EXHIBIT 4.11
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
DATED AS OF SEPTEMBER 30, 2002
AMONG
THE VIALINK COMPANY
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
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ARTICLE I Purchase and Sale of Preferred Stock....................................................................1
Section 1.1 Purchase and Sale of Stock.............................................................1
Section 1.2 The Conversion Shares..................................................................1
Section 1.3 Purchase Price and Closing.............................................................2
Section 1.4 Exchange of Series B and Series C Preferred Stock......................................2
Section 1.5 Warrants...............................................................................2
ARTICLE II Representations and Warranties.........................................................................3
Section 2.1 Representations and Warranties of the Company..........................................3
Section 2.2 Representations and Warranties of the Purchasers......................................13
ARTICLE III Covenants............................................................................................16
Section 3.1 Securities Compliance.................................................................16
Section 3.2 Registration and Listing..............................................................16
Section 3.3 Inspection Rights.....................................................................16
Section 3.4 Compliance with Laws..................................................................17
Section 3.5 Keeping of Records and Books of Account...............................................17
Section 3.6 Reporting Requirements................................................................17
Section 3.7 Amendments............................................................................17
Section 3.8 Other Agreements......................................................................17
Section 3.9 Distributions.........................................................................18
Section 3.10 Status of Dividends...................................................................18
Section 3.11 Reservation of Shares.................................................................19
Section 3.12 Transfer Agent Instructions...........................................................19
Section 3.13 Subsequent Financings; Right of First Offer...........................................19
Section 3.14 Form 8-K..............................................................................21
Section 3.15 Appointments to Company's Board of Directors..........................................21
ARTICLE IV Conditions............................................................................................21
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the
Shares................................................................................21
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Shares............................................................................21
ARTICLE V Stock Certificate Legend...............................................................................23
Section 5.1 Legend................................................................................23
ARTICLE VI Indemnification.......................................................................................25
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Section 6.1 General Indemnity.....................................................................25
Section 6.2 Indemnification Procedure.............................................................25
ARTICLE VII Miscellaneous........................................................................................26
Section 7.1 Fees and Expenses.....................................................................26
Section 7.2 Specific Enforcement, Consent to Jurisdiction.........................................26
Section 7.3 Entire Agreement; Amendment...........................................................27
Section 7.4 Notices...............................................................................27
Section 7.5 Waivers...............................................................................28
Section 7.6 Headings..............................................................................28
Section 7.7 Successors and Assigns................................................................28
Section 7.8 No Third Party Beneficiaries..........................................................28
Section 7.9 Governing Law.........................................................................28
Section 7.10 Survival..............................................................................28
Section 7.11 Counterparts..........................................................................29
Section 7.12 Publicity.............................................................................29
Section 7.13 Severability..........................................................................29
Section 7.14 Further Assurances....................................................................29
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SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of September 30, 2002 by and among The
viaLink Company,
a Delaware corporation (the "Company"), and each of the Purchasers of shares of
Series D Convertible Preferred Stock of the Company whose names are set forth on
Exhibit A hereto (individually, a "Purchaser" and collectively, the
"Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 Purchase and Sale of Stock. Upon the following
terms and conditions, the Company shall issue and sell to the Purchasers and
each of the Purchasers shall purchase from the Company, the number of shares of
the Company's Series D Convertible Preferred Stock, par value $.001 per share
(the "Preferred Shares"), at a purchase price of $12,000 per share, set forth
with respect to such Purchaser on Exhibit A hereto. Upon the following terms and
conditions, the Purchasers shall be issued Warrants, in substantially the form
attached hereto as Exhibit B (the "Warrants"), to purchase the Company's Common
Stock, par value $.001 per share (the "Common Stock"). The aggregate purchase
price for the Preferred Shares and the Warrants shall be $9,074,850. A portion
of the aggregate purchase price shall be paid with (i) shares of Series B
Preferred Stock issued by the Company in connection with the Purchase Agreement
dated November 6, 2001 (the "Series B Preferred Stock") and (ii) shares of
Series C Preferred Stock issued by the Company in connection with the Purchase
Agreement dated December 26, 2001 (the "Series C Preferred Stock"), in the
amounts set forth next to each Purchaser's name on Schedule 1.1 attached hereto.
The designation, rights, preferences and other terms and provisions of the
Series D Convertible Preferred Stock are set forth in the Certificate of
Designation of the Relative Rights and Preferences of the Series D Convertible
Preferred Stock attached hereto as Exhibit C (the "Certificate of Designation").
The Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act") or Section 4(2) of the
Securities Act.
Section 1.2 The Conversion Shares. The Company has authorized
and has reserved and covenants to continue to reserve, free of preemptive rights
and other similar contractual rights of stockholders, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Preferred Shares and exercise of the Warrants then outstanding;
provided that the number of shares of Common Stock so reserved shall at no time
be less than 100% of its authorized but unissued shares of its Common Stock, to
effect the conversion of the Preferred Shares and exercise of the Warrants. Any
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants (and such shares when issued) are herein referred to as
the "Conversion Shares" and the
"Warrant Shares", respectively. The Preferred Shares, the Conversion Shares and
the Warrant Shares are sometimes collectively referred to as the "Shares".
Section 1.3 Purchase Price and Closing. The Company agrees to
issue and sell to the Purchasers and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Purchasers, severally but not jointly, agree to purchase
that number of the Preferred Shares and Warrants set forth opposite their
respective names on Exhibit A. The aggregate purchase price of the Preferred
Shares and Warrants being acquired by each Purchaser is set forth opposite such
Purchaser's name on Exhibit A (for each such purchaser, the "Purchase Price" and
collectively referred to as the "Purchase Prices"). The Company acknowledges and
agrees that the Purchase Price for certain Purchasers for the Preferred Shares
and Warrants will be paid to the Company with the Series B Preferred Stock and
Series C Preferred Stock in the amounts set forth on Schedule 1.1 attached
hereto. The closing of the execution and delivery of this Agreement shall occur
upon delivery by facsimile of executed signature pages of this Agreement and all
other documents, instruments and writings required to be delivered pursuant to
this Agreement to Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP, The Chrysler Building,
000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. The Preferred Shares and
Warrants shall be sold and funded in two separate closings (each, a "Closing").
The initial closing under this Agreement (the "Initial Closing") shall take
place no later than September 30, 2002 (the "Initial Closing Date") and shall be
funded in the amount of $7,814,850. The second closing under this Agreement (the
"Second Closing") shall take place no later than five (5) business days (the
"Second Closing Date") after the Commission declares the Registration Statement
(as defined in the Registration Rights Agreement) effective (the "Effectiveness
Date") and shall be funded in the amount of $1,260,000. Funding with respect to
each Closing shall take place by wire transfer of immediately available funds on
or prior to the applicable Closing Date, so long as the conditions set forth in
Article IV hereof shall be fulfilled or waived in accordance herewith. Each
Closing under this Agreement shall take place at the offices of Jenkens &
Xxxxxxxxx Xxxxxx Xxxxxx LLP at 1:00 p.m. (eastern time) upon the satisfaction of
each of the conditions set forth in Article IV hereof (each, a "Closing Date").
Section 1.4 Exchange of Series B Preferred Stock and Series C
Preferred Stock. Prior to or at the Closing, the Purchasers shall surrender to
the Company the stock certificates representing their shares of Series B
Preferred Stock and Series C Preferred Stock. Upon the Closing, the Purchasers
shall receive in exchange for the surrender of their stock certificates
representing their shares of Series B Preferred Stock and Series C Preferred
Stock, stock certificates representing their pro rata portion of the Preferred
Shares, which shall be an amount equal to the stated value of the Series B
Preferred Stock and Series C Preferred Stock.
Section 1.5 Warrants. The Company agrees to issue to each of
the Purchasers Warrants to purchase the number of shares of Common Stock set
forth opposite such Purchaser's name on Exhibit A hereto. The Purchasers shall
be issued Warrants to purchase 50,000 shares of Common Stock for each Preferred
Share purchased. The Warrants shall have an exercise price equal to $.001 and
shall be exercised within one business day of the Initial Closing.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers, except as set forth in the Company's disclosure schedule delivered
with this Agreement as follows:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any subsidiaries except as set
forth in the Company's Form 10-KSB for the fiscal year ended December 31, 2001,
including the accompanying financial statements (the "Form 10-KSB"), or in the
Company's Form 10-QSB for the fiscal quarters ended June 30, 2002, March 31,
2002 or September 30, 2001 (collectively, the "Form 10-QSB"), or on Schedule
2.1(a) hereto. The Company and each such subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect (as defined in Section 2.1(e) hereof) on the Company's financial
condition.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement attached hereto as Exhibit D (the "Registration
Rights Agreement"), the Transfer Agent Instructions (as defined in Section
3.12), the Certificate of Designation, and the Warrants (collectively, the
"Transaction Documents") and to issue and sell the Shares and the Warrants in
accordance with the terms hereof. The execution, delivery and performance of the
Transaction Documents and the Certificate of Designation by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action, and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required. This Agreement has been duly executed and delivered by
the Company. The other Transaction Documents will have been duly executed and
delivered by the Company at the Initial Closing. Each of the Transaction
Documents constitutes, or shall constitute when executed and delivered, a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
(c) Capitalization. The authorized capital stock of the
Company and the shares thereof currently issued and outstanding as of September
20, 2002 are set forth on Schedule 2.1(c) hereto. All of the outstanding shares
of the Company's Common Stock and Series D Convertible Preferred Stock have been
duly and validly authorized. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth in the Form 10-KSB, Form 10-QSB
or on Schedule 2.1(c) hereto, no shares of Common Stock are entitled to
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preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, call or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company. Furthermore, except as set forth in this Agreement
and the Registration Rights Agreement and as set forth in the Form 10-KSB, Form
10-QSB or on Schedule 2.1(c), there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except for customary transfer restrictions contained in agreements entered into
by the Company in order to sell restricted securities or as provided in the Form
10-KSB, Form 10-QSB or on Schedule 2.1 (c) hereto, the Company is not a party to
any agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. The Company is not a party to,
and it has no knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of the Company. Except as set forth in the Form
10-KSB, Form 10-QSB or on Schedule 2.1(c) hereto, the offer and sale of all
capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to the Closing complied with all applicable Federal and
state securities laws, and no stockholder has a right of rescission or claim for
damages with respect thereto which would have a Material Adverse Effect (as
defined below) on the Company's financial condition or operating results. The
Company has furnished or made available to the Purchasers true and correct
copies of the Company's Articles of Incorporation as in effect on the date
hereof (the "Articles"), and the Company's Bylaws as in effect on the date
hereof (the "Bylaws"). For the purposes of this Agreement, "Material Adverse
Effect" means any adverse effect on the business, operations, properties,
prospects, or financial condition of the Company or its subsidiaries and which
is material to such entity or other entities controlling or controlled by such
entity.
(d) Issuance of Shares. The Preferred Shares and the Warrants
to be issued at each Closing have been duly authorized by all necessary
corporate action and the Preferred Shares, when paid for or issued in accordance
with the terms hereof, shall be validly issued and outstanding, fully paid and
nonassessable and entitled to the rights and preferences set forth in the
Certificate of Designation. When the Conversion Shares and the Warrant Shares
are issued in accordance with the terms of the Preferred Shares as set forth in
the Certificate of Designation and the Warrants, respectively, such shares will
be duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled to
all rights accorded to a holder of Common Stock.
(e) No Conflicts. Except as disclosed in Schedule 2.1(e)
hereto, the execution, delivery and performance of the Transaction Documents by
the Company, the performance by the Company of its obligations under the
Certificate of Designation and the consummation by the Company of the
transactions contemplated herein and therein do not and will not (i) violate any
provision of the Company's Articles or Bylaws, (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any
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commitment to which the Company is a party or by which the Company is bound or
by which any of its respective properties or assets are bound, or (iv) result in
a violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including Federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries are bound or
affected, except, in all cases other than violations pursuant to clauses (i) and
(iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents or the Certificate of Designation, or issue and sell the Preferred
Shares, the Warrants, the Conversion Shares and the Warrant Shares in accordance
with the terms hereof or thereof (other than any filings which may be required
to be made by the Company with the Commission or state securities administrators
subsequent to the Closing, any registration statement which may be filed
pursuant hereto, and the Certificate of Designation); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Purchasers herein.
(f) Commission Documents, Financial Statements. The Common
Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except as
disclosed in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(f) hereto, since
June 30, 2002, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing including filings incorporated by reference therein being referred to
herein as the "Commission Documents"). The Company has delivered or made
available to each of the Purchasers true and complete copies of the Commission
Documents filed with the Commission since June 30, 2002. The Company has not
provided to the Purchasers any material non-public information or other
information which, according to applicable law, rule or regulation, was required
to have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. As of their respective dates, the Form 10-KSB and the Form 10-QSB
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and, as of their respective dates, none of the Form 10-KSB and the
Form 10-QSB contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally
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accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. The Form 10-KSB, Form 10-QSB or Schedule
2.1(g) hereto sets forth each subsidiary of the Company, showing the
jurisdiction of its incorporation or organization and showing the percentage of
each person's ownership of the outstanding stock or other interests of such
subsidiary. For the purposes of this Agreement, "subsidiary" shall mean any
corporation or other entity of which at least a majority of the securities or
other ownership interest having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the Company and/or any
of its other subsidiaries. All of the outstanding shares of capital stock of
each subsidiary have been duly authorized and validly issued, and are fully paid
and nonassessable. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) No Material Adverse Change. Since June 30, 2002, the date
through which the most recent annual report of the Company on Form 10-QSB has
been prepared and filed with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect, except as disclosed on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed in the
Form 10-KSB, Form 10-QSB or on Schedule 2.1(i) hereto, neither the Company nor
any of its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of the
Company's or its subsidiaries respective businesses since June 30, 2002 and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed.
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(k) Indebtedness. The Form 10-KSB, Form 10-QSB, Commission
Documents or Schedule 2.1(k) hereto sets forth as of the date hereof all
outstanding secured and unsecured Indebtedness of the Company or any subsidiary,
or for which the Company or any subsidiary has commitments. For the purposes of
this Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money
or amounts owed in excess of $100,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties, endorsements
and other contingent obligations in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $25,000
due under leases required to be capitalized in accordance with GAAP. Neither the
Company nor any subsidiary is in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries
has good and marketable title to all of its real and personal property reflected
in the Commission Documents, free and clear of any mortgages, pledges, charges,
liens, security interests or other encumbrances, except for those indicated in
the Form 10-KSB, Form 10-QSB, Commission Documents or on Schedule 2.1(l) hereto
or such that, individually or in the aggregate, do not cause a Material Adverse
Effect on the Company's financial condition or operating results. All said
leases of the Company and each of its subsidiaries are valid and subsisting and
in full force and effect.
(m) Actions Pending. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or any other
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or any
of the other Transaction Documents or the transactions contemplated hereby or
thereby or any action taken or to be taken pursuant hereto or thereto. Except as
set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(m) hereto, there is
no action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets. Except as set forth in the Form 10-KSB, Form
10-QSB or Schedule 2.1(m) hereto, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any subsidiary or any officers or
directors of the Company or subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-KSB, Form 10-QSB, on Schedule
2.1(n) hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
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(o) Taxes. Except as set forth in the Form 10-KSB, Form 10-QSB
or on Schedule 2.1(o) hereto, the Company and each of the subsidiaries has
accurately prepared and filed all federal, state and other tax returns required
by law to be filed by it, has paid or made provisions for the payment of all
taxes shown to be due and all additional assessments, and adequate provisions
have been and are reflected in the financial statements of the Company and the
subsidiaries for all current taxes and other charges to which the Company or any
subsidiary is subject and which are not currently due and payable. Except as
disclosed on Schedule 2.1(o) hereto, none of the federal income tax returns of
the Company or any subsidiary have been audited by the Internal Revenue Service.
The Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any subsidiary for any
period, nor of any basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth in this Agreement or on
Schedule 2.1(p) hereto, no brokers, finders or financial advisory fees or
commissions will be payable by the Company or any subsidiary or any Purchaser
with respect to the transactions contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchasers by or on behalf of the
Company or any subsidiary in connection with the transactions contemplated by
this Agreement contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein or
therein, not misleading.
(r) Operation of Business. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, domain names (whether or
not registered) and any patentable improvements or copyrightable derivative
works thereof, websites and intellectual property rights relating thereto,
service marks, trade names, copyrights, licenses and authorizations as set forth
in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(r) hereto, and all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.
(s) Environmental Compliance. The Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. The Form 10-KSB or Form 10-QSB sets forth all material
permits, licenses and other authorizations issued under any Environmental Laws
to the Company or its subsidiaries. "Environmental Laws" shall mean all
applicable laws relating to the protection of the environment including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether
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solid, liquid or gaseous in nature. The Company has all necessary governmental
approvals required under all Environmental Laws and used in its business or in
the business of any of its subsidiaries. The Company and each of its
subsidiaries are also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws. Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect, there are no
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the Closing Date or that
may give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
"Environmental Liabilities" means all liabilities of a person (whether such
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.
(t) Books and Record Internal Accounting Controls. The records
and documents of the Company and its subsidiaries accurately reflect in all
material respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the nature of
all transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions is taken
with respect to any differences.
(u) Material Agreements. Except as set forth in the Form
10-KSB, Form 10-QSB, Commission Documents, on Schedule 2.1(u) hereto or on any
other schedule hereto, neither the Company nor any subsidiary is a party to any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement on Form S-2 or applicable form
(collectively, "Material Agreements") if the Company or any subsidiary were
registering securities under the Securities Act. The Company and each of its
subsidiaries has in all material respects performed all the obligations required
to be performed by them to date under the foregoing agreements, have received no
notice of default and, to the best of the Company's knowledge are not in default
under any Material Agreement now in effect, the result of which could cause a
Material Adverse Effect. No written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company's Preferred
Shares, other Preferred Stock, if any, or its Common Stock.
-9-
(v) Transactions with Affiliates. Except as set forth in the
Form 10-KSB, Form 10-QSB or on Schedule 2.1(v) hereto, there are no loans,
leases, agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions between (a) the Company, any
subsidiary or any of their respective customers or suppliers on the one hand,
and (b) on the other hand, any officer, employee, consultant or director of the
Company, or any of its subsidiaries, or any person owning any capital stock of
the Company or any subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants hereunder. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Shares and the Warrants under the registration provisions of
the Securities Act and applicable state securities laws, and neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of any of the Shares and the Warrants.
(x) Governmental Approvals. Except as set forth in the Form
10-KSB or Form 10-QSB, and except for the filing of any notice prior or
subsequent to the Closing Date that may be required under applicable state
and/or Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a registration statement or statements pursuant
to the Registration Rights Agreement, and the filing of the Certificate of
Designation with the Secretary of State of the State of Delaware, no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Preferred Shares and the
Warrants, or for the performance by the Company of its obligations under the
Transaction Documents or the Certificate of Designation.
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(y)
hereto. Except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule
2.1(y) hereto, neither the Company nor any subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. Since June 30, 2002, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
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knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(z) Absence of Certain Developments. Except as provided in the
Form 10-KSB, Form 10-QSB, Commission Documents or on Schedule 2.1(z) hereto,
since June 30, 2002, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become
subject to any liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course of business
during the comparable portion of its prior fiscal year, as adjusted to reflect
the current nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance
or paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of
cash or other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any
rights of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation
except in the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments
therefor that aggregate in excess of $100,000;
(x) entered into any other transaction other than in
the ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in
excess of $25,000;
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(xii) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor
or management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the
foregoing kind which in the aggregate would be material to the Company or its
subsidiaries; or
(xv) entered into an agreement, written or otherwise,
to take any of the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the
Preferred Shares will be used by the Company for working capital and general
corporate purposes.
(bb) Public Utility Holding Company Act and Investment Company
Act Status. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(cc), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(dd) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with this Agreement and the Certificate of Designation and its
obligations to issue the Warrant Shares upon the exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the
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dilutive effect that such issuance may have on the ownership interest of other
stockholders of the Company.
Section 2.2 Representations and Warranties of the Purchasers.
Each of the Purchasers hereby makes the following representations and warranties
to the Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. The Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Preferred Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate or partnership
action (if the Purchaser is an entity), and no further consent or authorization
of such Purchaser or its Board of Directors, stockholders, or partners, as the
case may be, is required. Each of this Agreement and the Registration Rights
Agreement has been duly authorized, executed and delivered by such Purchaser.
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
such Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which such Purchaser
is a party, or result in a violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable to such
Purchaser or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a material adverse effect
on such Purchaser). Such Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement or to
purchase the Preferred Shares or acquire the Warrants in accordance with the
terms hereof, provided that for purposes of the representation made in this
sentence, such Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Acquisition for Investment. Such Purchaser is acquiring
the Preferred Shares and the Warrants solely for its own account for the purpose
of investment and not with a view to or for sale in connection with
distribution. Such Purchaser does not have a present intention to sell the
Preferred Shares or the Warrants, nor a present arrangement (whether or not
legally binding) or intention to effect any distribution of the Preferred Shares
or the Warrants to or through any person or entity; provided, however, that by
making the representations herein and subject to Section 2.2(f) below, such
Purchaser does not agree to hold the Shares or the
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Warrants for any minimum or other specific term and reserves the right to
dispose of the Shares or the Warrants at any time in accordance with Federal and
state securities laws applicable to such disposition. Such Purchaser
acknowledges that it is able to bear the financial risks associated with an
investment in the Preferred Shares and the Warrants and that it has been given
full access to such records of the Company and the subsidiaries and to the
officers of the Company and the subsidiaries and received such information as it
has deemed necessary or appropriate to conduct its due diligence investigation.
(e) Accredited Purchasers. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) Rule 144. Such Purchaser understands that the Shares must
be held indefinitely unless such Shares are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges that
such Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(g) Investment Experience. Each Purchaser has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the prospective investment in the Preferred
Shares and Warrants, which are substantial and has in fact evaluated such merits
and risks in making its investment decision to purchase the Preferred Shares and
Warrants. Each Purchaser, by virtue of its business and financial expertise, has
the capacity to protect its own interest in connection with this transaction, or
has consulted with tax, financial, legal or business advisors as to the
appropriateness of an investment in the Preferred Shares and Warrants. Each
Purchaser has not been organized for the purpose of investing in the Preferred
Shares and Warrants, although such investment is consistent with its purposes.
(h) Access to Information. Each Purchaser or its professional
advisor has been granted the opportunity to conduct a full and fair examination
of the records, documents and files of the Company, to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents concerning the terms and conditions of the offering, the
Company and its business and prospects, and to obtain any additional information
which the Purchaser or its professional advisor deems necessary to verify the
accuracy of the information received. Each Purchaser further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering, and any information so
requested has been made available to the full and complete satisfaction of such
Purchaser. Each Purchaser hereby confirms that it has received and examined all
material information it considers necessary to make an informed decision to
invest in the Preferred Shares and Warrants.
(i) No Distributor, Dealer or Underwriter. Each Purchaser is
not a distributor or dealer of the Preferred Shares
-14-
and Warrants. The Purchaser is not taking the Preferred Shares and Warrants with
the intent of making a distribution of the Preferred Shares and Warrants, as
such terms are defined in the Securities Act and the Exchange Act. In any event,
if the Purchaser is deemed to be the distributor of the Preferred Shares and
Warrants offered hereby, the Purchaser will act in accordance with applicable
law.
(j) No Immediate Need for Liquidity. Each Purchaser
understands that each of the Preferred Shares, Warrants, Conversion Shares and
Warrant Shares is a "restricted security" within the meaning of the Securities
Act, and certificates representing the Preferred Shares, Warrants, Conversion
Shares and Warrant Shares are legended with certain restrictions on resale and
may not be resold without a valid exemption from registration under the
Securities Act, or until a registration statement is filed with respect thereto
under the Securities Act. There can be no assurance that upon registration of
the Conversion Shares and Warrant Shares pursuant to the Securities Act, that a
market for the Conversion Shares and Warrant Shares will exist on an exchange or
market or quotation system. Accordingly, each Purchaser is aware that there are
legal and practical limits on such Purchaser's ability to sell or dispose of the
Conversion Shares and Warrant Shares, and, therefore that the Purchaser must
bear the economic risk of the investment for an indefinite period of time. Each
Purchaser has adequate means of providing for the Purchaser's current needs and
possible personal contingencies and has need for only limited liquidity of this
investment. The Purchaser's commitment to illiquid investments is reasonable in
relation to the Purchaser's net worth. The Purchaser is capable of bearing the
high degree of economic risks and burdens of this investment, including but not
limited to the possibility of complete loss of all its investment capital and
the lack of a liquid market, such that it may not be able to liquidate readily
the investment whenever desired or at the then current asking price.
(k) Private Transaction. At no time was a Purchaser presented
with or solicited by any leaflet, public promotional meeting, circular,
newspaper or magazine article, radio or television advertisement or any other
form of general advertising.
(l) Reliance on Own Advisors. Each Purchaser has relied
completely on the advice of, or has consulted with, its own personal tax,
investment, legal or other advisors and has not relied on the Company or any of
its affiliates, officers, directors, attorneys, accountants or any affiliates of
any thereof and each other person, if any, who controls any thereof, within the
meaning of Section 15 of the Securities Act, except to the extent such advisors
shall be deemed to be as such.
(m) General. Such Purchaser understands that the Shares are
being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Shares.
-15-
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 Securities Compliance.
(a) The Company shall notify the Commission in accordance with
their rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the Preferred
Shares, Warrants, Conversion Shares and Warrant Shares as required under
Regulation D, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Preferred Shares, the Warrants, the Conversion Shares
and the Warrant Shares to the Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Preferred Shares.
(c) Unless waived by a Purchaser by means of providing
sixty-one (61) days notice to the Company, the Company covenants and agrees that
the number of Conversion Shares issuable upon conversion of the Preferred Shares
and the number of Warrant Shares issuable upon any exercise of such Warrant by a
Purchaser shall not exceed the number of such shares that, when aggregated with
all other shares of Common Stock then owned by a Purchaser beneficially or
deemed beneficially owned by a Purchaser, would result in a Purchaser owning
more than 4.99% of all of such Common Stock as would be outstanding on such date
of conversion or such date of exercise of the Warrant, as determined in
accordance with Section 16 of the Exchange Act and the regulations promulgated
thereunder.
Section 3.2 Registration and Listing. The Company will cause
its Common Stock to continue to be registered under Sections 12(b) or 12(g) of
the Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement or the Registration
Rights Agreement, and will not take any action or file any document (whether or
not permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein. The Company will take all action necessary to continue the
listing or trading of its Common Stock on the over-the-counter electronic
bulletin board.
Section 3.3 Inspection Rights. The Company shall permit,
during normal business hours and upon reasonable request and reasonable notice,
each Purchaser or any employees, agents or representatives thereof, so long as
such Purchaser shall be obligated hereunder to purchase the Preferred Shares or
shall beneficially own any Preferred Shares, or shall own Conversion Shares
which, in the aggregate, represent more than 2% of the total combined voting
power of all voting securities then outstanding, for purposes reasonably related
to such Purchaser's interests as a stockholder to examine and make reasonable
copies of and
-16-
extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
subsidiary with any of its officers, consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply,
and cause each subsidiary to comply, with all applicable laws, rules,
regulations and orders, noncompliance with which could have a Material Adverse
Effect.
Section 3.5 Keeping of Records and Books of Account. The
Company shall keep and cause each subsidiary to keep adequate records and books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. If the Company ceases to
file its periodic reports with the Commission, or if the Commission ceases
making these periodic reports available via the Internet without charge, then
the Company shall furnish the following to each Purchaser so long as such
Purchaser shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-QSB
as soon as available, and in any event within forty-five (45) days after the end
of each of the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-KSB as
soon as available, and in any event within ninety (90) days after the end of
each fiscal year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive
any provision of the Articles or Bylaws of the Company, or Registration Rights
Agreement in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of the
holders of the Preferred Shares.
Section 3.8 Other Agreements. The Company shall not enter into
any agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document or the Certificate of Designation.
-17-
Section 3.9 Distributions. So long as any Preferred Shares or
Warrants remain outstanding, the Company agrees that it shall not (i) declare or
pay any dividends or make any distributions to any holder(s) of Common Stock or
(ii) purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section 3.10 Status of Dividends. The Company covenants and
agrees that (i) no Federal income tax return or claim for refund of Federal
income tax or other submission to the Internal Revenue Service will adversely
affect the Preferred Shares, any other series of its Preferred Stock, or the
Common Stock, and any deduction shall not operate to jeopardize the availability
to Purchasers of the dividends received deduction provided by Section 243(a)(1)
of the Code or any successor provision, (ii) in no report to shareholders or to
any governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by a governmental body having jurisdiction over the accounts of the Company or
by a change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) other
than pursuant to this Agreement or the Certificate of Designation, it will take
no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company's current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as "Convertible
Preferred Stock" in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. Notwithstanding the foregoing, the Company shall not be required to
restate or modify its tax returns for periods prior to the Closing Date. In the
event that the Purchasers have reasonable cause to believe that dividends paid
by the Company on the Preferred Shares out of the Company's current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or any
successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
in the submission to the Service of a request for a ruling that dividends paid
on the Shares will be so eligible for Federal income tax purposes, at the
Purchasers expense. In addition, the Company will reasonably cooperate with the
Purchasers (at Purchasers' expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code or
incurred in connection with any such submission, litigation, appeal or other
proceeding. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a deduction with respect to all or a portion
of the dividends on the Shares is allowable for Federal income tax purposes, or
(ii) in the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the service shall rule
or advise that dividends on the shares should not be treated as
-18-
dividends for Federal income tax purposes. If the Service determines that the
Preferred Shares or Conversion Shares constitute debt, the Company may file
protective claims for refund.
Section 3.11 Reservation of Shares. So long as any of the
Preferred Shares or Warrants remain outstanding, the Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than 100% of the aggregate number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and the Warrant
Shares.
Section 3.12 Transfer Agent Instructions. The Company shall
issue irrevocable instructions to its transfer agent, and any subsequent
transfer agent, to issue certificates, registered in the name of each Purchaser
or its respective nominee(s), for the Conversion Shares and the Warrant Shares
in such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Preferred Shares or exercise of the Warrants in the form
of Exhibit E attached hereto (the "Irrevocable Transfer Agent Instructions").
Prior to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.12 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.12 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 5.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of the Shares may be made without registration under the Securities Act
or the Purchaser provides the Company with reasonable assurances that the Shares
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.12 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.12 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.12, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
Section 3.13 Subsequent Financings; Right of First Offer. (a)
During the period commencing on the Initial Closing Date and ending six (6)
months after the Initial Closing Date, the Company covenants and agrees that it
will not, without the prior written consent of the holders of a majority of the
Preferred Shares outstanding at the time consent is required, enter into any
subsequent offer or sale to, or exchange with (or other type of distribution
to), any third party (a "Subsequent Financing"), of Common Stock or any
securities convertible, exercisable or
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exchangeable into Common Stock, including convertible and non-convertible debt
securities (collectively, the "Financing Securities"). For purposes of this
Agreement, a Permitted Financing (as defined hereinafter) shall not be
considered a Subsequent Financing. A "Permitted Financing" shall mean (1) shares
of Common Stock to be issued to strategic partners and/or in connection with a
strategic merger or acquisition; (2) shares of Common Stock or the issuance of
options to purchase shares of Common Stock to employees, officers, directors,
consultants and vendors in accordance with the Company's equity incentive
policies; and (3) the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities issued or outstanding prior to
the date hereof.
(b) During the period commencing on the Initial Closing Date
and ending on the first (1st) anniversary of the Initial Closing Date, the
Company covenants and agrees to promptly notify (in no event later than five (5)
days after making or receiving an applicable offer) in writing (a "Rights
Notice") the Purchasers of the terms and conditions of any proposed Subsequent
Financing. The Rights Notice shall describe, in reasonable detail, the proposed
Subsequent Financing, the proposed closing date of the Subsequent Financing,
which shall be within thirty (30) calendar days from the date of the Rights
Notice, including, without limitation, all of the terms and conditions thereof.
The Rights Notice shall provide the Purchasers an option (the "Rights Option")
during the five (5) trading days following delivery of the Rights Notice (the
"Option Period") to inform the Company whether the Purchasers will purchase all
or part of the securities being offered in such Subsequent Financing on the
same, absolute terms and conditions as contemplated by such Subsequent Financing
(the "First Refusal Rights"). Delivery of any Rights Notice constitutes a
representation and warranty by the Company that there are no other material
terms and conditions, arrangements, agreements or otherwise except for those
disclosed in the Rights Notice, to provide additional compensation to any party
participating in any proposed Subsequent Financing, including, but not limited
to, additional compensation based on changes in the Purchase Price or any type
of reset or adjustment of a purchase or conversion price or to issue additional
securities at any time after the closing date of a Subsequent Financing. If the
Company does not receive notice of exercise of the Rights Option from the
Purchasers within the Option Period, the Company shall have the right to close
the Subsequent Financing on the scheduled closing date with a third party;
provided that all of the material terms and conditions of the closing are the
same as those provided to the Purchasers in the Rights Notice. If the closing of
the proposed Subsequent Financing does not occur on that date, any closing of
the contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.13, including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section
3.13(b) shall not apply to issuances of Financing Securities in a Permitted
Financing.
(c) During the period commencing on the Initial Closing Date
and ending on the second (2nd) anniversary of the Initial Closing Date, if the
Company enters into any Subsequent Financing on terms more favorable than the
terms governing the Preferred Shares, then the Purchasers in their sole
discretion may exchange the Preferred Shares, valued at their stated value,
together with accrued but unpaid dividends (which dividends shall be payable, at
the sole option of the Purchasers, in cash or in the form of the new securities
to be issued in the Subsequent Financing) for the securities issued or to be
issued in the Subsequent Financing. The Company covenants and agrees to promptly
notify in writing the Purchasers of the terms and conditions of any such
proposed Subsequent Financing.
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Section 3.14 Form 8-K. The Company shall file a Form 8-K with
the Commission within five (5) business days of the Initial Closing Date which
shall provide general guidance with respect to the Company's estimated quarterly
revenue growth and cash flow for the four quarters following the Initial Closing
Date.
Section 3.15 Appointments to Company's Board of Directors. The
Company shall not appoint any new individual to its Board of Directors without
the prior written consent of SDS Merchant Fund, L.P.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the
Company to Sell the Shares. The obligation hereunder of the Company to issue and
sell the Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before each Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) Accuracy of Each Purchaser's Representations and
Warranties. The representations and warranties of each Purchaser shall be true
and correct in all material respects as of the date when made and as of each
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to each Closing.
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Shares. The obligation hereunder of each Purchaser to
acquire and pay for the Preferred Shares and the Warrants is subject to the
satisfaction or waiver, at or before each Closing, of each of the conditions set
forth below. These conditions are for each Purchaser's sole benefit and may be
waived by such Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of each Closing
Date as though made at that time (except for
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representations and warranties that speak as of a particular date), which shall
be true and correct in all material respects as of such date.
(b) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to each Closing.
(c) No Suspension, Etc. From the date hereof to the Closing
Date, trading in the Company's Common Stock shall not have been suspended by the
Commission (except for any suspension of trading of limited duration agreed to
by the Company, which suspension shall be terminated prior to the Closing), and,
at any time prior to the Closing, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the
New York Stock Exchange, nor shall a
banking moratorium have been declared either by the United States or
New York
State authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of such Purchaser, makes
it impracticable or inadvisable to purchase the Preferred Shares.
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(e) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(f) Certificate of Designation of Rights and Preferences.
Prior to the Initial Closing, the Certificate of Designation in the form of
Exhibit C attached hereto shall have been filed with the Secretary of State of
Delaware.
(g) Opinion of Counsel, Etc. At each Closing, the Purchasers
shall have received an opinion of counsel to the Company, dated the date of such
Closing, in the form of Exhibit F hereto, and such other certificates and
documents as the Purchasers or its counsel shall reasonably require incident to
such Closing.
(h) Registration Rights Agreement. At the Initial Closing, the
Company shall have executed and delivered the Registration Rights Agreement to
each Purchaser.
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(i) Certificates. The Company shall have executed and
delivered to the Purchasers the certificates (in such denominations as such
Purchaser shall request) for the Preferred Shares and Warrants being acquired by
such Purchaser at each Closing.
(j) Resolutions. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) above in a form
reasonably acceptable to such Purchaser (the "Resolutions").
(k) Reservation of Shares. As of each Closing Date, the
Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred Shares and
the exercise of the Warrants, a number of shares of Common Stock equal to at
least 100% of the aggregate number of Conversion Shares issuable upon conversion
of the Preferred Shares outstanding on the Closing Date and the number of
Warrant Shares issuable upon exercise of the number of Warrants assuming such
Warrants were granted on the Initial Closing Date (after giving effect to the
Preferred Shares and the Warrants to be issued on the Initial Closing Date and
assuming all such Preferred Shares and Warrants were fully convertible or
exercisable on such date regardless of any limitation on the timing or amount of
such conversions or exercises).
(l) Transfer Agent Instructions. The Irrevocable Transfer
Agent Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(m) Secretary's Certificate. The Company shall have delivered
to such Purchaser a secretary's certificate, dated as of each Closing Date, as
to (i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the
Certificate of Designation, each as in effect at the Closing, and (v) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(n) Officer's Certificate. The Company shall have delivered to
the Purchasers a certificate of an executive officer of the Company, dated as of
each Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.2 as of
such Closing Date.
(o) Material Adverse Effect. No Material Adverse Effect shall
have occurred at or before each Closing Date.
ARTICLE V
STOCK CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the
Preferred Shares and the Warrants, and, if appropriate, securities issued upon
conversion thereof, shall be stamped or
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otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS OR THE
VIALINK COMPANY
SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Shares
without the legend set forth above if at such time, prior to making any transfer
of any Shares or Shares, such holder thereof shall give written notice to the
Company describing the manner and terms of such transfer and removal as the
Company may reasonably request. Such proposed transfer will not be effected
until: (a) the Company has notified such holder that either (i) in the opinion
of Company counsel, the registration of such Shares under the Securities Act is
not required in connection with such proposed transfer; or (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act; and (b) the Company has notified such holder that either: (i) in
the opinion of Company counsel, the registration or qualification under the
securities or "blue sky" laws of any state is not required in connection with
such proposed disposition, or (ii) compliance with applicable state securities
or "blue sky" laws has been effected. The Company will use its best efforts to
respond to any such notice from a holder within ten (10) days. In the case of
any proposed transfer under this Section 5, the Company will use reasonable
efforts to comply with any such applicable state securities or "blue sky" laws,
but shall in no event be required, in connection therewith, to qualify to do
business in any state where it is not then qualified or to take any action that
would subject it to tax or to the general service of process in any state where
it is not then subject. The restrictions on transfer contained in Section 5.1
shall be in addition to, and not by way of limitation of, any other restrictions
on transfer contained in any other section of this Agreement.
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ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify
and hold harmless the Purchasers and any placement agent or sub-placement agent
(and their respective directors, officers, affiliates, agents, successors and
assigns) from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by the Purchasers as a result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Company herein. Each Purchaser severally but not jointly agrees to indemnify
and hold harmless the Company and its directors, officers, affiliates, agents,
successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys' fees, charges and disbursements) incurred by the Company
as result of any inaccuracy in or breach of the representations, warranties or
covenants made by such Purchaser herein.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the
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claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such claim. The indemnification required by this Article
VI shall be made by periodic payments of the amount thereof during the course of
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, so long as the indemnified party irrevocably
agrees to refund such moneys if it is ultimately determined by a court of
competent jurisdiction that such party was not entitled to indemnification. The
indemnity agreements contained herein shall be in addition to (a) any cause of
action or similar rights of the indemnified party against the indemnifying party
or others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Except as otherwise set forth
in this Agreement, the Registration Rights Agreement or the Certificate of
Designation, each party shall pay the fees and expenses of its advisors,
counsel, accountants and other experts, if any, and all other expenses, incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, provided that the Company shall pay, at the
Closing, (i) all actual attorneys' fees and expenses (exclusive of disbursements
and out-of-pocket expenses) incurred by the Purchasers up to $25,000 in
connection with the preparation, negotiation, execution and delivery of this
Agreement, the Registration Rights Agreement and the transactions contemplated
thereunder and (ii) placement agent fees to the placement agent referred to on
Schedule 2.1(p) hereto. In addition, the Company shall pay all reasonable fees
and expenses incurred by the Purchasers in connection with the filing and
declaration of effectiveness by the Commission of the Registration Statement (as
defined in the Registration Rights Agreement) any amendments, modifications or
waivers of this Agreement or any of the other Transaction Documents, or incurred
in connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys'
fees and expenses. The Company shall pay all stamp or other similar taxes and
duties levied in connection with issuance of the Preferred Shares pursuant
hereto.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement, the Certificate of Designation or the Registration Rights Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement or the Registration Rights Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the Southern District of
New York and the courts of the State of
New
York located in
New York county for the purposes of any suit,
-26-
action or proceeding arising out of or relating to this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
and (ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the Company and the Purchasers consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 7.2 shall affect or limit any right to serve
process in any other manner permitted by law.
Section 7.3 Entire Agreement; Amendment. This Agreement
contains the entire understanding of the parties with respect to the matters
covered hereby and, except as specifically set forth herein or in the
Transaction Documents or the Certificate of Designation, neither the Company nor
any of the Purchasers makes any representations, warranty, covenant or
undertaking with respect to such matters and they supersede all prior
understandings and agreements with respect to said subject matter, all of which
are merged herein. No provision of this Agreement may be waived or amended other
than by a written instrument signed by the Company and the holders of at least
three-fourths (3/4) of the shares of Series D Convertible Preferred Stock then
outstanding, and no provision hereof may be waived other than by an a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought. No such amendment shall be effective to the extent that it
applies to less than all of the holders of the Preferred Shares then
outstanding. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents or the Certificate of Designation unless the same consideration is
also offered to all of the parties to the Transaction Documents or holders of
Preferred Shares, as the case may be.
Section 7.4 Notices. Any notice, demand, request, waiver or
other communication required or permitted to be given hereunder shall be in
writing and shall be effective (a) upon hand delivery by telex (with correct
answer back received), telecopy or facsimile at the address or number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company: The
viaLink Company
00000 Xxxx Xxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Chief Executive Officer and
Chief Financial Officer
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
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If to any Purchaser: At the address of such Purchaser set
forth on Exhibit A to this Agreement,
with copies to Purchaser's counsel as
set forth on Exhibit A or as specified
in writing by such Purchaser with
copies to:
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx, Esq.
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 7.5 Waivers. No waiver by either party of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 7.6 Headings. The article, section and subsection
headings in this Agreement are for convenience only and shall not constitute a
part of this Agreement for any other purpose and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. After the Closing, the assignment by a party to this Agreement of any
rights hereunder shall not affect the obligations of such party under this
Agreement.
Section 7.8 No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of
New York,
without giving effect to the choice of law provisions. This Agreement shall not
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of
the Company and the Purchasers contained in Sections 2.1(o) and (s) should
survive indefinitely and those contained in Article II, with the exception of
Sections 2.1(o) and (s), shall survive the execution and delivery hereof and the
Closing until the date three (3) years from the Closing Date, and the agreements
and covenants set forth in Articles I, III, V, VIII and IX of this Agreement
shall
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survive the execution and delivery hereof and the Closing hereunder until the
Purchasers in the aggregate beneficially own (determined in accordance with Rule
13d-3 under the Exchange Act) less than 2% of the total combined voting power of
all voting securities then outstanding, provided, that Sections 3.1, 3.2, 3.4,
3.5, 3.7, 3.8, 3.9, 3.10 and 3.12 shall not expire until the Registration
Statement required by Section 2 of the Registration Rights Agreement is no
longer required to be effective under the terms and conditions of Registration
Rights Agreement.
Section 7.11 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument and shall become effective when counterparts have been
signed by each party and delivered to the other parties hereto, it being
understood that all parties need not sign the same counterpart. In the event any
signature is delivered by facsimile transmission, the party using such means of
delivery shall cause four additional executed signature pages to be physically
delivered to the other parties within five days of the execution and delivery
hereof.
Section 7.12 Publicity. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of the
Purchasers without the consent of the Purchasers unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.
Section 7.13 Severability. The provisions of this Agreement,
the Certificate of Designation and the Registration Rights Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement, the Certificate of Designation or the Registration
Rights Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement,
the Certificate of Designation or the Registration Rights Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of
this Agreement, upon the request of any Purchaser or the Company, each of the
Company and the Purchasers shall execute and deliver such instrument, documents
and other writings as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designation, and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
THE
VIALINK COMPANY
By:
---------------------------------
Name:
Title:
PURCHASER
By:
---------------------------------
Name:
Title:
PURCHASER
By:
---------------------------------
Name:
Title:
PURCHASER
By:
---------------------------------
Name:
Title:
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EXHIBIT A TO THE
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR THE
VIALINK COMPANY
PURCHASERS
NAMES AND ADDRESSES NUMBER OF PREFERRED SHARES DOLLAR AMOUNT
OF PURCHASERS & WARRANTS PURCHASED OF INVESTMENT
------------------- -------------------------- -------------
SDS Merchant Fund, L.P. Preferred Shares: 630.41 $7,564,850
00 Xxxxxx Xxxxxx, 0xx Xxxxx Xxxxxxxx: 31,520,209
Xxx Xxxxxxxxx, XX 00000
Fax: 000-000-0000
Attention: Xxxxx Xxxxx
XxXxxxx Investment Partners, LLC Preferred Shares: 20.83 $ 250,000
000 Xxxx 00xx Xxxxxx, #00X Xxxxxxxx: 1,041,667
Xxx Xxxx, XX 00000
Phone: 000-000-0000
Attention: Xxxxxx XxXxxxx
EXHIBIT B TO THE
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
THE
VIALINK COMPANY
FORM OF WARRANT
EXHIBIT C TO THE
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
THE
VIALINK COMPANY
FORM OF CERTIFICATE OF DESIGNATION
EXHIBIT D TO THE
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
THE
VIALINK COMPANY
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E TO THE
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
THE
VIALINK COMPANY
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
THE VIALINK COMPANY
as of September 30, 2002
[Name and address of Transfer Agent]
Attn: _____________
LADIES AND GENTLEMEN:
Reference is made to that certain
Series D Convertible Preferred Stock
Purchase Agreement, dated as of September 30, 2002, by and among The viaLink
Company, a Delaware corporation (the "COMPANY"), and the purchasers named
therein (collectively, the "PURCHASERS") pursuant to which the Company is
issuing to the Purchasers shares of its Series D Convertible Preferred Stock,
par value $.001 per share, (the "PREFERRED SHARES") and warrants (the
"WARRANTS") to purchase shares of the Company's common stock, par value $.001
per share (the "COMMON STOCK") Warrants in connection with the sale and issuance
of Preferred Shares and Warrants to the Purchasers. This letter shall serve as
our irrevocable authorization and direction to you (provided that you are the
transfer agent of the Company at such time) to issue shares of Common Stock upon
conversion of the Preferred Shares (the "CONVERSION SHARES") and exercise of the
Warrants (the "WARRANT SHARES") to or upon the order of a Purchaser from time to
time upon (i) surrender to you of a properly completed and duly executed
Conversion Notice or Exercise Notice, as the case may be, in the form attached
hereto as Exhibit I and Exhibit II, respectively, (ii) in the case of the
conversion of Preferred Shares, a copy of the certificates (with the original
certificates delivered to the Company) representing Preferred Shares being
converted or, in the case of Warrants being exercised, a copy of the Warrants
(with the original Warrants delivered to the Company) being exercised (or, in
each case, an indemnification undertaking with respect to such share
certificates or the warrants in the case of their loss, theft or destruction),
and (iii) delivery of a treasury order or other appropriate order duly executed
by a duly authorized officer of the Company. So long as you have previously
received (x) written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares or Warrant
Shares, as applicable, has been declared effective by the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT"), and no subsequent notice by the Company or its counsel of the
suspension or termination of its effectiveness and (y) a copy of such
registration statement, and if the Purchaser represents in writing that the
Conversion Shares or the Warrant Shares, as the case may be, were sold pursuant
to the Registration Statement, then certificates representing the Conversion
Shares and the Warrant Shares, as the case may be, shall not bear any legend
restricting transfer of the Conversion Shares and the Warrant Shares, as the
case may be, thereby and should not be subject to any stop-transfer restriction.
Provided, however, that if you have not previously received (i) written
confirmation from counsel to the Company that a registration statement covering
resales of the Conversion Shares or Warrant Shares, as applicable, has been
declared effective by the SEC under the 1933 Act, and (ii) a copy of such
registration statement, then the certificates for the Conversion Shares and the
Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS, OR THE VIALINK COMPANY SHALL HAVE RECEIVED AN
OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please be advised that the Purchasers are relying upon this letter as
an inducement to enter into the Securities Purchase Agreement and, accordingly,
each Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
THE VIALINK COMPANY
By:
----------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Date:
-------------------------
EXHIBIT I
THE VIALINK COMPANY
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series D Preferred Stock of The viaLink Company (the
"Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series D Preferred Stock, par value $.001 per share (the "Preferred
Shares"), of The viaLink Company, a Delaware corporation (the "Company"),
indicated below into shares of Common Stock, par value $.001 per share (the
"Common Stock"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Preferred Shares specified below as of the date
specified below.
Date of Conversion:
--------------------------
Number of Preferred Shares to be converted:
-------
Stock certificate no(s). of Preferred Shares to be converted:
--------
The Common Stock have been sold pursuant to the Registration Statement
(as defined in the Registration Rights Agreement): YES ____ NO ____
Please confirm the following information:
Conversion Price:
---------------------------------
Number of shares of Common Stock
to be issued:
---------------------------------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
---------------------------------
---------------------------------
Facsimile Number:
---------------------------------
Authorization:
---------------------------------
By:
-----------------------------
Title:
--------------------------
Dated:
PRICES ATTACHED
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
THE VIALINK COMPANY
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of The viaLink
Company covered by the within Warrant.
Dated: Signature
----------------- --------------------------
Address
--------------------------
--------------------------
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: Signature
----------------- --------------------------
Address
--------------------------
--------------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: Signature
----------------- --------------------------
Address
--------------------------
--------------------------
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Transfer Agent]
Attn: _____________
Re: THE VIALINK COMPANY
Ladies and Gentlemen:
We are counsel to The viaLink Company, a Delaware corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Series D Convertible Preferred Stock Purchase Agreement (the "PURCHASE
AGREEMENT"), dated as of September 30, 2002, by and among the Company and the
purchasers named therein (collectively, the "PURCHASERS") pursuant to which the
Company issued to the Purchasers shares of its Series D Convertible Preferred
Stock, par value $.001 per share, (the "PREFERRED SHARES") and warrants (the
"WARRANTS") to purchase shares of the Company's common stock, par value $.001
per share (the "COMMON STOCK"). Pursuant to the Purchase Agreement, the Company
has also entered into a Registration Rights Agreement with the Purchasers (the
"REGISTRATION RIGHTS AGREEMENT"), dated as of September 30, 2002, pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 ACT"). In connection with the Company's obligations under the Registration
Rights Agreement, on ________________, 2002, the Company filed a Registration
Statement on Form S-2 (File No. 333-________) (the "REGISTRATION STATEMENT")
with the Securities and Exchange Commission (the "SEC") relating to the resale
of the Registrable Securities which names each of the present Purchasers as a
selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
----------------------------
cc: [LIST NAMES OF PURCHASERS]
EXHIBIT F TO THE
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
THE VIALINK COMPANY
FORM OF OPINION OF COUNSEL
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of Delaware and has
the requisite corporate power to own, lease and operate its properties and
assets, and to carry on its business as presently conducted. The company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary.
2. The Company has the requisite corporate power and authority
to enter into and perform its obligations under the Transaction Documents and to
issue the Preferred Stock, the Warrants and the Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants. The execution,
delivery and performance of each of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated thereby have been duly
and validly authorized by all necessary corporate action and no further consent
or authorization of the Company or its Board of Directors or stockholders is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants are
not subject to any preemptive rights under the Articles of Incorporation or the
Bylaws.
3. The Preferred Stock and the Warrants have been duly
authorized and, when delivered against payment in full as provided in the
Purchase Agreement, will be validly issued, fully paid and nonassessable. The
shares of Common Stock issuable upon conversion of the Preferred Stock and
exercise of the Warrants, have been duly authorized and reserved for issuance,
and, when delivered upon conversion or against payment in full as provided in
the Certificate of Designation and the Warrants, as applicable, will be validly
issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance
with the terms of the Transaction Documents and the issuance of the Preferred
Stock, the Warrants and the Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants do not (i) violate any provision of
the Articles of Incorporation or Bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any commitment
to which the Company is a party or by which the Company is bound or by which any
of its respective properties or assets are bound, or (iv) (a) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment, injunction or decree (including Federal and state securities
laws and regulations) applicable to the Company or by which any property or
asset of the Company is bound or affected, except, in all cases other than
violations pursuant to clause (i) above, for such conflicts, default,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required under Federal, state or local law, rule or regulation in connection
with the valid execution and delivery of the Transaction Documents, or the
offer, sale or issuance of the Preferred Stock, the Warrants or the Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants
other than the Certificate of Designation and the Registration Statement.
6. There is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of this Agreement or the transactions contemplated hereby or any action
taken or to be taken pursuant hereto or thereto. There is no action, suit,
claim, investigation or proceeding pending, or to our knowledge, threatened,
against or involving the Company or any of its properties or assets and which,
if adversely determined, is reasonably likely to result in a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against the
Company or any officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Preferred Stock and the
Warrants and the offer, issuance and sale of the shares of Common Stock issuable
upon conversion of the Preferred Stock and exercise of the Warrants pursuant to
the Purchase Agreement, the Certificate of Designation and the Warrants, as
applicable, are exempt from the registration requirements of the Securities Act.
8. The Company is not, and as a result of and immediately upon
Closing will not be, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Very truly yours,
Schedule 1.1
SDS Merchant Fund, L.P.:
Series B and Series C Preferred Stock: $5,900,000
XxXxxxx Investment Partners, LLC:
Series C Preferred Stock: $250,000
