of Xxxxxxx X.
Xxxxxx(3)
----------------------------------------------------------------------------- --------------------- -------------------
TOTAL $ 1,425,000 $ 1,575,000
----------------------------------------------------------------------------- --------------------- -------------------
(1) Address is 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx, 00000
(2) Address is 000 Xxxxxxx Xxxx, Xxxxxxxxx, Xxxxxxxxxxxx 00000
(3) Address is c/o National City Bank of Pennsylvania, Attn: Xxxxxxx X.
Xxxxxxxx, 00 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxxxxx, Xxxxxxxxxxxx
00000, with a copy to Xx. Xxxxxx at c/o Buchanan Xxxxxxxxx Professional
Corporation, One Oxford Centre, 000 Xxxxx Xxxxxx, 00xx Xxxxx,
Xxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
41
EXHIBIT A-1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
PURPOSES AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE BLUE SKY LAWS.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS
SPECIFIED IN THE NOTE PURCHASE AGREEMENT, DATED AS OF MAY ____, 2002, AMONG THE
ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
ISSUER HEREOF.
10% SENIOR UNSECURED CONVERTIBLE NOTE
No. 1
U.S. $1,425,000.00 Dated: May ___, 2002
FOR VALUE RECEIVED, the undersigned, SERVICEWARE TECHNOLOGIES,
INC., a Delaware corporation (the "COMPANY"), hereby promises to pay to the
order of [______________] or its assigns (the "HOLDER"), with a place of
business at [ ] the principal sum of One Million Four Hundred Twenty-five
Thousand Dollars ($1,425,000) (plus any additional amounts payable as set forth
herein) in immediately available lawful money of the United States of America,
payable as set forth in Section 2, with interest payable as set forth in Section
3 until such unpaid principal amount shall become due and payable.
This Note is one of the Notes (herein called the "NOTES")
issued pursuant to the Note Purchase Agreement, dated as of May____, 2002 (as
amended, supplemented or otherwise modified from time to time, the "NOTE
PURCHASE AGREEMENT"), by and among the Company and the other signatories thereto
as purchasers. The Holder of this Note will be deemed, by its acceptance hereof:
(i) to have made the representations set forth in Article IV of the Note
Purchase Agreement; and (ii) to have agreed to be bound by the terms and
provisions of the Note Purchase Agreement.
No reference herein and no provision of this Note shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and interest on this Note at the times, place and rate, and
in the coin or currency, as prescribed herein or to convert this Note as
provided. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the Note Purchase Agreement.
1. CERTAIN DEFINITIONS.
As used in this Note, the following terms shall have the following
meanings:
"CHANGE IN CONTROL" shall be deemed to have occurred at such time
as any of the following events shall occur:
(a) the consummation of any transactions, the result of which is that
any "person" or "group" (as such terms are used in Section 13(d)(3) of the
Exchange Act) other than the Purchasers, owns directly or indirectly,
beneficially or of record, 35% or more of the issued and outstanding Common
Stock on a fully diluted basis;
(b) any transaction or event occurs as a result of which the Common
Stock of the Company ceases (or will cease upon consummation or immediately
following such transaction or event) to be listed on a United States national
securities exchange or approved for quotation on the Nasdaq National Market, the
Nasdaq Small Cap Market or listed for trading on the OTC Bulletin Board, "pink
sheets" or any similar United States system for securities trading; or
(c) the Company consolidates with or merges with or into another Person
(other than a Subsidiary of the Company), or sells, conveys, transfers or leases
all or substantially all of its properties and assets to any Person (other than
a Subsidiary of the Company) or any Person (other than a Subsidiary of the
Company) consolidates with or merges with or into the Company, as a result of
which, the holders of the Company's Common Stock immediately prior to such
transaction will own less than 50% of voting stock of the surviving or successor
entity immediately after the transaction; or
(d) as a result of the acquisition of stock in the Company by a person
or group other than X.X. Xxxxxxxxx, Towbin or affiliated Person, the current
members of the Board (including any additional individuals elected to the Board
with the consent of the Board and not at the suggestion of such person or group)
no longer represent a majority of the Board of the Company.
"CONVERSION NOTICE" has the meaning given to such term in Section
7(e) herein.
"CONVERSION PRICE" means $.30, subject to adjustment from time to
time as set forth in Section 7 below.
"SALE PRICE" on any date means the closing sale price per share of
Common Stock (or, if no closing sale price is reported, the average of the bid
and ask prices or, if more than one in either case, the average of the average
bid and average ask prices) on such date as reported in composite transactions
for the principal United States securities exchange on which the Common Stock is
traded or, if the Common Stock is not listed on a United States national or
regional securities exchange, (i) as reported by the National Association of
Securities Dealers Automated Quotation System or by the National Quotation
Bureau Incorporated, or (ii) if such bid and ask prices are not reported by the
National Association of Securities Dealers Automated Quotation System or by the
National Quotation Bureau Incorporated, in a manner to be determined by the
Company on the basis of such quotation as the Board considers appropriate in its
reasonable discretion.
2
2. PAYMENTS; MATURITY; RESTRICTIONS ON DISTRIBUTIONS.
(a) Payment of principal of, and accrued and unpaid interest on, this
Note or any other amounts then due to the Holder under this Note or any other
Note Document, shall be made no later than 2:00 p.m., New York City Time, in
whole, on November ___, 2003 (the "MATURITY DATE"), by wire transfer of
immediately available funds to such account as the Holder shall have specified
by written notice to the Company as provided in the Note Purchase Agreement, or
in such other manner as instructed from time to time in writing by the Holder.
(b) Whenever any payment (including principal of, premium, if any, or
interest on this Note or other amount) hereunder or under any other Note
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
such interest, or other amount, if applicable.
(c) Neither the Company nor any of its Subsidiaries shall purchase,
redeem or otherwise acquire this Note from the Holder except upon payment or
prepayment thereof in accordance with the specific terms hereof and of the Note
Purchase Agreement and, in any such purchase, redemption, prepayment or
otherwise, the Company or such Subsidiary shall have offered to purchase, redeem
or otherwise acquire, as the case may be, Notes from each holder of the other
Notes at the time outstanding upon the same terms and conditions and on a PRO
RATA basis (based upon the aggregate principal amount of the Notes then held by
each such holder). Any Notes so purchased, redeemed or otherwise acquired by the
Company or any Subsidiary of the Company shall be cancelled and not be deemed
outstanding for any purpose.
(d) Except to the extent otherwise provided herein, each payment
of principal of the Notes by the Company shall be made for the account of the
holders thereof PRO RATA in accordance with the respective unpaid principal
amounts of the Notes held by them and each payment of interest on the Notes
shall be made for the account of the holders thereof PRO RATA in accordance with
the amounts of interest on such Notes then due and payable to the respective
Purchasers.
(e) All payments by the Company hereunder shall be made without
set-off or counterclaim and in such amounts as may be necessary in order that
all such payments shall not be less than the amounts otherwise specified to be
paid hereunder.
(f) So long as any Notes shall be outstanding, no dividend,
whether in cash or property, shall be paid or declared, nor shall any other
distribution be made, on any Common Stock of the Company, nor shall any shares
of Common Stock of the Company be purchased, redeemed, or otherwise acquired for
value by the Company until all amounts then due hereunder or any amounts
hereunder in arrears shall have been paid in full, including any amounts due
under Section 3(c) hereof.
3
3. INTEREST.
(a) Interest (computed on the basis of a 360-day year consisting
of twelve 30-day months) on this Note is payable on the unpaid principal amount
hereof, accruing from the date hereof at a rate of ten percent (10%) per annum,
payable semi-annually in arrears each October 31 and April 30, commencing
October 31, 2002, until the principal hereof shall have become due and payable.
(b) Interest may be paid, at the Company's option, (i) in cash,
(ii) by the delivery of an additional promissory note (a "PIK NOTE"), such PIK
Note to be in the form of this Note and in the initial principal amount equal to
the amount of interest then due on this Note, or (iii) in a combination of cash
and PIK Notes.
(c) If any payment (including principal of, premium, if any, or
interest on this Note or other amount) due to a Holder hereunder or under any
other Note Document is not paid when due hereunder or thereunder, then the
overdue amount shall bear interest at a rate of twelve percent (12%) per annum
compounded quarterly, which interest shall accrue from the date such overdue
amount was originally due to the date of payment of such amount, including
interest thereon, has been made. All such interest on overdue amounts shall be
payable upon demand.
4. RANKING.
The obligations of the Company under the Notes shall rank
senior, including without limitation, with respect to rights to principal,
interest and other payments, and with respect to the distribution of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, to subordinated Indebtedness of the Company and to all classes and
series of Capital Stock of the Company. The obligations of the Company under the
Notes shall rank on a pari passu basis with all other senior Indebtedness of the
Company and shall be subordinate to existing or future senior secured
Indebtedness of the Company.
5. [INTENTIONALLY OMITTED]
6. CHANGE IN CONTROL PREPAYMENT.
(a) NOTICE OF CHANGE IN CONTROL. The Company shall, within five
(5) days following the occurrence of the Change in Control, give written notice
of such Change in Control (a "CHANGE IN CONTROL NOTICE") to the Holder and such
Change in Control Notice shall specify (i) the aggregate principal amount of the
Indebtedness then outstanding hereunder, (ii) the amount of unpaid interest that
will have accrued with respect to such Indebtedness to be prepaid as of the
thirtieth (30th) day following the date of the Change in Control Notice (the
"CHANGE IN CONTROL PREPAYMENT DATE") and (iii) the event or events constituting
such Change in Control.
(b) RIGHT TO PREPAYMENT. Notwithstanding any other terms of this
Note, the Holder shall have the right, but not the obligation, to require the
Company to prepay all, but not less than all, of the Indebtedness (including
accrued and unpaid interest) outstanding hereunder, by delivering to the Company
within fifteen (15) days after the Holder's receipt of a Change in Control
Notice, written notice of the Holder's demand for prepayment ("CHANGE IN CONTROL
PREPAYMENT NOTICE").
4
(c) PREPAYMENT OF OBLIGATIONS. In the event that the Holder has
delivered a Change in Control Prepayment Notice, on the Change in Control
Prepayment Date the Company shall, notwithstanding any other terms of this Note,
pay to the Holder, in cash, a repayment price equal to the sum of (i) the
principal amount of the Indebtedness then outstanding hereunder, plus (ii) all
accrued and unpaid interest to the Change in Control Prepayment Date.
7. CONVERSION.
(a) CONVERSION. Subject to and in compliance with the applicable
provisions of this Section 7, the Holder shall have the right, at such Holder's
option, at any time after the Approval and from time to time thereafter, to
convert all or any portion of the principal amount or accrued and unpaid
interest of this Note in increments of $25,000 (the "CONVERSION AMOUNT") into
that number of fully paid and nonassessable shares of Common Stock equal to the
quotient obtained by dividing (x) the portion of the Conversion Amount being
converted by (y) the Conversion Price (as defined above), as last adjusted
pursuant to Section 7(c) or 7(d) and then in effect, by surrender of this Note.
Conversion shall be deemed to have been effected on the date when delivery of
this Note is made pursuant to the provisions of the previous sentence.
(b) FRACTIONAL SHARES. The Company shall not issue fractional
shares of Common Stock or scrip upon any conversion of this Note. The number of
full shares of Common Stock issuable upon conversion shall be computed on the
basis of the portion of the Conversion Amount to be converted. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of the full amount of the Conversion Amount, the Company shall pay a
cash adjustment in respect of such fractional interest in an amount equal to the
product of (i) the Sale Price of one share of such Common Stock on the date of
conversion and (ii) such fractional interest.
(c) ADJUSTMENTS TO CONVERSION PRICE.
If, after the date of this Note, the Company:
(1) pays a dividend or makes a distribution on its Common
Stock payable in shares of its Common Stock or shares of other
Capital Stock;
(2) subdivides its shares of Common Stock;
(3) combines its shares of Common Stock;
(4) issues by reclassification of its Common Stock any shares
of its Capital Stock (other than rights, warrants or options
for its Capital Stock); or
(5) makes a distribution to the holders of its Common Stock of
its assets including shares of any Subsidiary or business unit
of the Company or debt securities or rights to purchase the
Notes (excluding ordinary cash dividends from current or
retained earnings);
5
then the conversion privilege and the Conversion Rate in
effect immediately prior to such action shall be adjusted so
that the Holder of a Note thereafter converted may receive the
number of shares of Common Stock of the Company which such
Holder would have owned immediately following such action if
such Holder had converted the Note immediately prior to such
action. The adjustment shall become effective immediately
after the record date in the case of a dividend or
distribution and immediately after the effective date in the
case of a subdivision, combination or reclassification.
If after an adjustment, a Holder of a Note upon conversion of
such Note may receive shares of two or more classes of Captial
Stock of the Company, the Conversion Rate shall thereafter be
subject to adjustment upon the occurrence of an action taken
with respect to any such class of Capital Stock as is
contemplated by this subsection (c) with respect to the Common
Stock, on terms comparable to those applicable to Common Stock
in this subsection (c).
(d) SALE OF SHARES BELOW CONVERSION PRICE.
(1) If at any time or from time to time after the date of
this Note, the Company issues or sells, or is deemed by the
provisions of subparagraph (3) below to have issued or sold,
Additional Shares of Common Stock (as hereinafter defined),
other than as provided in Section 7(c) above, or in connection
with the antidilution provisions set forth in this Section
7(d) hereof, for an Effective Price (as hereinafter defined)
less than the then effective Conversion Price, then and in
each such case, the then existing Conversion Price will be
reduced, as of the opening of business on the date of such
issue or sale, to a price determined by multiplying the
Conversion Price in effect immediately prior to such issue or
sale by a fraction, the numerator of which shall be (i) the
number of shares of Common Stock deemed outstanding (as
defined below) immediately prior to such issue or sale, plus
(ii) the number of shares of Common Stock that the aggregate
consideration received by the Company for such issuance would
purchase at such conversion price, and the denominator of
which shall be the number of shares of Common Stock deemed
outstanding (as defined below) immediately after such issue or
sale. For the purposes of the preceding sentence, the number
of shares of Common Stock deemed to be outstanding as of a
given date will be the sum of (a) the number of shares of
Common Stock actually outstanding, (b) the number of shares of
Common Stock into which the then outstanding Notes could be
converted if fully converted on the day immediately preceding
the given date, and (c) the number of shares of Common Stock
that could be obtained through the exercise or conversion in
full of all other rights, options, warrants and convertible
securities on the day immediately preceding the given date,
regardless of whether or not such securities are fully
exercisable for or convertible into Common Stock at such time.
(2) For the purposes of making any adjustment required
under this Section 7(d), the consideration received by the
Company for any issue or sale of securities will (a) to the
extent it consists of cash, be computed at the net amount of
cash
6
received by the Company without deduction of any expenses
payable by the Company, (b) to the extent it consists of
property other than cash, be computed at the fair market value
of that property as reasonably determined by the Board , and
(c) to the extent that Additional Shares of Common Stock,
Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock
or Convertible Securities are issued or sold together with
other stock or securities or other assets of the Company for a
consideration that covers both, be computed as the portion of
the consideration so received that may be reasonably
determined in good faith by the Board of Directors of the
Company to be allocable to such Additional Shares of Common
Stock, Convertible Securities or rights or options.
(3) For the purpose of the adjustment required under
subparagraph (1) above, if the Company issues or sells any
rights or options for the purchase of, or stock or other
securities exchangeable for or convertible into, Additional
Shares of Common Stock (such exchangeable or convertible stock
or securities being herein referred to as "Convertible
Securities") and if the Effective Price of such Additional
Shares of Common Stock is less than the Conversion Price in
effect, the Company will be deemed to have issued at the time
of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common
Stock issuable upon exercise or conversion or exchange thereof
and to have received consideration for the issuance of such
shares an amount equal to the total amount of consideration,
if any, received by the Company for the issuance of such
rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of
consideration, if any, payable to the Company upon the
exercise of such rights or options, plus in the case of
Convertible Securities, the minimum amounts of consideration,
if any, payable to the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided
that if in the case of Convertible Securities the minimum
amounts of such consideration cannot be ascertained, but are a
function of antidilution or similar protective clauses, the
Company shall be deemed to have received the minimum amounts
of consideration without reference to such clauses; provided
further that if the minimum amount of consideration payable to
the Company upon the exercise or conversion of rights, options
or Convertible Securities is reduced over time or on the
occurrence or non-occurrence of specified events, including by
reason of antidilution adjustments, the Effective Price will
be recalculated using the figure to which such minimum amount
of consideration is reduced; provided further that if the
minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or
Convertible Securities is subsequently increased, the
Effective Price will be again recalculated using the increased
minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or
Convertible Securities. No further adjustment of the
Conversion Price, as adjusted in each case upon the issuance
of such rights, options or Convertible Securities, will be
made as a result of the actual issuance of Additional Shares
of Common Stock on the exercise of any such rights or options
or the exchange or conversion of any such Convertible
Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall
expire without having been exercised, the Conversion Price, as
adjusted upon the issuance of such rights, options or
Convertible Securities, will be readjusted to the Conversion
Price that would have been in effect had an adjustment been
made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if
any, actually issued or sold on the exercise of such rights or
options
7
or upon such conversion and that such Additional Shares of
Common Stock, if any, were issued or sold for the
consideration, if any, actually received by the Company for
the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or
selling the Convertible Securities actually converted, plus
the consideration, if any, actually received by the Company
(other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) on the conversion of
such Convertible Securities, provided that such readjustment
shall not apply to Notes converted into Common Stock prior to
the readjustment.
(4) "Additional Shares of Common Stock" means all shares
of Common Stock issued by the Company or deemed to be issued
pursuant to Section 7(d)(3), whether or not subsequently
reacquired or retired by the Company, other than (A) options
to purchase up to 8,819,620 shares of Common Stock reserved or
to be reserved (after stockholder approval of a proposed
increase) for issuance to employees, officers or directors of
or consultants or advisors to the Company pursuant to the
Company's Stock Option Plans and the shares of Common Stock
issuable upon exercise of such options, (B) Convertible
Securities outstanding as of the date of this Note and the
shares of Common Stock issuable upon exercise or conversion of
such Convertible Securities, and (c) shares of Common Stock
issuable upon conversion of any Notes. The "Effective Price"
of Additional Shares of Common Stock means the quotient
determined by dividing (i) the aggregate consideration
received, or deemed to have been received by the Company under
Section 7(d)(3), for the issuance of such Additional Shares of
Common Stock, by (ii) the total number of Additional Shares of
Common Stock issued or sold, or deemed to have been issued or
sold, by the Company under this Section.
(e) RESTRICTION ON MAXIMUM NUMBER OF SHARES TO BE ISSUED UPON
CONVERSION. Notwithstanding any provision of this Section 7 to the contrary, in
no event shall the aggregate number of shares of Common Stock issuable upon
conversion of all Notes issued as a part of the Initial Tranche exceed twenty
percent (20%) of the voting power of the Company's outstanding capital stock as
of the date of this Note, determined in accordance with Rule 4350(i) of the
Nasdaq Stock Market, until such time as the issuance of all of the Notes shall
have been approved by the stockholders of the Company.
(f) NOTICE OF ADJUSTMENT. Upon each adjustment of the Conversion
Price, the Company shall give prompt written notice thereof to the Holder, which
notice shall state the Conversion Price resulting from such adjustment and the
increase or decrease, if any, in the number of shares issuable upon the
conversion of this Note, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
8
(g) EXERCISE OF CONVERSION RIGHT. In order to exercise the
Holder's conversion right hereunder, the Holder shall surrender this Note to the
office of the Company and shall deliver to the Company written notice of such
conversion (the "CONVERSION NOTICE") at least two (2) Business Days prior to the
intended exercise thereof specifying the portion of the Conversion Amount to be
converted into Common Stock. Upon receipt of any Conversion Notice, the Company
shall within two (2) Business Days (or at such later time as to which the
Company and the Holder may agree) deliver to the address of the Holder as set
forth above, (i) at the Company's expense (including any stamp taxes or similar
governmental charges), the appropriate number of duly or validly issued and
fully paid and nonassessable shares of Common Stock and one or more stock
certificates therefor (in such number and registered in such names as the Holder
may direct), (ii) to the extent this Note is converted in part only, a new Note
(with the same terms as this Note) in principal amount equal to the unconverted
portion of such Note and, to the extent that the entire Conversion Amount is
converted and fractional shares would otherwise be issued, cash pursuant to
Section 7(b). Such conversion shall be deemed to have been made immediately at
the close of business on the Business Day of such surrender of this Note, and
the Holder shall be treated for all purposes as the record holder of such shares
of Common Stock as of such date.
(h) SUFFICIENT SHARES OF EQUITY SECURITIES. Upon receipt of any
Conversion Notice, the Company shall take all necessary measures, including the
filing of an amendment to its Articles of Incorporation, to make available
enough shares of Common Stock to allow the conversion to occur as promptly as
practicable. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect such conversion, the Company will
take such corporate actions as may, in the opinion of Holder's counsel, be
necessary to increase the Company's authorized, unreserved and unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purposes. Upon delivery, such shares shall be duly and validly issued and fully
paid and nonassessable.
(i) If at any time or from time to time while any principal amount
of this Note is outstanding, there is a capital reorganization of the Common
Stock or the merger or consolidation of the Company with or into another
corporation or another entity or person or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares, as a part of
such capital reorganization, provision shall be made so that the Holder shall
thereafter be entitled to receive upon conversion of this Note the number of
shares of stock or other securities or property of the Company to which a holder
of the number of shares of Common Stock deliverable upon conversion would have
been entitled on such capital reorganization. In any such case, appropriate
adjustment shall be made in the application of the provision of this subsection
(i) with respect to the rights of the Holder after the capital reorganization to
the end that the provisions of this Section 7 (including adjustment of the
Conversion Price then in effect and the number of shares issuable upon
conversion of the Note) shall be applicable after that event and be as nearly
equivalent as practicable.
9
8. EVENTS OF DEFAULT.
If any of the following events (each an "EVENT OF DEFAULT")
shall occur and be continuing:
(a) PAYMENT OF PRINCIPAL. The Company shall fail to make any
payment of principal on this Note when and as the same shall become due and
payable including at the due date thereof, by acceleration or otherwise.
(b) PAYMENT OF INTEREST AND FEES. The Company shall fail to make
any payment of interest on this Note, or any fee or any other amount payable
hereunder or under this Note when and as the same shall become due and payable
including at the due date thereof, by acceleration or otherwise, and such
failure shall continue unremedied for five (5) Business Days after the due date
thereof.
(c) COVENANT DEFAULTS. The Company shall default in the due
observance or performance of any covenant or agreement to be observed or
performed under any Note Document (other than a covenant which is dealt with
specifically elsewhere in this SECTION 8) and such default shall continue
unremedied for thirty (30) days after the occurrence of such default.
(d) MISREPRESENTATIONS. Any representation, warranty or other
statement made or furnished to the Purchasers by or on behalf of the Company,
any Note Document or any instrument, certificate or financial statement
furnished (in compliance with or in reference thereto) proves to have been false
or misleading in any material respect when made or furnished and could be
reasonably expected to result in a Material Adverse Effect.
(e) OTHER DEFAULTS. The Company shall be in payment default on any
Indebtedness (including any of the other Notes) which is outstanding in a
principal amount in excess of $250,000 in the aggregate beyond any applicable
period of grace, or if any event shall occur or condition shall exist in respect
of any Indebtedness which is outstanding in a principal amount in excess of
$250,000 or under any evidence of any such Indebtedness or of any mortgage,
indenture or other agreement relating thereto, which shall have caused the
acceleration of the payment of such Indebtedness without such Indebtedness being
discharged or such acceleration having been cured, waived, rescinded or
annulled.
(f) VOLUNTARY INSOLVENCY AND RELATED PROCEEDINGS. The Company or
any of its Subsidiaries shall (i) voluntarily commence any proceeding or file
any petition seeking relief or reorganization under Title 11 of the United
States Code, or any other federal, state or foreign bankruptcy, insolvency or
similar law, (ii) consent to the institution of, or fail to controvert in a
timely and appropriate manner, any such proceeding or the filing of any such
petition, (iii) apply for, consent to the appointment of, or a court of
competent jurisdiction shall enter an order appointing, a receiver, trustee,
custodian, sequestrator or officer with similar powers of itself or for any
substantial part of its property or assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) fail generally to
pay its debts as they become due, (vii) shall be adjudicated insolvent or (viii)
take any corporate or stockholder action in furtherance of any of the foregoing.
10
(g) INVOLUNTARY INSOLVENCY AND RELATED PROCEEDINGS. (i) An
involuntary proceeding shall be commenced or an involuntary petition shall be
filed in a court of competent jurisdiction seeking (x) relief in respect of the
Company or any of its Subsidiaries or of any substantial part of the property or
assets thereof, under Title 11 of the United States Code or any other federal,
state or foreign bankruptcy, insolvency or similar law, (y) the appointment of a
receiver, trustee, custodian, sequestrator or similar official for any such
Person or for any substantial part of its property or (z) the winding-up or
liquidation of any such Person, and any such proceeding, petition or order shall
continue unstayed and in effect for a period of sixty (60) consecutive days or
(ii) a warrant of attachment, execution or similar process shall be issued
against any substantial part of the property of the Company and the enforcement
of such attachment, execution or similar process is not stayed pending appeal.
(h) BUSINESS DISRUPTION; CONDEMNATION. There shall occur a
cessation of a substantial part of the business of the Company for a period
which significantly affects the Company's capacity to continue its business, on
a profitable basis; or the Company shall suffer the loss or revocation of any
license or permit now held or hereafter acquired by the Company which is
necessary to the continued or lawful operation of its business; or the Company
shall be enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part of its business
affairs; or any material lease or agreement pursuant to which the Company
leases, uses or occupies any property shall be canceled or terminated prior to
the expiration of its stated term; or any material portion of any property of
the Company shall be taken through condemnation or the value of such property
shall be impaired through condemnation.
(i) CHALLENGE TO NOTE DOCUMENT. This Note or any other Note
Document shall cease to be in full force and effect and enforceable in
accordance with its terms, or the Company shall assert the invalidity of any of
the foregoing.
(j) JUDGMENTS. A judgment or judgments for the payment of money in
excess of $200,000 in the aggregate shall be rendered against the Company and
the same shall not (i) be fully covered by insurance or other comparable bond,
or (ii) within sixty (60) days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been discharged
within sixty (60) days after the expiration of any such stay; then, and in any
such event (other than an event described in paragraphs (f) or (g) above), and
at any time thereafter during the continuance of such event, the Holder may,
take any of the following actions and at the same or different times: (i)
declare this Note to be forthwith due and payable, whereupon the entire unpaid
principal of this Note, together with accrued but unpaid interest thereon and
all other Obligations under the Note Documents, shall become forthwith due and
payable in full in cash, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Company,
anything contained herein or in any other Note Document to the contrary
notwithstanding, or (ii) exercise any and all other remedies provided under any
Note Document upon the occurrence and continuance of an Event of Default;
PROVIDED, HOWEVER, that with respect to the occurrence of an Event of Default
described in paragraphs (g) or (h) above, the principal of this Note, together
with accrued but unpaid interest and fees hereon and any other liabilities of
the Company to the Holder accrued hereunder or any other Note Document, shall
automatically become due and payable in full in cash, all without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Company, anything contained herein or in any other Note Document
to the contrary notwithstanding.
11
(k) (i) Any Reportable Event with respect to a Plan shall occur;
(ii) the Company or any ERISA Affiliate shall be notified by the sponsor of a
Multiemployer Plan that it has incurred withdrawal liability to such
Mulitemployer Plan in an amount which, when aggregate with all other withdrawal
liabilities incurred by the Company or any ERISA Affiliate (determined as of the
date of such notification) has or is reasonably likely to have a Material
Adverse Effect; (iii) the Company or any ERISA Affiliate shall be notified by
the sponsor of a Mulitemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, partitioned or reorganized, within the
meaning of Title IV of ERISA, if liability of the Company and its ERISA
Affiliates resulting from such reorganization, termination, partitioning or
reorganization has or is reasonably likely to have a Material Adverse Effect; or
(iv) the Company or any ERISA Affiliate incur aggregate liabilities in
connection with a withdrawal from a Multiple Employer Plan or the termination of
a Multiple Employer Plan that have or are reasonably likely to have a Material
Adverse Effect.
9. AMENDMENTS, ETC.
No amendment or waiver of any provision of this Note, nor
consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Holder and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
10. NOTICES, ETC.
All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed facsimile if sent during
normal business hours of the recipient, if not, then on the next business day;
(iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
address as set forth on the first page hereof or at such other address as such
party may designate by five (5) days advance written notice to the other parties
hereto.
11. LOST, ETC. SECURITIES.
Upon receipt of evidence reasonably satisfactory to the
Company (an affidavit of the Holder being satisfactory) of the ownership and the
loss, theft, destruction or mutilation of this Note, and in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company (if the Holder is a financial institution or other institutional
investor, its own agreement being satisfactory) or, in the case of any such
mutilation, upon surrender of this Note, the Company shall, without charge,
issue, register and deliver in lieu of such Note a new Note of like kind
representing the same rights represented by and dated the date of such lost,
stolen, destroyed or mutilated Note. Any such new Note shall constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed Note shall be at any time enforceable by
any Person.
12
12. NO WAIVER; REMEDIES.
No failure on the part of the Holder to exercise, and no delay
in exercising, any right hereunder or under this Note shall operate as a waiver
hereof, nor shall any single or partial exercise of any right hereunder or under
this Note preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
13. COSTS, EXPENSES AND TAXES.
The Company agrees to pay the Holder on demand after and
during the continuation of an Event of Default all reasonable costs and expenses
arising in connection with the administration, enforcement and collection of
this Note and the other documents to be delivered hereunder, including, without
limitation, reasonable attorneys' fees and expenses and court costs of the
Holder with respect thereto and with respect to advising the Holder as to its
rights and responsibilities under this Note. In addition, the Company shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Note, or the conversion of
this Note to Common Stock pursuant to Section 7 hereof, and any other documents
to be delivered hereunder, and agrees to save the Holder harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes.
14. ENTIRE AGREEMENT.
This Note and the Note Purchase Agreement contain the entire
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
15. SUCCESSORS AND ASSIGNS.
The respective rights and obligations of the Company and the
Holder shall be binding upon and inure to the benefit of their respective
successors and assigns, except that the Company may not assign this Note without
the consent of the Holder; PROVIDED, HOWEVER, that subject to the provisions of
this Note, such consent shall not be required in connection with a merger of the
Company with or into another Person or the sale of all or substantially all of
the assets of the Company.
16. GOVERNING LAW.
This Note shall be governed by and construed in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of New York, as if this Note were an agreement to be fully performed in New
York.
13
IN WITNESS WHEREOF, the Company has caused this 10% Senior
Unsecured Convertible Note to be executed by its duly authorized representative
as of the date first above written.
SERVICEWARE TECHNOLOGIES, INC.
By:
-------------------------------------
Name:
Title:
14
EXHIBIT A-2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
PURPOSES AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE BLUE SKY LAWS.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS
SPECIFIED IN THE NOTE PURCHASE AGREEMENT, DATED AS OF MAY ____, 2002, AMONG THE
ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
ISSUER HEREOF.
10% SENIOR UNSECURED CONVERTIBLE NOTE
No. 1
U.S. $1,575,000.00 Dated: June ___, 2002
FOR VALUE RECEIVED, the undersigned, SERVICEWARE TECHNOLOGIES,
INC., a Delaware corporation (the "COMPANY"), hereby promises to pay to the
order of [______________] or its assigns (the "HOLDER"), with a place of
business at [ ] the principal sum of One Million Five Hundred Seventy -five
Thousand Dollars ($1,575,000) (plus any additional amounts payable as set forth
herein) in immediately available lawful money of the United States of America,
payable as set forth in Section 2, with interest payable as set forth in Section
3 until such unpaid principal amount shall become due and payable.
This Note is one of the Notes (herein called the "NOTES")
issued pursuant to the Note Purchase Agreement, dated as of May ____, 2002 (as
amended, supplemented or otherwise modified from time to time, the "NOTE
PURCHASE AGREEMENT"), by and among the Company and the other signatories thereto
as purchasers. The Holder of this Note will be deemed, by its acceptance hereof:
(i) to have made the representations set forth in Article IV of the Note
Purchase Agreement; and (ii) to have agreed to be bound by the terms and
provisions of the Note Purchase Agreement.
No reference herein and no provision of this Note shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and interest on this Note at the times, place and rate, and
in the coin or currency, as prescribed herein or to convert this Note as
provided. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the Note Purchase Agreement.
1. CERTAIN DEFINITIONS.
As used in this Note, the following terms shall have the following
meanings:
"CHANGE IN CONTROL" shall be deemed to have occurred at such time
as any of the following events shall occur:
(a) the consummation of any transactions, the result of which is
that any "person" or "group" (as such terms are used in Section 13(d)(3) of the
Exchange Act) other than the Purchasers, owns directly or indirectly,
beneficially or of record, 35% or more of the issued and outstanding Common
Stock on a fully diluted basis;
(b) any transaction or event occurs as a result of which the
Common Stock of the Company ceases (or will cease upon consummation or
immediately following such transaction or event) to be listed on a United States
national securities exchange or approved for quotation on the Nasdaq National
Market, the Nasdaq Small Cap Market or listed for trading on the OTC Bulletin
Board, "pink sheets" or any similar United States system for securities trading;
or
(c) the Company consolidates with or merges with or into another
Person (other than a Subsidiary of the Company), or sells, conveys, transfers or
leases all or substantially all of its properties and assets to any Person
(other than a Subsidiary of the Company) or any Person (other than a Subsidiary
of the Company) consolidates with or merges with or into the Company, as a
result of which, the holders of the Company's Common Stock immediately prior to
such transaction will own less than 50% of voting stock of the surviving or
successor entity immediately after the transaction; or
(d) as a result of the acquisition of stock in the Company by a
person or group other than X.X. Xxxxxxxxx, Towbin or affiliated Person, the
current members of the Board (including any additional individuals elected to
the Board with the consent of the Board and not at the suggestion of such person
or group) no longer represent a majority of the Board of the Company.
"CONVERSION NOTICE" has the meaning given to such term in Section
7(e) herein.
"CONVERSION PRICE" means $.___, subject to adjustment from time to
time as set forth in Section 7 below.
"SALE PRICE" on any date means the closing sale price per share of
Common Stock (or, if no closing sale price is reported, the average of the bid
and ask prices or, if more than one in either case, the average of the average
bid and average ask prices) on such date as reported in composite transactions
for the principal United States securities exchange on which the Common Stock is
traded or, if the Common Stock is not listed on a United States national or
regional securities exchange, (i) as reported by the National Association of
Securities Dealers Automated Quotation System or by the National Quotation
Bureau Incorporated, or (ii) if such bid and ask prices are not reported by the
National Association of Securities Dealers Automated Quotation System or by the
National Quotation Bureau Incorporated, in a manner to be determined by the
Company on the basis of such quotation as the Board considers appropriate in its
reasonable discretion.
2
2. PAYMENTS; MATURITY; RESTRICTIONS ON DISTRIBUTIONS.
(a) Payment of principal of, and accrued and unpaid interest on,
this Note or any other amounts then due to the Holder under this Note or any
other Note Document, shall be made no later than 2:00 p.m., New York City Time,
in whole, on December ___, 2003 [18 months after the issuance date] (the
"MATURITY DATE"), by wire transfer of immediately available funds to such
account as the Holder shall have specified by written notice to the Company as
provided in the Note Purchase Agreement, or in such other manner as instructed
from time to time in writing by the Holder.
(b) Whenever any payment (including principal of, premium, if any,
or interest on this Note or other amount) hereunder or under any other Note
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
such interest, or other amount, if applicable.
(c) Neither the Company nor any of its Subsidiaries shall
purchase, redeem or otherwise acquire this Note from the Holder except upon
payment or prepayment thereof in accordance with the specific terms hereof and
of the Note Purchase Agreement and, in any such purchase, redemption, prepayment
or otherwise, the Company or such Subsidiary shall have offered to purchase,
redeem or otherwise acquire, as the case may be, Notes from each holder of the
other Notes at the time outstanding upon the same terms and conditions and on a
PRO RATA basis (based upon the aggregate principal amount of the Notes then held
by each such holder). Any Notes so purchased, redeemed or otherwise acquired by
the Company or any Subsidiary of the Company shall be cancelled and not be
deemed outstanding for any purpose.
(d) Except to the extent otherwise provided herein, each payment
of principal of the Notes by the Company shall be made for the account of the
holders thereof PRO RATA in accordance with the respective unpaid principal
amounts of the Notes held by them and each payment of interest on the Notes
shall be made for the account of the holders thereof PRO RATA in accordance with
the amounts of interest on such Notes then due and payable to the respective
Purchasers.
(e) All payments by the Company hereunder shall be made without
set-off or counterclaim and in such amounts as may be necessary in order that
all such payments shall not be less than the amounts otherwise specified to be
paid hereunder.
(f) So long as any Notes shall be outstanding, no dividend,
whether in cash or property, shall be paid or declared, nor shall any other
distribution be made, on any Common Stock of the Company, nor shall any shares
of Common Stock of the Company be purchased, redeemed, or otherwise acquired for
value by the Company until all amounts then due hereunder or any amounts
hereunder in arrears shall have been paid in full, including any amounts due
under Section 3(c) hereof.
3
3. INTEREST.
(a) Interest (computed on the basis of a 360-day year consisting
of twelve 30-day months) on this Note is payable on the unpaid principal amount
hereof, accruing from the date hereof at a rate of ten percent (10%) per annum,
payable semi-annually in arrears each October 31 and April 30, commencing
October 31, 2002, until the principal hereof shall have become due and payable.
(b) Interest may be paid, at the Company's option, (i) in cash,
(ii) by the delivery of an additional promissory note (a "PIK NOTE"), such PIK
Note to be in the form of this Note and in the initial principal amount equal to
the amount of interest then due on this Note, or (iii) in a combination of cash
and PIK Notes.
(c) If any payment (including principal of, premium, if any, or
interest on this Note or other amount) due to a Holder hereunder or under any
other Note Document is not paid when due hereunder or thereunder, then the
overdue amount shall bear interest at a rate of twelve percent (12%) per annum
compounded quarterly, which interest shall accrue from the date such overdue
amount was originally due to the date of payment of such amount, including
interest thereon, has been made. All such interest on overdue amounts shall be
payable upon demand.
4. RANKING.
The obligations of the Company under the Notes shall rank
senior, including without limitation, with respect to rights to principal,
interest and other payments, and with respect to the distribution of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, to subordinated Indebtedness of the Company and to all classes and
series of Capital Stock of the Company. The obligations of the Company under the
Notes shall rank on a pari passu basis with all other senior Indebtedness of the
Company and shall be subordinate to existing or future senior secured
Indebtedness of the Company.
5. [INTENTIONALLY OMITTED]
6. CHANGE IN CONTROL PREPAYMENT.
(a) NOTICE OF CHANGE IN CONTROL. The Company shall, within five
(5) days following the occurrence of the Change in Control, give written notice
of such Change in Control (a "CHANGE IN CONTROL NOTICE") to the Holder and such
Change in Control Notice shall specify (i) the aggregate principal amount of the
Indebtedness then outstanding hereunder, (ii) the amount of unpaid interest that
will have accrued with respect to such Indebtedness to be prepaid as of the
thirtieth (30th) day following the date of the Change in Control Notice (the
"CHANGE IN CONTROL PREPAYMENT DATE") and (iii) the event or events constituting
such Change in Control.
(b) RIGHT TO PREPAYMENT. Notwithstanding any other terms of this
Note, the Holder shall have the right, but not the obligation, to require the
Company to prepay all, but not less than all, of the Indebtedness (including
accrued and unpaid interest) outstanding hereunder, by delivering to the Company
within fifteen (15) days after the Holder's receipt of a Change in Control
Notice, written notice of the Holder's demand for prepayment ("CHANGE IN CONTROL
PREPAYMENT NOTICE").
4
(c) PREPAYMENT OF OBLIGATIONS. In the event that the Holder has
delivered a Change in Control Prepayment Notice, on the Change in Control
Prepayment Date the Company shall, notwithstanding any other terms of this Note,
pay to the Holder, in cash, a repayment price equal to the sum of (i) the
principal amount of the Indebtedness then outstanding hereunder, plus (ii) all
accrued and unpaid interest to the Change in Control Prepayment Date.
7. CONVERSION.
(a) CONVERSION. Subject to and in compliance with the applicable
provisions of this Section 7, the Holder shall have the right, at such Holder's
option, at any time after the Approval and from time to time thereafter, to
convert all or any portion of the principal amount or accrued and unpaid
interest of this Note in increments of $25,000 (the "CONVERSION AMOUNT") into
that number of fully paid and nonassessable shares of Common Stock equal to the
quotient obtained by dividing (x) the portion of the Conversion Amount being
converted by (y) the Conversion Price (as defined above), as last adjusted
pursuant to Section 7(c) or 7(d) and then in effect, by surrender of this Note.
Conversion shall be deemed to have been effected on the date when delivery of
this Note is made pursuant to the provisions of the previous sentence.
(b) FRACTIONAL SHARES. The Company shall not issue fractional
shares of Common Stock or scrip upon any conversion of this Note. The number of
full shares of Common Stock issuable upon conversion shall be computed on the
basis of the portion of the Conversion Amount to be converted. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of the full amount of the Conversion Amount, the Company shall pay a
cash adjustment in respect of such fractional interest in an amount equal to the
product of (i) the Sale Price of one share of such Common Stock on the date of
conversion and (ii) such fractional interest.
(c) ADJUSTMENTS TO CONVERSION PRICE.
If, after the date of this Note, the Company:
(1) pays a dividend or makes a distribution on its Common
Stock payable in shares of its Common Stock or shares
of other Capital Stock;
(2) subdivides its shares of Common Stock;
(3) combines its shares of Common Stock;
(4) issues by reclassification of its Common Stock any
shares of its Capital Stock (other than rights,
warrants or options for its Capital Stock); or
(5) makes a distribution to the holders of its Common
Stock of its assets including shares of any
Subsidiary or business unit of the Company or debt
securities or rights to purchase the Notes (excluding
ordinary cash dividends from current or retained
earnings);
5
then the conversion privilege and the Conversion Rate in
effect immediately prior to such action shall be adjusted so
that the Holder of a Note thereafter converted may receive the
number of shares of Common Stock of the Company which such
Holder would have owned immediately following such action if
such Holder had converted the Note immediately prior to such
action. The adjustment shall become effective immediately
after the record date in the case of a dividend or
distribution and immediately after the effective date in the
case of a subdivision, combination or reclassification.
If after an adjustment, a Holder of a Note upon conversion of
such Note may receive shares of two or more classes of Captial
Stock of the Company, the Conversion Rate shall thereafter be
subject to adjustment upon the occurrence of an action taken
with respect to any such class of Capital Stock as is
contemplated by this subsection (c) with respect to the Common
Stock, on terms comparable to those applicable to Common Stock
in this subsection (c).
(d) SALE OF SHARES BELOW CONVERSION PRICE.
(1) If at any time or from time to time after the date of
this Note, the Company issues or sells, or is deemed by the
provisions of subparagraph (3) below to have issued or sold,
Additional Shares of Common Stock (as hereinafter defined),
other than as provided in Section 7(c) above, or in connection
with the antidilution provisions set forth in this Section
7(d) hereof, for an Effective Price (as hereinafter defined)
less than the then effective Conversion Price, then and in
each such case, the then existing Conversion Price will be
reduced, as of the opening of business on the date of such
issue or sale, to a price determined by multiplying the
Conversion Price in effect immediately prior to such issue or
sale by a fraction, the numerator of which shall be (i) the
number of shares of Common Stock deemed outstanding (as
defined below) immediately prior to such issue or sale, plus
(ii) the number of shares of Common Stock that the aggregate
consideration received by the Company for such issuance would
purchase at such conversion price, and the denominator of
which shall be the number of shares of Common Stock deemed
outstanding (as defined below) immediately after such issue or
sale. For the purposes of the preceding sentence, the number
of shares of Common Stock deemed to be outstanding as of a
given date will be the sum of (a) the number of shares of
Common Stock actually outstanding, (b) the number of shares of
Common Stock into which the then outstanding Notes could be
converted if fully converted on the day immediately preceding
the given date, and (c) the number of shares of Common Stock
that could be obtained through the exercise or conversion in
full of all other rights, options, warrants and convertible
securities on the day immediately preceding the given date,
regardless of whether or not such securities are fully
exercisable for or convertible into Common Stock at such time.
(2) For the purposes of making any adjustment required
under this Section 7(d), the consideration received by the
Company for any issue or sale of securities will (a) to the
extent it consists of cash, be computed at the net amount of
cash
6
received by the Company without deduction of any expenses
payable by the Company, (b) to the extent it consists of
property other than cash, be computed at the fair market value
of that property as reasonably determined by the Board , and
(c) to the extent that Additional Shares of Common Stock,
Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock
or Convertible Securities are issued or sold together with
other stock or securities or other assets of the Company for a
consideration that covers both, be computed as the portion of
the consideration so received that may be reasonably
determined in good faith by the Board of Directors of the
Company to be allocable to such Additional Shares of Common
Stock, Convertible Securities or rights or options.
(3) For the purpose of the adjustment required under
subparagraph (1) above, if the Company issues or sells any
rights or options for the purchase of, or stock or other
securities exchangeable for or convertible into, Additional
Shares of Common Stock (such exchangeable or convertible stock
or securities being herein referred to as "Convertible
Securities") and if the Effective Price of such Additional
Shares of Common Stock is less than the Conversion Price in
effect, the Company will be deemed to have issued at the time
of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common
Stock issuable upon exercise or conversion or exchange thereof
and to have received consideration for the issuance of such
shares an amount equal to the total amount of consideration,
if any, received by the Company for the issuance of such
rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of
consideration, if any, payable to the Company upon the
exercise of such rights or options, plus in the case of
Convertible Securities, the minimum amounts of consideration,
if any, payable to the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided
that if in the case of Convertible Securities the minimum
amounts of such consideration cannot be ascertained, but are a
function of antidilution or similar protective clauses, the
Company shall be deemed to have received the minimum amounts
of consideration without reference to such clauses; provided
further that if the minimum amount of consideration payable to
the Company upon the exercise or conversion of rights, options
or Convertible Securities is reduced over time or on the
occurrence or non-occurrence of specified events, including by
reason of antidilution adjustments, the Effective Price will
be recalculated using the figure to which such minimum amount
of consideration is reduced; provided further that if the
minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or
Convertible Securities is subsequently increased, the
Effective Price will be again recalculated using the increased
minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or
Convertible Securities. No further adjustment of the
Conversion Price, as adjusted in each case upon the issuance
of such rights, options or Convertible Securities, will be
made as a result of the actual issuance of Additional Shares
of Common Stock on the exercise of any such rights or options
7
or the exchange or conversion of any such Convertible
Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall
expire without having been exercised, the Conversion Price, as
adjusted upon the issuance of such rights, options or
Convertible Securities, will be readjusted to the Conversion
Price that would have been in effect had an adjustment been
made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if
any, actually issued or sold on the exercise of such rights or
options or upon such conversion and that such Additional
Shares of Common Stock, if any, were issued or sold for the
consideration, if any, actually received by the Company for
the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or
selling the Convertible Securities actually converted, plus
the consideration, if any, actually received by the Company
(other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) on the conversion of
such Convertible Securities, provided that such readjustment
shall not apply to Notes converted into Common Stock prior to
the readjustment.
(4) "Additional Shares of Common Stock" means all shares
of Common Stock issued by the Company or deemed to be issued
pursuant to Section 7(d)(3), whether or not subsequently
reacquired or retired by the Company, other than (A) options
to purchase up to 8,819,620 shares of Common Stock reserved or
to be reserved (after stockholder approval of a proposed
increase) for issuance to employees, officers or directors of
or consultants or advisors to the Company pursuant to the
Company's Stock Option Plans and the shares of Common Stock
issuable upon exercise of such options, (B) Convertible
Securities outstanding as of the date of this Note and the
shares of Common Stock issuable upon exercise or conversion of
such Convertible Securities, and (c) shares of Common Stock
issuable upon conversion of any Notes. The "Effective Price"
of Additional Shares of Common Stock means the quotient
determined by dividing (i) the aggregate consideration
received, or deemed to have been received by the Company under
Section 7(d)(3), for the issuance of such Additional Shares of
Common Stock, by (ii) the total number of Additional Shares of
Common Stock issued or sold, or deemed to have been issued or
sold, by the Company under this Section.
(e) [Intentionally Omitted]
(f) NOTICE OF ADJUSTMENT. Upon each adjustment of the Conversion
Price, the Company shall give prompt written notice thereof to the Holder, which
notice shall state the Conversion Price resulting from such adjustment and the
increase or decrease, if any, in the number of shares issuable upon the
conversion of this Note, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(g) EXERCISE OF CONVERSION RIGHT. In order to exercise the
Holder's conversion right hereunder, the Holder shall surrender this Note to the
office of the Company and shall deliver to the Company written notice of such
conversion (the "CONVERSION NOTICE") at least two (2) Business Days prior to the
intended exercise thereof specifying the portion of the Conversion
8
Amount to be converted into Common Stock. Upon receipt of any Conversion Notice,
the Company shall within two (2) Business Days (or at such later time as to
which the Company and the Holder may agree) deliver to the address of the Holder
as set forth above, (i) at the Company's expense (including any stamp taxes or
similar governmental charges), the appropriate number of duly or validly issued
and fully paid and nonassessable shares of Common Stock and one or more stock
certificates therefor (in such number and registered in such names as the Holder
may direct), (ii) to the extent this Note is converted in part only, a new Note
(with the same terms as this Note) in principal amount equal to the unconverted
portion of such Note and, to the extent that the entire Conversion Amount is
converted and fractional shares would otherwise be issued, cash pursuant to
Section 7(b). Such conversion shall be deemed to have been made immediately at
the close of business on the Business Day of such surrender of this Note, and
the Holder shall be treated for all purposes as the record holder of such shares
of Common Stock as of such date.
(h) SUFFICIENT SHARES OF EQUITY SECURITIES. Upon receipt of any
Conversion Notice, the Company shall take all necessary measures, including the
filing of an amendment to its Articles of Incorporation, to make available
enough shares of Common Stock to allow the conversion to occur as promptly as
practicable. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect such conversion, the Company will
take such corporate actions as may, in the opinion of Holder's counsel, be
necessary to increase the Company's authorized, unreserved and unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purposes. Upon delivery, such shares shall be duly and validly issued and fully
paid and nonassessable.
(i) If at any time or from time to time while any principal amount
of this Note is outstanding, there is a capital reorganization of the Common
Stock or the merger or consolidation of the Company with or into another
corporation or another entity or person or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares, as a part of
such capital reorganization, provision shall be made so that the Holder shall
thereafter be entitled to receive upon conversion of this Note the number of
shares of stock or other securities or property of the Company to which a holder
of the number of shares of Common Stock deliverable upon conversion would have
been entitled on such capital reorganization. In any such case, appropriate
adjustment shall be made in the application of the provision of this subsection
(i) with respect to the rights of the Holder after the capital reorganization to
the end that the provisions of this Section 7 (including adjustment of the
Conversion Price then in effect and the number of shares issuable upon
conversion of the Note) shall be applicable after that event and be as nearly
equivalent as practicable.
8. EVENTS OF DEFAULT.
If any of the following events (each an "EVENT OF DEFAULT")
shall occur and be continuing:
(a) PAYMENT OF PRINCIPAL. The Company shall fail to make any
payment of principal on this Note when and as the same shall become due and
payable including at the due date thereof, by acceleration or otherwise.
9
(b) PAYMENT OF INTEREST AND FEES. The Company shall fail to make
any payment of interest on this Note, or any fee or any other amount payable
hereunder or under this Note when and as the same shall become due and payable
including at the due date thereof, by acceleration or otherwise, and such
failure shall continue unremedied for five (5) Business Days after the due date
thereof.
(c) COVENANT DEFAULTS. The Company shall default in the due
observance or performance of any covenant or agreement to be observed or
performed under any Note Document (other than a covenant which is dealt with
specifically elsewhere in this SECTION 8) and such default shall continue
unremedied for thirty (30) days after the occurrence of such default.
(d) MISREPRESENTATIONS. Any representation, warranty or other
statement made or furnished to the Purchasers by or on behalf of the Company,
any Note Document or any instrument, certificate or financial statement
furnished (in compliance with or in reference thereto) proves to have been false
or misleading in any material respect when made or furnished and could be
reasonably expected to result in a Material Adverse Effect.
(e) OTHER DEFAULTS. The Company shall be in payment default on any
Indebtedness (including any of the other Notes) which is outstanding in a
principal amount in excess of $250,000 in the aggregate beyond any applicable
period of grace, or if any event shall occur or condition shall exist in respect
of any Indebtedness which is outstanding in a principal amount in excess of
$250,000 or under any evidence of any such Indebtedness or of any mortgage,
indenture or other agreement relating thereto, which shall have caused the
acceleration of the payment of such Indebtedness without such Indebtedness being
discharged or such acceleration having been cured, waived, rescinded or
annulled.
(f) VOLUNTARY INSOLVENCY AND RELATED PROCEEDINGS. The Company or
any of its Subsidiaries shall (i) voluntarily commence any proceeding or file
any petition seeking relief or reorganization under Title 11 of the United
States Code, or any other federal, state or foreign bankruptcy, insolvency or
similar law, (ii) consent to the institution of, or fail to controvert in a
timely and appropriate manner, any such proceeding or the filing of any such
petition, (iii) apply for, consent to the appointment of, or a court of
competent jurisdiction shall enter an order appointing, a receiver, trustee,
custodian, sequestrator or officer with similar powers of itself or for any
substantial part of its property or assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) fail generally to
pay its debts as they become due, (vii) shall be adjudicated insolvent or (viii)
take any corporate or stockholder action in furtherance of any of the foregoing.
(g) INVOLUNTARY INSOLVENCY AND RELATED PROCEEDINGS. (i) An
involuntary proceeding shall be commenced or an involuntary petition shall be
filed in a court of competent jurisdiction seeking (x) relief in respect of the
Company or any of its Subsidiaries or of any substantial part of the property or
assets thereof, under Title 11 of the United States Code or any other federal,
state or foreign bankruptcy, insolvency or similar law, (y) the appointment of a
receiver, trustee, custodian, sequestrator or similar official for any such
Person or for any substantial part of its property or (z) the winding-up or
liquidation of any such Person, and any
10
such proceeding, petition or order shall continue unstayed and in effect for a
period of sixty (60) consecutive days or (ii) a warrant of attachment, execution
or similar process shall be issued against any substantial part of the property
of the Company and the enforcement of such attachment, execution or similar
process is not stayed pending appeal.
(h) BUSINESS DISRUPTION; CONDEMNATION. There shall occur a
cessation of a substantial part of the business of the Company for a period
which significantly affects the Company's capacity to continue its business, on
a profitable basis; or the Company shall suffer the loss or revocation of any
license or permit now held or hereafter acquired by the Company which is
necessary to the continued or lawful operation of its business; or the Company
shall be enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part of its business
affairs; or any material lease or agreement pursuant to which the Company
leases, uses or occupies any property shall be canceled or terminated prior to
the expiration of its stated term; or any material portion of any property of
the Company shall be taken through condemnation or the value of such property
shall be impaired through condemnation.
(i) CHALLENGE TO NOTE DOCUMENT. This Note or any other Note
Document shall cease to be in full force and effect and enforceable in
accordance with its terms, or the Company shall assert the invalidity of any of
the foregoing.
(j) JUDGMENTS. A judgment or judgments for the payment of money in
excess of $200,000 in the aggregate shall be rendered against the Company and
the same shall not (i) be fully covered by insurance or other comparable bond,
or (ii) within sixty (60) days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been discharged
within sixty (60) days after the expiration of any such stay; then, and in any
such event (other than an event described in paragraphs (f) or (g) above), and
at any time thereafter during the continuance of such event, the Holder may,
take any of the following actions and at the same or different times: (i)
declare this Note to be forthwith due and payable, whereupon the entire unpaid
principal of this Note, together with accrued but unpaid interest thereon and
all other Obligations under the Note Documents, shall become forthwith due and
payable in full in cash, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by the Company,
anything contained herein or in any other Note Document to the contrary
notwithstanding, or (ii) exercise any and all other remedies provided under any
Note Document upon the occurrence and continuance of an Event of Default;
PROVIDED, HOWEVER, that with respect to the occurrence of an Event of Default
described in paragraphs (g) or (h) above, the principal of this Note, together
with accrued but unpaid interest and fees hereon and any other liabilities of
the Company to the Holder accrued hereunder or any other Note Document, shall
automatically become due and payable in full in cash, all without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Company, anything contained herein or in any other Note Document
to the contrary notwithstanding.
(k) (i) Any Reportable Event with respect to a Plan shall occur;
(ii) the Company or any ERISA Affiliate shall be notified by the sponsor of a
Multiemployer Plan that it has incurred withdrawal liability to such
Mulitemployer Plan in an amount which, when aggregate with all other withdrawal
liabilities incurred by the Company or any ERISA Affiliate
11
(determined as of the date of such notification) has or is reasonably likely to
have a Material Adverse Effect; (iii) the Company or any ERISA Affiliate shall
be notified by the sponsor of a Mulitemployer Plan that such Multiemployer Plan
is in reorganization or is being terminated, partitioned or reorganized, within
the meaning of Title IV of ERISA, if liability of the Company and its ERISA
Affiliates resulting from such reorganization, termination, partitioning or
reorganization has or is reasonably likely to have a Material Adverse Effect; or
(iv) the Company or any ERISA Affiliate incur aggregate liabilities in
connection with a withdrawal from a Multiple Employer Plan or the termination of
a Multiple Employer Plan that have or are reasonably likely to have a Material
Adverse Effect.
9. AMENDMENTS, ETC.
No amendment or waiver of any provision of this Note, nor
consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Holder and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
10. NOTICES, ETC.
All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed facsimile if sent during
normal business hours of the recipient, if not, then on the next business day;
(iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
address as set forth on the first page hereof or at such other address as such
party may designate by five (5) days advance written notice to the other parties
hereto.
11. LOST, ETC. SECURITIES.
Upon receipt of evidence reasonably satisfactory to the
Company (an affidavit of the Holder being satisfactory) of the ownership and the
loss, theft, destruction or mutilation of this Note, and in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company (if the Holder is a financial institution or other institutional
investor, its own agreement being satisfactory) or, in the case of any such
mutilation, upon surrender of this Note, the Company shall, without charge,
issue, register and deliver in lieu of such Note a new Note of like kind
representing the same rights represented by and dated the date of such lost,
stolen, destroyed or mutilated Note. Any such new Note shall constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed Note shall be at any time enforceable by
any Person.
12. NO WAIVER; REMEDIES.
No failure on the part of the Holder to exercise, and no delay
in exercising, any right hereunder or under this Note shall operate as a waiver
hereof, nor shall any single or partial exercise of any right hereunder or under
this Note preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
12
13. COSTS, EXPENSES AND TAXES.
The Company agrees to pay the Holder on demand after and
during the continuation of an Event of Default all reasonable costs and expenses
arising in connection with the administration, enforcement and collection of
this Note and the other documents to be delivered hereunder, including, without
limitation, reasonable attorneys' fees and expenses and court costs of the
Holder with respect thereto and with respect to advising the Holder as to its
rights and responsibilities under this Note. In addition, the Company shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Note, or the conversion of
this Note to Common Stock pursuant to Section 7 hereof, and any other documents
to be delivered hereunder, and agrees to save the Holder harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes.
14. ENTIRE AGREEMENT.
This Note and the Note Purchase Agreement contain the entire
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
15. SUCCESSORS AND ASSIGNS.
The respective rights and obligations of the Company and the
Holder shall be binding upon and inure to the benefit of their respective
successors and assigns, except that the Company may not assign this Note without
the consent of the Holder; PROVIDED, HOWEVER, that subject to the provisions of
this Note, such consent shall not be required in connection with a merger of the
Company with or into another Person or the sale of all or substantially all of
the assets of the Company.
16. GOVERNING LAW.
This Note shall be governed by and construed in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of New York, as if this Note were an agreement to be fully performed in New
York.
IN WITNESS WHEREOF, the Company has caused this 10% Senior
Unsecured Convertible Note to be executed by its duly authorized representative
as of the date first above written.
SERVICEWARE TECHNOLOGIES, INC.
By:
--------------------------------------------
Name:
Title:
13
================================================================================
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
AMONG
SERVICEWARE TECHNOLOGIES, INC.
AND
THE PURCHASERS LISTED ON SCHEDULE 1 HERETO
MAY ___, 2002
================================================================================
TABLE OF CONTENTS
PAGE
----
SECTION 1. CERTAIN DEFINITIONS...............................................................................1
---------- ---------------------------------------------------------------------------------------------------
SECTION 2. REGISTRATION RIGHTS...............................................................................3
---------- ---------------------------------------------------------------------------------------------------
2.1. COMPANY REGISTRATION....................................................................................3
--------------------
2.2. DEMAND REGISTRATION.....................................................................................4
-------------------
2.3. PIGGYBACK REGISTRATION..................................................................................7
----------------------
2.4. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS...........................................................8
---------------------------------------------
2.5. UNDERWRITING AGREEMENT..................................................................................8
----------------------
2.6. EXPENSES OF REGISTRATION................................................................................8
------------------------
2.7. REGISTRATION PROCEDURES.................................................................................8
-----------------------
2.8. INDEMNIFICATION........................................................................................11
---------------
2.9. UNDERWRITING AGREEMENT.................................................................................14
----------------------
2.10. INFORMATION BY HOLDER..................................................................................14
---------------------
2.11. TRANSFER OF REGISTRATION RIGHTS........................................................................14
-------------------------------
2.12. TERMINATION OF REGISTRATION RIGHTS.....................................................................15
----------------------------------
2.13. DELAY OF REGISTRATION; FURNISHING OF INFORMATION.......................................................15
------------------------------------------------
2.14. AMENDMENT OF REGISTRABLE RIGHTS........................................................................15
-------------------------------
2.15. CURRENT PUBLIC INFORMATION. ...........................................................................15
--------------------------
SECTION 3. MISCELLANEOUS....................................................................................15
---------- ---------------------------------------------------------------------------------------------------
3.1. GOVERNING LAW..........................................................................................15
-------------
3.2. SUCCESSORS AND ASSIGNS.................................................................................16
----------------------
3.3. EFFECTIVENESS..........................................................................................16
-------------
3.4. ENTIRE AGREEMENT; AMENDMENT............................................................................16
---------------------------
3.5. NOTICES, ETC...........................................................................................17
------------
3.6. DELAYS OR OMISSIONS....................................................................................18
-------------------
3.7. INTERPRETATION.........................................................................................18
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3.8. SEVERABILITY...........................................................................................18
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3.9. TITLES AND SUBTITLES...................................................................................18
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3.10. GENDER.................................................................................................19
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3.11. COUNTERPARTS...........................................................................................19
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of May ___, 2002,
among SERVICEWARE TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY"),
and the Persons listed on Schedule 1 attached hereto (the "PURCHASERS").
RECITALS
--------
The Company is entering into a Note Purchase Agreement (the
"NOTE PURCHASE AGREEMENT") dated as of the date hereof, with the Purchasers,
pursuant to which the Company is issuing to the Purchasers up to $3,000,000
million aggregate principal amount of its 10% Senior Unsecured Convertible Notes
due November 2003 (and currently proposed to be December 2003). In order to
induce the Purchasers to enter into the Note Purchase Agreement, the Company
wishes to grant registration rights to the Purchasers as more fully set forth
herein.
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS.
Capitalized terms used in this Agreement and not defined
herein shall have the meanings ascribed to them in the Note Purchase Agreement.
As used in this Agreement, the following terms shall have the following
respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the common stock of the Company, par
value $.01 per share, and any other securities issued in respect of Common Stock
upon any stock split, stock dividend, recapitalization, merger, consolidation,
share exchange or similar event.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" shall mean any Purchaser holding Registrable
Securities and any Person holding Registrable Securities to whom the rights
under this Agreement have been transferred in accordance with SECTION 2.12
hereof.
"MAJORITY HOLDERS" shall mean any Holder(s) who in the
aggregate are Holders of not less than 50% of the Registrable Securities then
outstanding.
"NASD" means the National Association of Securities Dealers,
Inc.
"NASDAQ" means the automated quotation system of the NASD.
"NOTES" has the meaning given to such term in the Note
Purchase Agreement.
"ORIGINAL ISSUE DATE" shall mean the first date on which Notes
are issued under the Note Purchase Agreement.
"PERSON" means any individual, any foreign or domestic
corporation, general partnership, limited partnership, limited liability
company, firm, joint venture, association, individual retirement account, joint
stock company, trust, estate, unincorporated organization, governmental or
regulatory body or other entity.
"REGISTRABLE SECURITIES" shall mean (a) all shares of Common
Stock issuable upon the conversion of the Notes; and (b) any shares of Common
Stock or other capital stock of the Company issued as (or issuable upon
conversion or exercise of any warrant, right or other security which is as
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, such above-described securities, PROVIDED, HOWEVER, that
securities shall be treated as Registrable Securities only if and only for so
long as they are held by a Holder or a permitted transferee pursuant to the
terms hereof, and (i) they have not been disposed of pursuant to a registration
statement declared effective by the Commission, (ii) they have not been sold in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act, so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale, or (iii)
the registration rights as to the Holder of such Registrable Securities have not
expired pursuant to Section 2.12.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number
of shares determined by calculating the total number of shares of the Company's
Common Stock or other capital stock that are Registrable Securities and either
(a) are then issued and outstanding or (b) are issuable pursuant to then
exercisable or convertible securities.
"REGISTRATION STATEMENT" shall mean any registration statement
filed by the Company with the Commission pursuant to Section 2.1, 2.2 or 2.3
hereof.
"SALE PRICE" on any date means the closing sale price per
share of Common Stock (or, if no closing sale price is reported, the average of
the bid and ask prices or, if more than one in either case, the average of the
average bid and average ask prices) on such date as reported in composite
transactions for the principal United States securities exchange on which the
Common Stock is traded or, if the Common Stock is not listed on a United States
national or regional securities exchange, (i) as reported by the National
Association of Securities Dealers Automated Quotation System or by the National
Quotation Bureau Incorporated, or (ii) if such bid and ask prices are not
reported by the National Association of Securities Dealers Automated Quotation
System or by the National Quotation Bureau Incorporated, in a manner to be
determined by the Company on the basis of such quotation as the Board considers
appropriate in its reasonable discretion.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"SECURITIES" means "securities" as defined in Section 2(1) of
the Securities Act and includes capital stock or other equity interests or any
options, warrants or other securities
2
that are directly or indirectly convertible into, or exercisable or
exchangeable for, capital stock or other equity interests. Whenever a
reference herein to Securities is referring to any derivative
Securities, the rights of a Holder shall apply to the Common Stock
issuable upon conversion of the Notes.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any successor federal statute and the rules and regulations of the
Commission thereunder, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Section 2. REGISTRATION RIGHTS.
2.1. COMPANY REGISTRATION.
The Company shall, at its cost:
(a) within 30 days after the Original Issue Date, file with the
Commission a Registration Statement on Form S-3 or such other form for which the
Company is eligible relating to the offer and sale of the Registrable Securities
from time to time in accordance with the methods of distribution elected by the
Holders of the Registrable Securities and set forth in such Registration
Statement, and use its best efforts to cause such Registration Statement to be
declared effective by the Commission within 120 days after the Original Issue
Date;
(b) use its best efforts to keep the Registration Statement
continuously effective in order to permit the Prospectus forming part thereof to
be used by Holders so long as the Registration Statement can be maintained on
Form S-3(the date as of which the Registration Statement is no longer required
to be maintained in effect under this Section 2.1 is referred to as the
"Expiration Date"); and
(c) notwithstanding any other provisions hereof, use its best efforts
to ensure that (1) any Registration Statement and any amendment thereto and any
Prospectus forming part thereof and any supplement thereto complies with the
Securities Act and the rules and regulations thereunder, (2) any Registration
Statement and any amendment thereto does not, when it becomes effective, contain
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
and (3) any prospectus forming part of any Registration Statement, and any
supplement to such Prospectus (as amended or supplemented from time to time),
does not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
The Company further agrees, if necessary, to supplement or amend the
Registration Statement if reasonably requested by the Majority Holders with
respect to information relating to the Holders and otherwise as required by
Section 2.7(h) below, to use all reasonable efforts to cause any such amendment
to become effective and such Registration Statement to become usable as soon as
thereafter practicable and to furnish to the Holders of Registrable Securities
copies of any such supplement or amendment promptly after its being used or
filed with the Commission.
3
(d) EFFECTIVE REGISTRATION STATEMENT.
(i) The Company will be deemed not to have used its best
efforts to cause the Registration Statement to become, or to remain,
effective during the requisite period if it voluntarily takes any
action that would result in any such Registration Statement not being
declared effective or in the Holders of Registrable Securities covered
thereby not being able to sell such Registrable Securities during that
period unless (A) such action is required by applicable law or (B) such
action is taken by the Company in good faith and for valid business
reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, so long
as the Company promptly comply with the requirements of Section 2.7(h)
hereof, if applicable.
(ii) A Registration Statement will not be deemed to have
become effective unless it has been declared effective by the
Commission; provided, however, that if, after it has been declared
effective, the offering of Registrable Securities pursuant to a
Registration Statement is interfered with by any stop order, injunction
or other order or requirement of the Commission or any other
governmental agency or court, such Registration Statement will be
deemed not to have been effective during the period of such
interference, until the offering of Registrable Securities pursuant to
such Registration Statement may legally resume.
(e) LIQUIDATED DAMAGES. In the event that (i) the Registration
Statement is not filed with the Commission on or prior to the 30th calendar day
following the Original Issue Date, (ii) the Registration Statement with respect
to the Registrable Securities is not declared effective on or prior to the 120th
calendar day following the Original Issue Date, or (iii) the Registration
Statement is declared effective but thereafter ceases to be effective or usable
prior to the Expiration Date (each such event referred to in clauses (i)-(iii)
above, a "Registration Default"), the Company shall pay as liquidated damages to
each Purchaser an amount equal to five percent (5%) per annum on the outstanding
amount of Notes held by such Purchaser during such period as a Registration
Default shall have occurred and be continuing. Liquidated damages may be paid,
at the Company's option, in cash or by the delivery of an additional promissory
note (a "PIK Note") in the form of the Notes and in the initial principal amount
equal to the amount of liquidated damages being paid by note or in a combination
of cash and PIK Notes.
(f) SPECIFIC ENFORCEMENT. The Company acknowledges that there would
be no adequate remedy at law if it fails to perform any of its obligations
hereunder and that the holders of Registrable Securities may be irreparably
harmed by any such failure, and accordingly agree that the holders of
Registrable Securities, in addition to any other remedy to which the holders of
Registrable Securities may be entitled at law or in equity, shall be entitled to
compel specific performance of the obligations of the Company under this
Registration Rights Agreement in accordance with the terms and conditions of
this Registration Rights Agreement, in any court of the United States or any
State thereof having jurisdiction.
2.2. DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall receive from
the Majority Holders, after the Expiration Date and at such time as no
Registration Statement covering the
4
Registrable Securities shall have been filed with the Commission or shall remain
in effect, a written request (the "Demand") that the Company effect a
registration under the Securities Act of Registrable Securities then
outstanding, with a market value of at least $500,000 (based on the Sale Price
of the Common Stock for the ten trading days prior to the date of the Demand),
in accordance with this SECTION 2.2, the Company will:
(i) promptly, and in no event more than twenty (20) days after
receipt of such written request, give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect
such registration (including, without limitation, appropriate
qualification under applicable blue sky or other state securities laws
and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any Holders joining in such request each as
are specified in a written request (which request shall specify the
number of Registrable Securities proposed to be included in such
registration) received by the Company within 15 days after receipt of
such written notice from the Company; PROVIDED, HOWEVER, that the
Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this SECTION 2.2:
(A) After the Company has effected two such
registrations at the request of the Holders pursuant to this
SECTION 2.2(a) within any twelve (12) month period;
(B) During any period in which any Company-initiated
registration statement (other than on Form S-4 or Form S-8
promulgated under the Securities Act or any successor forms
thereto), pursuant to which Securities of the Company are to be or
were sold, has been filed and not withdrawn or has been declared
effective within the prior 90 days, provided that the Company is
actively employing its best efforts to cause such other
registration statement to become effective (and provided, further,
that the Company cannot pursuant to this Section 2.2(a)(ii)(B)
delay implementation of a demand for registration more than once
in any twelve (12) month period); or
(C) If the Company shall furnish to such Holders a
certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board it would be
materially detrimental to the Company or its stockholders for a
Registration Statement to be effected at such time, then the
Company's obligation to use its best efforts to register, qualify
or comply under this SECTION 2.2 shall be deferred once (with
respect to any demand for registration hereunder) for a period not
to exceed ninety (90) days from the date of receipt of written
request from the Majority Holders, provided that the Company
cannot pursuant to this Section 2.2(a)(ii)(C) delay implementation
of a demand for registration more than once in any twelve (12)
month period.
5
(b) With respect to any registration pursuant to this SECTION 2.2, if
the managing underwriter advises the Company in writing that the inclusion of
all Registrable Securities proposed to be included in such registration would
interfere with the successful marketing of such Securities, then there shall be
excluded from such registration and underwriting, to the extent necessary to
satisfy such limitation, FIRST the Securities held by stockholders of the
Company other than the Holders, THEN Securities which the Company may wish to
register for its own account, and THEREAFTER, to the extent necessary,
Registrable Securities held by the Holders (PRO RATA to the respective number of
Registrable Securities requested by the Holders to be included in the
registration); PROVIDED, HOWEVER, that in any event, all Registrable Securities
must be included in such registration prior to any other Securities.
(c) The Company shall be entitled to register Securities for sale for
its own account in any registration requested pursuant to this SECTION 2.2 as
permitted to do so by the underwriters and SECTION 2.2(b).
(d) A requested registration under this Section may be rescinded by
written notice to the Company by the Holders holding a majority of the
Registrable Securities to be included in such registration under the following
circumstances:
(i) If such Registration Statement is rescinded prior to the
filing date, such rescinded registration shall not count as a
Registration Statement initiated pursuant to this SECTION 2.2 for
purposes of SECTION 2.2(a);
(ii) If such Registration Statement is rescinded after the
filing date but prior to its effective date, such rescinded
registration shall not count as a Registration Statement initiated
pursuant to this SECTION 2.2 for purposes of SECTION 2.2(a) if the
participating Holders (x) have reimbursed the Company for all
reasonable out-of-pocket expenses incurred by the Company in connection
with such rescinded registration or (y) (1) reasonably believed that
the Registration Statement contained an untrue statement of material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein not misleading, (2)
notified the Company of such fact and requested that the Company
correct such alleged misstatement or omission and (3) the Company
refused to correct such alleged misstatement or omission; and
(iii) A registration shall not count as a Registration
Statement initiated pursuant to this SECTION 2.2 for purposes of
SECTION 2.2(a) above unless it becomes effective and the participating
Holders have the ability to sell all of the Registrable Securities
sought to be included in such Registration Statement.
(e) Without the consent of the Majority Holders, the Company may not
cause any other registration of Securities for sale for its own account (other
than a registration effected solely to implement an employee benefit plan or
stock option plan or a transaction contemplated by Rule 145 of the Commission)
to be initiated after a registration requested pursuant to SECTION 2.2 and to
become effective less than 90 days after the effective date of any registration
requested pursuant to SECTION 2.2.
6
(f) EFFECTIVE REGISTRATION STATEMENT.
(i) The Company will be deemed not to have used its best
efforts to cause the Registration Statement to become, or to remain,
effective during the requisite period if it voluntarily takes any
action that would result in any such Registration Statement not being
declared effective or in the Holders of Registrable Securities covered
thereby not being able to sell such Registrable Securities during that
period unless (A) such action is required by applicable law or (B) such
action is taken by the Company in good faith and for valid business
reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, so long
as the Company promptly complies with the requirements of Section
2.7(h) hereof, if applicable.
(ii) A Registration Statement will not be deemed to have
become effective unless it has been declared effective by the
Commission; provided, however, that if, after it has been declared
effective, the offering of Registrable Securities pursuant to a
Registration Statement is interfered with by any stop order, injunction
or other order or requirement of the Commission or any other
governmental agency or court, such Registration Statement will be
deemed not to have been effective during the period of such
interference, until the offering of Registrable Securities pursuant to
such Registration Statement may legally resume.
(g) LIQUIDATED DAMAGES. In the event that (i) a Registration
Statement under this Section 2.2 is not filed with the Commission on or prior to
the 45th calendar day following the date of the Demand, (ii) the Registration
Statement with respect to the Registrable Securities required to be registered
pursuant to this Section 2.2 is not declared effective on or prior to the 120th
calendar day following the date of the Demand, or (iii) the Registration
Statement is declared effective but thereafter ceases to be effective or usable
prior to 180 days after the date it has become effective (each such event
referred to in clauses (i)-(iii) above, a "Demand Registration Default"), the
Company shall pay as liquidated damages to each Holder who requested its
Registrable Securities to be included in the Registration Statement an amount
equal to five percent (5%) per annum on the value of the Registrable Securities
to have been included in the Registration Statement (based on the average Sale
Price of the Common Stock during the ten trading days prior to the date of the
Demand) during such period as a Demand Registration Default shall have occurred
and be continuing. The period during which a Demand Registration Default under
clause (iii) above shall be deemed to be in existence shall not exceed the
balance of the 180 day period during which such Registration Statement was to
have remained in effect. Liquidated damages shall be paid in cash within thirty
(30) days after demand by the Holders entitled thereto.
2.3. PIGGYBACK REGISTRATION.
If the Company, at any time proposes to register any of its
Securities under the Securities Act, other than pursuant to Section 2.1 or 2.2,
it shall promptly, and in no event less than fifteen (15) days prior to the
filing of a registration statement with respect to a registration under this
Section 2.3, give written notice to each Holder of such intention. Upon the
written request of any Holder given within fifteen (15) days after receipt of
any such notice, the Company shall include in such registration all of the
Registrable Securities indicated in such request, so as to permit the
disposition of the Registrable Securities on the same terms and conditions as
the Securities of the Company otherwise being sold in such registration. If a
7
Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statement as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein. Notwithstanding any other provision of this
Section 2.3, if the managing underwriter advises the Company in writing that the
inclusion of all Registrable Securities proposed to be included in such
registration would interfere with the successful marketing of such Securities of
the Company, then there shall be excluded from such registration and
underwriting, to the extent necessary to satisfy such limitation, FIRST
Securities of the Company held by stockholders of the Company without
registration rights, and THEN, to the extent necessary, Securities held by
holders with registration rights (PRO RATA to the respective number of
Securities requested by the holders to be included in such registration).
2.4. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS.
The Company represents and warrants to the Purchasers that the
registration rights granted hereby do not conflict with any other registration
rights granted by the Company. The Company shall not, after the date hereof,
grant any registration rights which conflict with or impair the registration
rights granted hereby.
2.5. UNDERWRITING AGREEMENT.
In the case of any underwritten registration effected pursuant to
Section 2.2 or 2.3, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.
2.6. EXPENSES OF REGISTRATION.
The Company shall bear the expense of any registrations effected
pursuant to Sections 2.1, 2.2 and 2.3 including, without limitation, all
registration and filing fees (including all expenses incident to filing with the
NASD), fees and expenses of complying with securities and blue sky laws,
printing expenses, the Selling Holder's Counsel (as hereinafter defined) and
fees and expenses of the Company's counsel and accountants; PROVIDED, HOWEVER,
that each Holder participating in such registration shall pay its pro rata
portion (on the basis of the number of shares so registered) of discounts or
commissions payable to any underwriter.
2.7. REGISTRATION PROCEDURES.
If and whenever the Company is under an obligation pursuant to the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Securities, the Company shall, as expeditiously as
practicable:
8
(a) with respect to a registration under Section 2.2 or 2.3, use
its best efforts to cause a registration statement that registers such
Registrable Securities to become and remain effective for a period of 90 days or
until all of such Registrable Securities have been disposed of (if earlier);
(b) furnish, at least five business days before filing a
registration statement that registers such Registrable Securities, a prospectus
relating thereto or any amendments or supplements relating to such a
registration statement or prospectus, to each Holder, to any counsel to any
Holder selling Registrable Securities (the "SELLING HOLDER") and to one counsel
selected by the holders of a majority of such Registrable Securities (the
"SELLING HOLDERS' COUNSEL"), copies of all such documents proposed to be filed,
and such other documents as they may reasonably request in order to facilitate
the disposition of Registrable Securities owned by such Holders (it being
understood that such five-business-day period need not apply to successive
drafts of the same document proposed to be filed so long as such successive
drafts are supplied to such counsel in advance of the proposed filing by a
period of time that is customary and reasonable under the circumstances);
(c) 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 for
at least the period set forth in Section 2.7(a) in the case of a registration
under Section 2.2 or 2.3 or the period specified in Section 2.1(b) or until all
of such Registrable Securities have been disposed of (if earlier) and to comply
with the provisions of the Securities Act with respect to the sale or other
disposition of such Registrable Securities;
(d) notify in writing any counsel to any Selling Holder and the
Selling Holders' Counsel promptly (i) of the receipt by the Company of any
notification with respect to any comments by the Commission with respect to such
registration statement or prospectus or any amendment or supplement thereto or
any request by the Commission for the amending or supplementing thereof or for
additional information with respect thereto, (ii) of the receipt by the Company
of any notification with respect to the issuance by the Commission of any stop
order suspending the effectiveness of such registration statement or prospectus
or any amendment or supplement thereto or the initiation or threatening of any
proceeding for that purpose and (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification of such
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purposes;
(e) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller of Registrable Securities reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such seller of Registrable Securities to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such seller; PROVIDED,
HOWEVER, that the Company will not be required to qualify generally to do
business, subject itself to general taxation or consent to general service of
process in any jurisdiction where it would not otherwise be required so to do
but for this paragraph (e);
9
(f) furnish to each seller of such Registrable Securities such
number of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as such Holder may reasonably request in order to
facilitate the public sale or other disposition of such Registrable Securities;
(g) use its best efforts to cause such Registrable Securities to
be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company to enable the seller or sellers thereof to consummate the disposition of
such Registrable Securities;
(h) notify on a timely basis each seller of such Registrable
Securities at any time when a prospectus relating to such Registrable Securities
is required to be delivered under the Securities Act within the appropriate
period mentioned in paragraph (a) of this Section, 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 a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing
and, at the request of such seller, prepare and furnish to such seller 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 offerees
of such shares, 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 light of the
circumstances then existing;
(i) make available for inspection by any counsel to any Selling
Holder and the Selling Holders' Counsel or any underwriter participating in any
disposition pursuant to such registration statement and any attorney, accountant
or other agent retained by any such underwriter (collectively, the
"INSPECTORS"), all pertinent financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "RECORDS"), as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information (together with the Records, the "INFORMATION") reasonably
requested by any such Inspector in connection with such registration statement.
Any of the Information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, shall
not be disclosed by the Inspectors unless (i) the disclosure of such Information
is necessary to avoid or correct a misstatement or omission in the registration
statement, (ii) the release of such Information is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or (iii) such
Information has been made generally available to the public. The seller of
Registrable Securities agrees that it will, upon learning that disclosure of
such Information is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Information deemed confidential;
(j) in connection with any underwritten offering, use its best
efforts to obtain from its independent certified public accountants "comfort"
letters in customary form and at customary times and covering matters of the
type customarily covered by comfort letters;
10
(k) in connection with any underwritten offering, use its best
efforts to obtain from its counsel an opinion or opinions in customary form;
(l) provide a transfer agent and registrar (which may be the same
entity and which may not be the Company) for such Registrable Securities;
(m) issue to any underwriter to which any seller of Registrable
Securities may sell shares in such offering certificates evidencing such
Registrable Securities;
(n) 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. Subject to
the provisions of this agreement, each Holder participating in such underwriting
shall also enter into and perform its obligations under such an agreement.
(o) remain current in its Commission reporting obligations and use
its best efforts to remain eligible to file with the Commission on a Form S-3
registration statement for a secondary offering;
(p) list such Registrable Securities on any national securities
exchange on which any shares of the Common Stock are listed or on NASDAQ if then
included, or if the Common Stock is not listed on NASDAQ or any other United
States national securities exchange, use its best efforts to qualify such
Registrable Securities for trading on the OTC Bulletin Board, "pink sheets" or
such other trading market for the Company's Securities;
(q) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission; and
(r) use its best efforts to take all other steps necessary to
effect the registration of such Registrable Securities contemplated hereby.
2.8. INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, each of its officers and directors, members, partners
and legal counsel and each Person controlling such Holder within the meaning of
Rule 12b-2 of the General Rules and Regulations under the Exchange 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 any underwriter within the meaning of Rule 12b-2 of the General Rules
and Regulations under the Exchange Act, against all expenses, claims, losses,
damages or liabilities (joint or several) (or actions or proceedings in respect
thereof, including but not limited to any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus (including any preliminary
prospectus or final prospectus), offering circular or other document, or any
amendment or supplement thereto, 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
11
therein, not misleading, or any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, members, partners and legal
counsel 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, preparing, settling or
defending 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 or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by such
Holder, controlling Person or underwriter and stated to be specifically for use
therein. Notwithstanding the foregoing, insofar as the foregoing indemnity
relates to any such untrue statement (or alleged untrue statement) or omission
(or alleged omission) made in the preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the final prospectus filed with
the Commission pursuant to Rule 424(b) of the Commission, the indemnity
agreement herein shall not inure to the benefit of any underwriter if a copy of
the final prospectus filed pursuant to Rule 424(b) was not furnished to the
Person or entity asserting the loss, liability, claim or damage at or prior to
the time such furnishing is required by the Securities Act.
(b) To the extent permitted by law, 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,
indemnify and hold harmless the Company, each of its directors, officers and
legal counsel, each 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 Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, and each other such Holder, each of its
officers, partners, members, directors and legal counsel and each Person
controlling Holder within the meaning of Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, 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, such Holders, such directors,
officers, legal counsel, 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. Notwithstanding the foregoing,
the liability of each Holder under this subsection (b) shall be limited in an
amount equal to the net proceeds from the sale of the Registrable Securities
sold by such Holder. In addition, insofar as the foregoing indemnity relates to
any such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary
12
prospectus but eliminated or remedied in the amended prospectus on file with the
Commission at the time the registration statement becomes effective or in the
final prospectus filed pursuant to Rule 424(b) of the Commission, the indemnity
agreement herein shall not inure to the benefit of the Company, any underwriter
or (if there is no underwriter) any Holder if a copy of the final prospectus
filed pursuant to Rule 424(b) was not furnished to the Person or entity
asserting the loss, liability, claim or damage at or prior to the time such
furnishing is required by the Securities Act.
(c) Each party entitled to indemnification under this Section 2.8
(the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (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 any 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
unreasonably be 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 Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action, and PROVIDED, FURTHER, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. 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 which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. No Indemnified Party shall consent to entry of any
judgment or enter into any settlement without the consent of each Indemnifying
Party (which consent shall not be unreasonably withheld). 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.
(d) If the indemnification provided for in this Section 2.8 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any losses, claims, damages, expenses or liabilities
referred to therein, then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, expenses or
liabilities in such proportion as is appropriate to reflect the relative fault
of the Company on the one hand and all stockholders offering securities in the
offering (the "SELLING SHAREHOLDERS") on the other in connection with the
statements or omissions which resulted in such losses, claims, damages, expenses
or liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and the Selling Shareholders on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Selling Shareholders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Selling Shareholders agree that it would not be
just and equitable if contribution pursuant to
13
this Section 2.8(d) were based solely upon the number of entities from whom
contribution was requested or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
2.8(d). The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, expenses and liabilities referred to above in this
Section 2.8(d) shall be deemed to include any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim, subject to the provisions of Section 2.8(c) hereof.
Notwithstanding the provisions of this Section 2.8(d), no Selling Shareholder
shall be required to contribute any amount or make any other payments under this
Agreement which in the aggregate exceed the proceeds received by such Selling
Shareholder. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
2.8 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement.
2.9. UNDERWRITING AGREEMENT.
Notwithstanding the provisions of Sections 2.7 and 2.8, to the
extent that the Company and the Holders selling Registrable Securities in a
proposed registration shall enter into an underwriting or similar agreement,
which agreement contains provisions covering one or more issues addressed in
such Sections, the provisions contained in such Sections addressing such issue
or issues shall be superseded with respect to such registration by such other
agreement.
2.10. INFORMATION BY HOLDER.
Each Holder selling Registrable Securities in a proposed
registration shall furnish to the Company such written information regarding
such Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this
Agreement.
2.11. TRANSFER OF REGISTRATION RIGHTS.
The rights granted to a Holder under this Section 2 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Holder provided that (i) either (x)
such transferee or assignee is a subsidiary, parent, general partner, limited
partner, retired partner, member of retired member of the Holder and the
transfer is not a sale, or (y), such transfer may otherwise be effected in
accordance with applicable securities laws, and (ii) the Holder notifies the
Company in writing of the transfer or assignment,
14
stating the name and the address of the transferee or assignee and identifying
the securities with respect to which such registration rights are being
transferred or assigned and the assignee or transferee agrees in writing to be
bound by the provisions of this Agreement, and (iii) such transfer is for Notes
in the principal amount of $25,000 or more or Registrable Securities with a
market value of $25,000 or more.
2.12. TERMINATION OF REGISTRATION RIGHTS.
The registration rights granted pursuant to this Agreement shall
terminate as to any Holder at such time as such Holder may sell under Rule
144(k) all Registrable Securities then held by such Holder.
2.13. DELAY OF REGISTRATION; FURNISHING OF INFORMATION.
No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 2.
2.14. AMENDMENT OF REGISTRABLE RIGHTS.
Any provision of this Section 2 may be amended and the observance
thereof 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 Holders of more than fifty percent (50%) of the Registrable Securities
then outstanding. Any amendment or waiver effected in accordance with this
Section 2.14 shall be binding upon each Holder and the Company. By acceptance of
any benefits under this Section 2, Holders of Registrable Securities hereby
agree to be bound by the provisions hereunder.
2.15. CURRENT PUBLIC INFORMATION.
The Company will file all reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the Commission thereunder, and will use commercially reasonable best
efforts to take such further action as any Holder may reasonably request, all to
the extent required to enable such Holders to sell Registrable Securities
pursuant to Rule 144 adopted by the Commission under the Securities Act (as such
rule may be amended from time to time) or any similar rule or regulation
hereafter adopted by the Commission.
Section 3. MISCELLANEOUS.
3.1. GOVERNING LAW.
(a) ALL QUESTIONS CONCERNING THE CONSTRUCTION, INTERPRETATION AND
VALIDITY OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE
OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF NEW YORK OR ANY
OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
15
(b) THE PARTIES TO THIS AGREEMENT AGREE THAT JURISDICTION AND
VENUE IN ANY ACTION BROUGHT BY ANY PARTY HERETO PURSUANT TO THIS AGREEMENT MAY
BE BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF NEW YORK. BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY SUBMIT
TO THE JURISDICTION OF SUCH COURTS FOR THEMSELVES AND IN RESPECT OF THEIR
PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES HERETO IRREVOCABLY AGREE THAT
VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT SUCH
COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION.
(c) NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE PURCHASERS TO
BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION.
(d) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT, THE NOTE DOCUMENTS OR ANY DOCUMENTS RELATED THERETO.
3.2. SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto, except that the Company
shall not assign its rights or obligations hereunder without the consent of the
Holders of a majority in interest of the aggregate of the then outstanding
Registrable Securities, except in the event of a merger or a sale of all or
substantially all of the Company's assts.
3.3. EFFECTIVENESS.
This Agreement shall be effective upon the date first set forth
above.
3.4. ENTIRE AGREEMENT; AMENDMENT.
(a) This Agreement constitutes the full and entire understanding
and agreement between the parties with regard to the subject hereof.
16
(b) Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought; PROVIDED, HOWEVER,
subject to Section 2.14 that any provisions hereof may be amended, waived,
discharged or terminated upon the written consent of the Company and the Holders
of a majority in interest of the aggregate of the then outstanding Registrable
Securities; and PROVIDED, FURTHER, notwithstanding anything to the contrary in
this Agreement that any such amendment, waiver, discharge or termination that
would adversely affect the material rights hereunder of any Holder, in its
capacity as such, without similarly affecting the rights hereunder of all of the
Holders may not be made without the prior written consent of such adversely
affected Holder.
3.5. NOTICES, ETC.
All notices, demands and requests of any kind to be delivered to any
party hereto in connection with this Agreement shall be (a) delivered
personally, (b) sent by nationally-recognized overnight courier, (c) sent by
first class, registered or certified mail, return receipt requested or (d) sent
by facsimile, in each case to such party at its address as follows:
(i) if to the Company, to:
ServiceWare Technologies, Inc.
000 Xxxxxxxxx Xxxxxx, Xxxxx 000 Xxxxx
Xxxxxxx, XX 00000
Attention: Chief Executive Officer
Telephone No.: (000) 000-0000
Telecopier No.: (412)
with a copy to:
Ellis, Funk, Xxxxxxxx, Xxxxxxxx & Dokson, P.C.
0000 Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
(ii) if to any Purchaser, to such Purchaser's address set
forth in SCHEDULE 1 hereto.
with a copy to:
Mintz Xxxxx Xxxx Xxxxxx Xxxxxxx and Xxxxx, P.C.
Chrysler Center
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx Xxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
17
Any notice, demand or request so delivered shall constitute
valid notice under this Agreement and shall be deemed to have been received (A)
on the day of actual delivery in the case of personal delivery, (B) on the next
Business Day after the date when sent in the case of delivery by
nationally-recognized overnight courier, (C) on the fifth Business Day after the
date of deposit in the U.S. mail in the case of mailing or (D) upon receipt in
the case of a facsimile transmission. Any party hereto may from time to time by
notice in writing served upon the other as aforesaid designate a different
mailing address or a different person to which all such notices, demands or
requests thereafter are to be addressed.
3.6. DELAYS OR OMISSIONS.
Except as expressly provided herein, no delay or omission to
exercise any right, power or remedy accruing to any party upon any breach or
default of another party under this Agreement shall impair any such right, power
or remedy of such party that is not in breach or default nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
3.7. INTERPRETATION.
The Company and the Purchasers acknowledge that each of them
has had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement with its legal counsel and that this
Agreement shall be construed as if jointly drafted by the Purchasers and the
Company.
3.8. SEVERABILITY.
In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
3.9. TITLES AND SUBTITLES.
The titles and subtitles used in this Agreement are used for
convenience only and are not considered in construing or interpreting this
Agreement.
18
3.10. GENDER.
As used herein, masculine pronouns shall include the feminine and
neuter, and neuter pronouns shall include the masculine and the feminine.
3.11. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned or each of their respective
duly authorized officers or representatives have executed this agreement
effective upon the date first set forth above.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
SERVICEWARE TECHNOLOGIES, INC.
By:
-------------------------------------------
Name:
Title:
PURCHASERS
X.X. XXXXXXXXX, TOWBIN PRIVATE
EQUITY PARTNERS II, L.P.
By:
-------------------------------------------
Name:
Title:
X.X. XXXXXXXXX, TOWBIN PRIVATE
EQUITY PARTNERS II-Q, L.P.
By:
-------------------------------------------
Name:
Title:
X.X. XXXXXXXXX, TOWBIN CAPITAL
PARTNERS I, L.P.
By:
-------------------------------------------
Name:
Title:
XXXXXXXX AND XXXXXXXX X.
XXXXXXXXX FOUNDATION, INC.
By:
-------------------------------------------
Name:
Title:
20
---------------------------------------------
XXXXXXX XXXXXX
NATIONAL CITY RETIREMENT ACCOUNT
FBO XXXXXXX XXXXXX
By:
------------------------------------------
Name:
Title:
21
PURCHASERS
SCHEDULE 1
----------
INVESTORS AND ADDRESSES FOR NOTICES
-----------------------------------
PURCHASER PRINCIPAL AMOUNT OF
NOTES PURCHASED
-----------------------------------------------------------------------------------------------------------------------
First Tranche Second Tranche
----------------------------------------------------------------------------- --------------------- -------------------
X.X. Xxxxxxxxx, Towbin Private Equity Partners II, L.P.(1) $ 132,146 $ 149,734
----------------------------------------------------------------------------- --------------------- -------------------
X.X. Xxxxxxxxx, Towbin Private Equity Partners II-Q, L.P.(1) 867,854 983,360
----------------------------------------------------------------------------- --------------------- -------------------
X.X. Xxxxxxxxx, Towbin Capital Partners I, L.P.(1) 265,000 300,270
----------------------------------------------------------------------------- --------------------- -------------------
Xxxxxxxx and Xxxxxxxx X. Xxxxxxxxx Foundation, Inc.(1) 125,000 141,636
----------------------------------------------------------------------------- --------------------- -------------------
Xxxxxxx X. Xxxxxx(2) 25,000 -0-
----------------------------------------------------------------------------- --------------------- -------------------
National City Bank of Pennsylvania, Trustee under the Agreement dated June 10,000 -0-
29, 1981, Xxxxxxxx Xxxxxxxxx, P.C. Retirement Plan Share of Xxxxxxx X.
Xxxxxx(3)
----------------------------------------------------------------------------- --------------------- -------------------
TOTAL $ 1,425,000 $ 1,575,000
--------------------------------------------------------------------------------------------------- -------------------
(1) Address is 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx, 00000
(2) Address is 000 Xxxxxxx Xxxx, Xxxxxxxxx, Xxxxxxxxxxxx 00000
(3) Address is c/o National City Bank of Pennsylvania, Attn: Xxxxxxx X.
Xxxxxxxx, 00 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxxxxx, Xxxxxxxxxxxx
00000, with a copy to Xx. Xxxxxx at c/x Xxxxxxxx Xxxxxxxxx Professional
Corporation, One Oxford Centre, 000 Xxxxx Xxxxxx, 00xx Xxxxx,
Xxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
22
