EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT ("AGREEMENT") dated as of April
19, 2000 between Microware Systems Corporation, an Iowa corporation (the
"COMPANY"), and Xxxxxxx Associates, L.P., a Delaware limited partnership, and
Westgate International, L.P., a Cayman Islands limited partnership (individually
and collectively, the "INVESTOR").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the
Investor, and the Investor wishes to purchase from the Company (i) an aggregate
of 3,500 shares of the Company's Series I Preferred Stock, liquidation
preference $1,000 per share (all of such shares being the "PREFERRED SHARES"),
having the rights, designations and preferences set forth in the Articles of
Amendment to the Articles of Incorporation (the "CERTIFICATE") in the form of
EXHIBIT A attached hereto, on the terms and conditions set forth herein, which
Preferred Shares shall be convertible into Common Stock (as defined below) upon
submission of a Conversion Notice (as defined below), (ii) warrants (the
"WARRANTS") in the form of EXHIBIT B attached hereto to purchase up to an
aggregate of 87,500 Common Shares (as defined below), and (iii) options (the
"OPTIONS") in the form of EXHIBIT C attached hereto to purchase shares ("OPTION
SHARES") of Common Stock (as defined below) for an aggregate purchase price of
up to $3,000,000; and
WHEREAS, the Preferred Shares will be convertible into shares
("COMMON SHARES") of common stock, no par value, of the Company ("COMMON
STOCK"), pursuant to the terms of the Certificate, and the Investor will have
registration rights with respect to the Common Shares issuable upon conversion
of the Preferred Shares and/or exercise of the Warrants and the Option Shares,
pursuant to the terms of that certain Registration Rights Agreement to be
entered into between the Company and the Investor substantially in the form of
EXHIBIT D hereto ("REGISTRATION RIGHTS AGREEMENT");
NOW, THEREFORE, in consideration of the foregoing premises and
the covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
Section 1.1 ISSUANCE OF PREFERRED SHARES AND WARRANTS. Upon the
following terms and conditions, the Company shall issue and sell to the
Investor, and the Investor shall purchase from the Company, the number of
Preferred Shares, Warrants and Options indicated next to the Investor's name on
SCHEDULE I attached hereto.
Page 2
Section 1.2 PURCHASE PRICE. The purchase price for the Preferred
Shares, Warrants and Options to be acquired by the Investor (the "PURCHASE
PRICE") shall be the Purchase Price set forth next to the Investor's name on
SCHEDULE I.
Section 1.3 THE CLOSING.
(a) TIMING. Subject to the fulfillment or waiver of the conditions
set forth in Article V hereof, the purchase and sale of the Preferred Shares,
Warrants and Options shall take place at a closing (the "CLOSING"), on or
about April 19, 2000 or such other date as the Investor and the Company may
agree upon (the "CLOSING DATE").
(b) FORM OF PAYMENT. Each Investor shall pay its respective purchase
price for the Preferred Shares, Warrants and Options by wire transfer to the
account or accounts designated by the Company upon delivery by the Company to
the Investors' counsel of the applicable Preferred Shares, Warrants and Options
and upon satisfaction of the other conditions to the Closing. In addition, each
party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Closing.
Section 1.5 WARRANTS AND OPTIONS EXCHANGE. The Company agrees that
within ten (10) business days after the exercise price under the Warrants and
Options has been determined or adjusted pursuant to the terms thereof or of
the Transaction Documents (as defined below), it shall deliver to each
Investor (or then holder of Warrants and Options) new Warrants and Options in
exchange for the Warrants and Options issued on the Closing Date or
thereafter which are identical in all respects except that the then fixed
exercise price under the Warrants and Options shall be appropriately
specified in the Warrants and Options, and the Warrants and Options shall
specify the fixed number of Warrant Shares or dollar amount of Option Shares
into which the Warrants and Options, respectively, are then exercisable. Such
changes are intended not as amendments to the Warrants or Options but only as
clarification of the foregoing numbers for convenience purposes, and such
changes shall not affect any provisions concerning adjustments to the
exercise price or number or amount of Warrant Shares or Option Shares
contained therein. The Options and Warrants shall be marked "cancelled" and
returned to the Company by the Investor or holder thereof within 5 business
days of receipt of the new Options and Warrants.
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
Investor as of the date hereof and the Closing Date:
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE
EFFECT. The Company is a corporation duly incorporated and existing in good
standing under the laws of the State of Iowa and has the requisite corporate
power to own its properties and to carry on its business as now being
conducted. The Company does not have any subsidiaries other than the
subsidiaries listed on SCHEDULE 2.1(a) attached hereto ("SUBSIDIARIES").
Except where specifically indicated
Page 3
to the contrary, all references in this Agreement to subsidiaries shall be
deemed to refer to all direct and indirect subsidiaries of the Company. 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 other
than those in which the failure so to qualify would not have a Material
Adverse Effect. The Company is qualified to do business as a foreign
corporation in the jurisdictions set forth in SCHEDULE 2.1(a). "MATERIAL
ADVERSE EFFECT" means any adverse effect on the business, operations,
properties, prospects or financial condition of the Company and its
subsidiaries, if any, and which is (either alone or together with all other
adverse effects) material to the Company and its Subsidiaries, if any, taken
as a whole, and any material adverse effect on the transactions contemplated
under this Agreement, the Certificate and the Registration Rights Agreement,
or any other agreement or document contemplated hereby or thereby.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Certificate, the Registration Rights Agreement, the Warrants
and the Options ("TRANSACTION DOCUMENTS") and to issue the Preferred Shares,
Options and Warrants in accordance with the terms hereof, (ii) the execution
and delivery of this Agreement, the Registration Rights Agreement, the
Warrants and the Options by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including the issuance of the
Preferred Shares, Options and Warrants and the resolutions contained in the
Certificate, have been duly authorized by all necessary corporate action, and
no further consent or authorization of the Company or its Board of Directors
(or any committee or subcommittee thereof) or stockholders is required, (iii)
this Agreement, the Registration Rights Agreement, the Warrants and the
Options have been duly executed and delivered by the Company, (iv) this
Agreement, the Certificate, the Registration Rights Agreement, the Warrants
and the Options constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except (A) as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application, and (B) to the extent the
indemnification provisions contained in this Agreement and the Registration
Rights Agreement may be limited by applicable federal or state securities
laws and (v) the Preferred Shares, the Warrants, the Common Shares issuable
upon the conversion and/or exercise thereof and the Options and Option Shares
have been duly authorized, and upon issuance thereof and payment therefor in
accordance with the terms of this Agreement, the Preferred Shares, the
Warrants, the Common Shares issuable upon the conversion and/or exercise
thereof and the Option and Option Shares will be validly issued, fully paid
and non-assessable, free and clear of any and all liens, claims and
encumbrances.
(c) CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 50,000,000 shares of Common
Stock, of which as of the date hereof, 15,186,800 shares are issued and
outstanding, 2,342,850 shares are issuable and reserved for issuance pursuant
to the Company's stock option and purchase plans, and 1,248,736 shares are
issuable and reserved for issuance pursuant to securities exercisable or
exchangeable for, or convertible into, shares of Common Stock, and (ii)
500,000 shares of preferred stock, no par value, of which as of the date
hereof, no shares are currently designated other than the Series I Preferred
Stock and no shares are issued and outstanding. All of such outstanding
shares have
Page 4
been, or upon issuance will be, validly issued, fully paid and nonassessable.
As of the date hereof, except as disclosed in SCHEDULE 2.1(c), (i) no shares
of the Company's capital stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries
or options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company or any of its Subsidiaries,
(iv) there are no agreements or arrangements under which the Company or any
of its Subsidiaries is obligated to register the sale of any of their
securities under the Securities Act of 1933, as amended ("SECURITIES ACT" or
"1933 ACT") (except the Registration Rights Agreement and except as set forth
on SCHEDULE 2.1(c)), (v) there are no outstanding securities of the Company
or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries, (vi)
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Preferred Shares,
the Options, the Option Shares or the Warrants as described in this
Agreement, the Certificate or the Warrants and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or
any similar plan or agreement. The Company has furnished to the Investor true
and correct copies of the Company's ARTICLES OF INCORPORATION, as amended and
as in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the
Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and the
terms of all securities convertible or exchangeable into or exercisable for
Common Stock and the material rights of the holders thereof in respect
thereto.
(d) ISSUANCE OF SHARES. Upon issuance in accordance with
this Agreement and the Certificate, the Preferred Shares, Options, Option
Shares, Warrants and Common Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
(e) NO CONFLICTS. The execution, delivery and performance
of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby and issuance of
the Preferred Shares, the Options, the Option Shares, the Warrants and the
Common Shares underlying the Preferred Shares or the Warrants will not (i)
result in a violation of the Certificate of Incorporation, any certificate of
designations, preferences and rights of any outstanding series of preferred
stock of the Company or the By-laws; (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 the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
United States federal and state securities laws and regulations and the rules
and regulations of the Nasdaq National Market ("PRINCIPAL MARKET") or
principal securities exchange or trading market on which the Common Stock is
traded or listed) applicable
Page 5
to the Company or any of its Subsidiaries or by which any property or asset
of the Company or any of its Subsidiaries is bound or affected. Neither the
Company nor its Subsidiaries is in violation of any term of, or in default
under, (x) its certificate of incorporation, any certificate of designations,
preferences and rights of any outstanding series of preferred stock or
By-laws or their organizational charter or by-laws, respectively, (y) any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
or (z) any judgment, decree or order or any statute, rule or regulation
applicable to the Company or its Subsidiaries, the non-compliance with which
(in the case of (z) only), would be material to the Company or its
Subsidiaries or interfere with the performance of its obligations under the
Transaction Documents. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court, governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents or the issuance of the Preferred
Shares, the Options, the Option Shares, the Warrants and the Common Shares
underlying the Preferred Shares or the Warrants in accordance with the terms
hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. The Company complies with and is not in violation of the listing
requirements of the Principal Market as in effect on the date hereof and on
each of the Closing Dates and is not aware of any facts which would
reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future.
(f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December
31, 1998, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as
the "SEC DOCUMENTS"). The Company has delivered to the Investor or its
representatives true and complete copies of any SEC Documents that were not
filed electronically via XXXXX. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in
all material respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Investor which is not included in the SEC Documents,
including, without limitation, information referred to in
Page 6
Section 2.2(b) of this Agreement, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading.
(g) ABSENCE OF CERTAIN CHANGES. Except as disclosed on
Schedule 2.1(g), since December 31, 1998 there has been no adverse change or
adverse development in the business, properties, assets, operations,
financial condition, prospects, liabilities or results of operations of the
Company or its Subsidiaries which has had or, to the knowledge of the Company
or its Subsidiaries, is reasonably likely to have a Material Adverse Effect.
The Company has not taken any steps, and does not currently expect to take
any steps, to seek protection pursuant to any bankruptcy law nor does the
Company or its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
(h) ABSENCE OF LITIGATION. Except as disclosed on SCHEDULE
2.1(h), there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of
its Subsidiaries, threatened against or affecting the Company, the Common
Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such,
except which individually and in the aggregate, respectively, would be
reasonably likely to result in liability to the Company in excess of $50,000
and $100,000, respectively.
(i) ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF
SHARES. The Company acknowledges and agrees that the Investor is acting
solely in the capacity of arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby.
The Company further acknowledges that the Investor is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by the Investor or any of its
respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to the Investor's purchase of the Preferred Shares. The Company
further represents to the Investor that the Company's decision to enter into
the Transaction Documents has been based solely on the independent evaluation
by the Company and its representatives.
(j) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. No event, liability, development or circumstance has occurred
or exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that
would be required to be disclosed by the Company under applicable securities
laws on a registration statement filed with the SEC relating to an issuance
and sale by the Company of its Common Stock and which has not been publicly
disclosed.
(k) NO INSIDE INFORMATION. Neither the Company nor any of
its Subsidiaries or any of their officers, directors, employees or agents
have provided any Investor with any material, nonpublic information which was
not publicly disclosed prior to the date hereof, and the Company shall not,
and shall cause its Subsidiaries and their officers, directors, employees or
Page 7
agents not to, provide any Investor with any material non-public information
unless requested in writing by such Investor.
(l) NO INTEGRATED OFFERING. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf has, directly
or indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would cause this
offering of Preferred Shares, Options and Warrants to the Investor to be
integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of the Principal Market or other
Approved Market, nor will the Company or any of its Subsidiaries take any
action or steps that would cause the offering of the Preferred Shares,
Options and Warrants to be integrated with other offerings.
(m) EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened, the
effect of which would be reasonably likely to result in a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement. The Company and its Subsidiaries believe
that relations between the Company and its Subsidiaries and their respective
employees are good. No executive officer (as defined in Rule 501(f) of the
0000 Xxx) whose departure would be adverse to the Company has notified the
Company that such officer intends to leave the Company or otherwise terminate
such officer's employment with the Company.
(n) INTELLECTUAL PROPERTY RIGHTS. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. None of the Company's
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual property
rights have expired or terminated, or are expected to expire or terminate
within two (2) years from the date of this Agreement. Except as disclosed on
SCHEDULE 2.1(n), the Company and its Subsidiaries do not have any knowledge
of any infringement by the Company or its Subsidiaries of trademark, trade
name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx registrations, trade secret or
other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others, and there is no
claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its
Subsidiaries regarding trademarks, trade name rights, patents, patent rights,
inventions, copyrights, licenses, service names, service marks, service xxxx
registrations, trade secrets or other infringement. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
(o) ENVIRONMENTAL LAWS. The Company and its Subsidiaries
(i) are in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all
Page 8
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval where such noncompliance or failure to receive permits, licenses or
approvals referred to in clauses (i), (ii) or (iii) above could have,
individually or in the aggregate, a Material Adverse Effect.
(p) TITLE. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of
all liens, encumbrances and defects except such as are described in SCHEDULE
2.1(p) or such as do not materially and adversely affect the value of such
property and do not interfere with the use made and proposed to be made of
such property by the Company or any of its Subsidiaries. Any real property
and facilities held under lease by the Company or any of its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
Subsidiaries.
(q) INSURANCE. The Company and each of its Subsidiaries
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to
be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
been refused any insurance coverage sought or applied for and neither the
Company nor any such Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiaries taken as a whole.
(r) REGULATORY PERMITS. The Company and its Subsidiaries
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities, necessary to
conduct their respective businesses, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation
or modification of any such certificate, authorization or permit.
(s) INTERNAL ACCOUNTING CONTROLS. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with 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 action is taken with respect to any
differences.
(t) FOREIGN CORRUPT PRACTICES ACT. Neither the Company,
nor any director, officer, agent, employee or other person acting on behalf
of the Company or any Subsidiary has, in the course of acting for, or on
behalf of, the Company, directly or indirectly used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expenses
Page 9
relating to political activity; directly or indirectly made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision
of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any similar
treaties of the United States; or directly or indirectly made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government or party official or employee.
(u) TAX STATUS. The Company and each of its Subsidiaries
has made or filed all United States federal and state income and all other
tax returns, reports and declarations required by any jurisdiction to which
it is subject and (i) has paid all taxes and other governmental assessments
and charges, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (ii) has set
aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes claimed to be due by the taxing
authority of any jurisdiction, and the Company is not aware of any basis for
any such claim.
(v) CERTAIN TRANSACTIONS. Except as set forth in the SEC
Documents filed on XXXXX at least thirty (30) Trading Days prior to the date
hereof and except for arm's length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on SCHEDULE 2.1(c), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer, director or any such employee has a substantial
interest or is an officer, director, trustee or partner.
(w) DILUTIVE EFFECT. The Company understands and
acknowledges that the number of Option Shares issuable upon exercise of the
Option and Common Shares issuable upon conversion of Preferred Shares and
exercise of the Warrants will increase in certain circumstances. The Company
further acknowledges that, subject to such limitations as are expressly set
forth in the Transaction Documents, its obligation (x) to issue Option Shares
upon exercise of the Options and (y) to issue Common Shares upon conversion
of Preferred Shares and exercise of the Warrants, is absolute and
unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other shareholders of the Company.
(x) APPLICATION OF TAKEOVER PROTECTIONS. There are no
anti-takeover provisions contained in the Company's Certificate of
Incorporation or other organizational document or at law or otherwise which
will be triggered as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Common Shares or Option Shares and the Investor's ownership of the Common
Shares.
(y) RIGHTS PLAN. Neither the Company nor any of its
Subsidiaries has adopted a shareholder or rights plan or similar arrangement
relating to accumulations of beneficial
Page 10
ownership of Common Stock or a change in control of the Company. The Company
confirms that no provision of such plan will, under any present or future
circumstances, delay, prevent or interfere with the performance of any of the
Company's obligations under the Transaction Documents and such plan will not
be "triggered" by such performance.
(z) MARKET CAPITALIZATION. As of the date hereof, the
aggregate market value of the voting common equity of the Company held by
non-affiliates of the Company is greater than $40 million.
(aa) OBLIGATIONS ABSOLUTE. Each of the Company and the
Investor agrees that, subject only to the conditions, qualifications and
exceptions (if any) specifically set forth in the Transaction Documents, its
obligations under the Transaction Documents are unconditional and absolute.
Except to the extent (if any) specifically set forth in the Transaction
Documents, each party's obligations thereunder are not subject to any right
of set off, counterclaim, delay or reduction.
(bb) ISSUANCE OF COMMON SHARES. The Common Shares and
Option Shares are duly authorized and reserved for issuance and, upon
conversion of Preferred Shares in accordance with the Certificate, purchase
of the Option Shares pursuant to the Options or exercise of the Warrants in
accordance with the terms thereof, such Common Shares and Option Shares will
be validly issued, fully paid and non-assessable, free and clear of any and
all liens, claims and encumbrances, and the holders of such Common Shares and
Option Shares shall be entitled to all rights and preferences accorded to a
holder of Common Stock. As of the date of this Agreement and the Closing
Date, the outstanding shares of Common Stock are currently listed on the
Principal Market, and the Company is not aware of any reason that would
preclude the listing of the Option Shares and the Common Shares issuable upon
conversion of the Preferred Shares and exercise of the Warrants on the
Principal Market or the New York Stock Exchange, the American Stock Exchange
or the Nasdaq small cap market (collectively with the Principal Market, the
"APPROVED MARKETS").
(cc) FORM S-3. The Company is eligible to file the
Registration Statement (as defined in the Registration Rights Agreement) for
secondary offerings on Form S-3 (as in effect on the date of this Agreement)
under the 1933 Act and rules promulgated thereunder, and Form S-3 (as in
effect on the date of this Agreement) is permitted to be used for the
transactions contemplated hereby under the 1933 Act and rules promulgated
thereunder.
(dd) BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees
or similar payments by the Company or the Investor relating to this Agreement
or the transactions contemplated hereby, except for the broker's fee of
Xxxxxxxx Xxxxx Xxxxxx & Xxxxx (the "Placement Agent"), which shall be paid by
the Company out of the Closing proceeds.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The
Investor hereby makes the following representations and warranties to the
Company as of the date hereof and the Closing Date:
Page 11
(a) ACCREDITED INVESTOR STATUS; SOPHISTICATED INVESTOR. The
Investor is an "accredited investor" as that term is defined in Rule 501(a)
of Regulation D under the 1933 Act. The Investor has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of investment in the Preferred Shares, Options, Option
Shares, Warrants and Common Shares.
(b) INFORMATION. The Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company which have been requested and materials relating to
the offer and sale of the Preferred Shares, the Options, the Option Shares, the
Warrants and Common Shares which have been requested by the Investor. The
Investor and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by the Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investor's right to rely on
the Company's representations and warranties contained in Section 2.1 above. The
Investor understands that its investment in the Preferred Shares, the Options,
the Option Shares, the Warrants and Common Shares involves a high degree of
risk. The Investor has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Preferred Shares, the Options, the Option Shares, the
Warrants and Common Shares.
(c) NO GOVERNMENTAL REVIEW. The Investor understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Preferred
Shares, the Options, the Option Shares, the Warrants and Common Shares or the
fairness or suitability of the investment in the Preferred Shares, the Option
Shares, the Options, the Warrants and Common Shares nor have such authorities
passed upon or endorsed the merits of the offering of the Preferred Shares, the
Options, the Option Shares, the Warrants and Common Shares.
(d) LEGENDS. The Company shall issue certificates for the
Preferred Shares, the Options, the Option Shares, the Warrants and Common Shares
to the Investor without any legend except as described in Article VI below. The
Investor covenants that, in connection with any transfer of Common Shares or
Option Shares by the Investor pursuant to the registration statement
contemplated by the Registration Rights Agreement, it will comply with the
applicable prospectus delivery requirements of the 1933 Act, provided that
copies of a current prospectus relating to such effective registration statement
are or have been supplied to the Investor.
(e) AUTHORIZATION; ENFORCEMENT. Each of this Agreement and
the Registration Rights Agreement has been duly and validly authorized,
executed and delivered on behalf of the Investor and is a valid and binding
agreement of the Investor enforceable against the Investor in accordance with
its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement
of applicable creditors' rights and remedies. The Investor has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the Registration Rights Agreement and each other agreement
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement.
Page 12
(f) RESIDENCY. The Investor is a resident of the jurisdiction
indicated on SCHEDULE I.
(g) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by the Investor and the
consummation by the Investor of the transactions contemplated hereby and thereby
will not result in a violation of the certificate of limited partnership,
limited partnership agreement, or other documents of organization of the
Investor.
(h) INVESTMENT REPRESENTATION. The Investor is purchasing the
Preferred Shares, Options and Warrants for its own account and not with a view
to distribution in violation of any securities laws. The Investor has been
advised and understands that neither the Preferred Shares, the Options, the
Warrants nor the Option Shares or shares of Common Stock issuable upon
conversion or exercise thereof have been registered under the 1933 Act or under
the "blue sky" laws of any jurisdiction and may be resold only if registered
pursuant to the provisions of the 1933 Act or if an exemption from registration
is available, except under circumstances where neither such registration nor
such an exemption is required by law. The Investor has been advised and
understands that the Company, in issuing the Preferred Shares, the Options and
Warrants, is relying upon, among other things, the representations and
warranties of the Investor contained in this Section 2.2 in concluding that such
issuance is a "private offering" and is exempt from the registration provisions
of the 1933 Act.
(i) RULE 144. The Investor understands that there is no
public trading market for the Preferred Shares, Options or Warrants, that
none is expected to develop, and that the Preferred Shares, Options and
Warrants must be held indefinitely unless and until such Preferred Shares,
Options, Warrants or Common Shares or Option Shares received upon conversion
or exercise thereof are registered under the 1933 Act or an exemption from
registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the 1933 Act.
(j) BROKERS. The Investor has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees
or similar payments by the Company or the Investor relating to this Agreement
or the transactions contemplated hereby except for the broker's fee of the
Placement Agent which shall be paid by the Company out of the Closing
proceeds.
(k) RELIANCE BY THE COMPANY. The Investor understands that
the Preferred Shares, Options and Warrants are being offered and sold in
reliance on a transactional exemption from the registration requirements of
Federal and state securities laws and that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order
to determine the applicability of such exemptions and the suitability of the
Investor to acquire the Preferred Shares, Options and Warrants.
Page 13
ARTICLE III
COVENANTS
Section 3.1 REGISTRATION AND LISTING; EFFECTIVE REGISTRATION.
Until such time as no Preferred Shares, Options or Warrants are outstanding,
the Company will cause the Common Stock to continue at all times to be
registered under Sections 12(b) or (g) of the Exchange Act, will comply in
all material respects with its reporting and filing obligations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and will
not take any action or file any document (whether or not permitted by the
Exchange Act or the rules thereunder) to terminate or suspend such reporting
and filing obligations. Until such time as no Preferred Shares, Options or
Warrants are outstanding, the Company shall continue the listing or trading
of the Common Stock on the Principal Market or one of the other Approved
Markets and comply in all material respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Approved Market
on which the Common Stock is listed. The Company shall cause the Common
Shares and Option Shares to be listed on the Principal Market or one of the
other Approved Markets no later than the effectiveness of the registration of
the Common Shares and Option Shares under the Act, and shall continue such
listing(s) on one of the Approved Markets, for so long as any Preferred
Shares, Options or Warrants are outstanding.
Section 3.2 CERTIFICATES ON CONVERSION. Upon any conversion by the
Investor (or then holder of Preferred Shares) of the Preferred Shares
pursuant to the Certificate, the Company shall issue and deliver to the
Investor (or holder) within three (3) trading days of the conversion date a
new certificate or certificates for the number of Preferred Shares which the
Investor (or holder) has not yet elected to convert but which are evidenced
in part by the certificate(s) submitted to the Company in connection with
such conversion (with the denominations of such new certificate(s) designated
by the Investor or holder).
Section 3.3 REPLACEMENT CERTIFICATES. The certificate(s)
representing the Preferred Shares held by any Investor (or then holder) may
be exchanged by the Investor (or such holder) at any time and from time to
time for certificates with different denominations representing an equal
aggregate number of Preferred Shares, as requested by the Investor (or such
holder) upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
Section 3.4 SECURITIES COMPLIANCE. The Company shall notify the
SEC and the Principal Market, in accordance with their requirements, of the
transactions contemplated by this Agreement, the Certificate, the Warrants,
the Options and the Registration Rights Agreement, 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, Options and Warrants hereunder and the Common Shares and
Option Shares issuable upon conversion or exercise thereof.
Section 3.5 NOTICES. The Company agrees to provide all holders of
Preferred Shares. Options and Warrants with copies of all notices and
information, including without limitation notices and proxy statements in
connection with any meetings, that are provided to the holders of
Page 14
shares of Common Stock, contemporaneously with the delivery of such notices
or information to such Common Stock holders.
Section 3.6 USE OF PROCEEDS. The Company agrees that the net
proceeds received by the Company from the sale of the Preferred Shares
hereunder and payment of the exercise price of the Warrants or Options shall
be used for legally permitted corporate purposes.
Section 3.7 RESERVATION OF SHARES; STOCK ISSUABLE UPON CONVERSION.
(a) The Company shall reserve all authorized but unissued
Series I Cumulative Convertible Preferred Stock for issuance to the Investor
pursuant to the terms of this Agreement.
(b) The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, issuance
of the Option Shares and exercise of the Warrants, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all Preferred Shares, issuance of all the Option Shares and
exercise of all of the Warrants, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding Preferred Shares and all of the then
outstanding Warrants and issuance of all of the Option Shares, the Company
will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose, including without limitation engaging
in best efforts to obtain the requisite shareholder approval and taking the
actions described in the Certificate. Without in any way limiting the
foregoing, the Company agrees to reserve and at all times keep available
solely for purposes of conversion of Preferred Shares, issuance of the Option
Shares and exercise of the Warrants, such number of authorized but unissued
shares of Common Stock that is at least equal to 200% of the number of Common
Shares issuable upon conversion of all Preferred Shares, issuance of all
Option Shares and exercise of all the Warrants, computed as if all Preferred
Shares are convertible at the then Conversion Price (as defined in the
Certificate), all Warrants are exercisable at the then Exercise Price (as
defined in the Warrants), and all Options are exercisable in full at the then
exercise price under the Options. If at any time the number of authorized but
unissued shares of Common Stock is not sufficient to effect such issuance,
conversion, or exercise, respectively, up to the Maximum Common Stock
Issuance (as defined in the Certificate), of the Option Shares, all the then
outstanding Preferred Shares and the Warrants, the Investor shall be entitled
to, INTER ALIA, the redemption rights provided in the Registration Rights
Agreement.
Section 3.8 BEST EFFORTS. The parties shall use their best efforts
to satisfy timely each of the conditions described in Article V of this
Agreement.
Section 3.9 FORM D; BLUE SKY LAWS. The Company agrees to file a
Form D with respect to the Preferred Shares, the Options, the Option Shares,
the Warrants and Common Shares, as required under Regulation D and to provide
a copy thereof to the Investor promptly after such filing. The Company shall,
on or before the Closing Date, take such action as the Company shall have
reasonably determined is necessary to qualify the Preferred Shares, the
Option Shares, the Warrants and Common Shares for sale to the Investor under
applicable
Page 15
securities or "blue sky" laws of the states of the United States (or to
obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Investor on or prior to the Closing Date;
provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation in any jurisdiction
where it is not now so qualified or to take any action that would subject it
to service of process in suits or taxation, in each case, in any jurisdiction
where it is not now so subject.
Section 3.10 PUBLICITY. The Company shall, immediately upon the
Closing, issue a press release with respect to such transactions, in the form
of press release attached as EXHIBIT E hereto.
Section 3.11 SHAREHOLDER RIGHTS PLAN. None of the acquisitions of
Preferred Shares, Option Shares, Warrants or Common Shares nor the deemed
beneficial ownership of shares of Common Stock prior to, or the acquisition
of such shares pursuant to, the conversion of Preferred Shares or Option
Shares or exercise of the Warrants will in any event under any circumstances
trigger the poison pill provisions of any stockholders' rights or similar
agreements, or a substantially similar occurrence under any successor or
similar plan.
Section 3.12 FINANCIAL INFORMATION. The Company agrees to send the
following to the Investor for so long as any Preferred Shares, Options or
Warrants: (i) on the same day as the release thereof, facsimile or e-mail
copies of all press releases issued by the Company or any of its
Subsidiaries; and (ii) copies of any notices and other information made
available or given to the shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders.
Section 3.13 TRANSACTIONS WITH AFFILIATES. The Company agrees that
any transaction or arrangement between it or any of its subsidiaries and any
affiliate (excluding transactions with the Company and its wholly-owned
subsidiaries on terms consistent with customary practices of the Company) or
employee of the Company shall be effected on an arm's length basis in
accordance with customary commercial practice and, except with respect to
grants of options and stock to service providers, including employees, shall
be approved by a majority of the Company's outside directors.
Section 3.14 RIGHT OF FIRST REFUSAL ON FUTURE FINANCINGS. The
Company agrees that for a period of one year immediately following the
Closing Date, the Investors shall have a right of first refusal with respect
to all non-public capital raising transactions which constitute an MFN
Transaction or a Variable Rate Transaction (as such terms are defined below)
(each a "Financing Transaction") as set forth in this Section 3.14. The
Company shall give advance written notice to the Investors prior to any offer
or sale of any of its securities in a Financing Transaction. The Investors
shall have twenty (20) business days from receipt of such notice to deliver a
written notice to the Company that one or more of such Investors elects to
exercise its right of first refusal with respect to the entire issuance or a
part thereof. If, subsequent to the Company giving notice to the Investors
hereunder, the terms and conditions of the proposed Financing Transaction are
changed in any way, the Company shall be required to provide a new notice to
the Investors hereunder and the Investors shall have the right of refusal
again to purchase all or a portion of the securities in the offering on such
changed terms and conditions as provided hereunder. In such event, if such
other Financing Transaction provides for non-cash
Page 16
consideration, in whole or in part, from such other potential investor(s),
the Investors shall still have the right to participate in the Financing
Transaction as provided herein, provided that cash or cash equivalents may be
substituted by the Investors for such non-cash consideration. This right of
first refusal shall continue even if the Investors elect not to participate
in one or more Financing Transactions. The term "MFN Transaction" shall mean
a transaction in which the Company issues or sells any securities in a
capital raising transaction or series of related transactions (the "New
Offering") which grants to an investor (the "New Investor") the right to
receive additional shares (including without limitation as a result of a
lower conversion, exchange or exercise price) based upon subsequent
transactions of the Company on terms more favorable than those granted to
such New Investor in such New Offering. The term "Variable Rate Transaction"
shall mean a transaction in which the Company issues or sells (a) any debt or
equity securities that are convertible into, exchangeable or exercisable for,
or include the right to receive additional shares of Common Stock either (x)
at a conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the Common Stock
at any time after the initial issuance of such debt or equity securities, or
(y) with a fixed conversion, exercise or exchange price that is subject to
being reset at some future date after the initial issuance of such debt or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market
for the Common Stock (but excluding standard stock split anti-dilution
provisions), or (b) any securities of the Company pursuant to an "equity
line" structure which provides for the sale, from time to time, of securities
of the Company which are registered for resale pursuant to the 1933 Act.
Section 3.15 PREFERRED SHARES. After the issuance of the Preferred
Shares to the Investors hereunder, the Company shall not issue any other or
further Series I Preferred Stock or other shares of the Company's preferred
stock (other than to the Investors) until such time as none of the Preferred
Shares issued hereunder are outstanding. The Investors and the Company agree
that the Form of Conversion Notice for the Preferred Shares shall be in the
form of EXHIBIT A-1 attached hereto ("Conversion Notice").
ARTICLE IV
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 the Investor or its respective nominee(s), for the Common
Shares and Option Shares in such amounts as specified from time to time by
the Investor to the Company upon delivery of a conversion or exercise notice
(the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company warrants that no
instruction relating to the Common Shares and Option Shares other than the
Irrevocable Transfer Agent Instructions referred to in this Article IV will
be given by the Company to its transfer agent and that the Common Shares and
Option Shares shall be freely transferable on the books and records of the
Company as contemplated by Article VI below when the legend referred to
therein may be removed. Nothing in this Article IV shall affect in any way
the Investor's obligations and agreements set forth in Section 2.2(d) to
comply with all applicable prospectus delivery requirements, if any, upon
resale of the Common Shares and Option Shares. The Company shall instruct its
transfer agent to issue one or more certificates in such name and in
Page 17
such denominations as specified by the Investor and without any restrictive
legends. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Investor 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 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that the
Investor shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
ARTICLE V
CONDITIONS TO CLOSINGS
Section 5.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY
TO SELL THE PREFERRED SHARES, OPTIONS AND WARRANTS. The obligation hereunder
of the Company to issue and/or sell the Preferred Shares, Options and the
Warrants to the Investor at the Closing is subject to the satisfaction, at or
before the Closing, of each of the applicable 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 THE INVESTOR'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Investor will be true
and correct in all material respects as of the date when made and as of the
Closing Date.
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have
performed all agreements and satisfied all conditions required to be
performed or satisfied by the Investor at or prior to the Closing, including
payment of the purchase price set forth on SCHEDULE I hereto.
(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 or the Registration Rights Agreement or the
Certificate.
Section 5.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTOR
TO PURCHASE THE PREFERRED SHARES, OPTIONS AND WARRANTS. The obligation
hereunder of the Investor to acquire and pay for the Preferred Shares,
Options and Warrants at the Closing is subject to the satisfaction, at or
before the Closing, of each of the applicable conditions set forth below.
These conditions are for the Investor's benefit and may be waived by the
Investor at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. 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 the
Closing Date as though made at that time (except for representations and
warranties as of an earlier date, which shall be true and correct in all
material respects as of such date).
Page 18
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed all agreements and satisfied all conditions required to be
performed or satisfied by the Company at or prior to the Closing, including,
without limitation, delivery of certificates representing the Preferred
Shares, Options and Warrants issued to Investor.
(c) NASDAQ TRADING. From the date hereof to the Closing
Date, trading in the Company's Common Stock shall not have been suspended by
the SEC and trading in securities generally as reported by the Principal
Market (or other Approved Market) shall not have been suspended or limited,
and the Common Stock shall be listed on the Principal Market or another
Approved Market.
(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, the Warrants, the Options, the Registration
Rights Agreement or the Certificate. The NASD shall not have objected or
indicated that it may object to the consummation of any of the transactions
contemplated by this Agreement.
(e) OPINION(S) OF COUNSEL. At the Closing, the Investor
shall have received opinion(s) of counsel(s) to the Company covering the
matters set forth in EXHIBIT F attached hereto and such other opinions,
certificates and documents as the Investor or their counsel shall reasonably
require incident to the Closing.
(f) REGISTRATION RIGHTS AGREEMENT. The Company and the
Investor shall have executed and delivered the Registration Rights Agreement
in the form and substance of EXHIBIT D attached hereto.
(g) OFFICER'S CERTIFICATE. The Company shall have
delivered to the Investor a certificate in form and substance satisfactory to
the Investor and the Investor's counsel, executed by an officer of the
Company, certifying as to satisfaction of closing conditions, incumbency of
signing officers, and the true, correct and complete nature of the charter,
By-Laws, good standing and authorizing resolutions of the Company.
(h) CERTIFICATE. The Certificate shall have been accepted
for filing by the Secretary of State of the State of Iowa and a stamped copy
thereof shall have been provided to the Investor's counsel.
(i) MISCELLANEOUS. The Company shall have delivered to the
Investor such other documents relating to the transactions contemplated by
this Agreement or the Investor or its counsel may reasonable request.
ARTICLE VI
LEGEND AND STOCK
Upon payment therefor as provided in this Agreement,
the Company will issue one or more certificates representing the Preferred
Shares, Options and Warrants in the
Page 19
name the Investor or its designees and in such denominations to be specified
by the Investor prior to (or from time to time subsequent to) Closing. Each
certificate representing the Preferred Shares, Options or Warrants, the
Option Shares and any Common Shares issued upon conversion or exercise
thereof, prior to such Common Shares or Option Shares being registered under
the 1933 Act for resale or available for resale under Rule 144 under the 1933
Act, shall be stamped or otherwise imprinted with a legend substantially in
substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED FOR
OFFER OR SALE UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Preferred Shares, Common
Shares, Option Shares or Warrants without the legend set forth above at such
time as (i) the holder thereof is permitted to dispose of such Preferred
Shares, Warrants, Option Shares and/or Common Shares issuable upon conversion
of the Preferred Shares or exercise of the Warrants pursuant to Rule 144(k)
under the Act or has disposed of such securities pursuant to Rule 144 under
the Act, or (ii) such Preferred Shares or Option Shares are sold to a
purchaser or purchasers who (in the opinion of counsel to the seller or such
purchaser(s), in form and substance reasonably satisfactory to the Company
and its counsel) are able to dispose of such shares publicly without
registration under the Act, or (iii) such securities have been registered
under the 1933 Act.
Prior to the Registration Statement (as defined in the
Registration Rights Agreement) being declared effective, any Option Shares
and any Common Shares issued pursuant to conversion of Preferred Shares or
exercise of the Options or Warrants shall bear a legend in the same form as
the legend indicated above; provided that such legend shall be removed from
the Option Shares and Common Shares and the Company shall issue new
certificates without such legend if (i) the holder has sold or disposed of
such Common Shares or Option Shares pursuant to Rule 144 under the 1933 Act,
or the holder is permitted to dispose of such Common Shares or Option Shares
pursuant to Rule 144(k) under the 1933 Act, (ii) such Common Shares or Option
Shares are registered for resale under the 1933 Act, or (iii) such Common
Shares or Option Shares are sold to a purchaser or purchasers who (in the
opinion of counsel to the seller or such purchaser(s), in form and substance
reasonably satisfactory to the Company and it counsel) are able to dispose of
such shares publicly without registration under the 1933 Act. Upon such
Registration Statement becoming effective, the Company agrees to promptly,
but no later than three (3) business days thereafter, issue new certificates
representing such Common Shares or Option Shares without such legend. Any
Common Shares or Option Shares issued after the Registration Statement has
become effective shall be free and clear of any legends, transfer
restrictions and stop orders. Notwithstanding the removal of such legend, the
Investor agrees to sell the Common Shares or Option Shares represented by the
new certificates in accordance with the applicable prospectus delivery
requirements (if copies of a current prospectus are provided to the Investor
by the Company) or in accordance with an exemption from the registration
requirements of the 1933 Act.
Page 20
Nothing herein shall limit the right of any holder to
pledge these securities pursuant to a bona fide margin account or lending
arrangement entered into in compliance with law, including applicable
securities laws.
ARTICLE VII
TERMINATION
Section 7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of
the Company and the Investor.
Section 7.2 OTHER TERMINATION. This Agreement may be terminated by
action of the Board of Directors of the Company or by the Investor at any
time if the Closing shall not have been consummated by the fifth business day
following the date of this Agreement; provided, however, that the party (or
parties) prepared to close shall retain its (or their) right to xxx for any
breach by the other party (or parties).
ARTICLE VIII
INDEMNIFICATION
In consideration of the Investor's execution and delivery
of this Agreement and the Registration Rights Agreement and acquiring the
Preferred Shares hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend,
protect, indemnify and hold harmless the Investor and all of its partners,
officers, directors, employees, members and direct or indirect investors and
any of the foregoing person's agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "INDEMNITEES") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the
action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation or warranty made by
the Company in the Transaction Documents or any other certificate or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate or document contemplated hereby or thereby, (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third
party and arising out of or resulting from (i) the execution, delivery,
performance, breach by the Company or enforcement of the Transaction
Documents or any other certificate, instrument or document contemplated
hereby or thereby, (ii) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the
Preferred Shares or (iii) the status of the Investor or holder of the
Preferred Shares, Options or Warrants as the Investor in the Company and (d)
the enforcement of this Section. Notwithstanding the foregoing, Indemnified
Liabilities shall not include any liability of any Indemnitee arising solely
out of such Indemnitee's willful misconduct or fraudulent action(s). To the
extent that the foregoing undertaking by the Company may be
Page 21
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which
is permissible under applicable law. Except as otherwise set forth herein,
the mechanics and procedures with respect to the rights and obligations under
this Article VIII shall be the same as those set forth in Section 6 (other
than Section 6(b)) of the Registration Rights Agreement, including, without
limitation, those procedures with respect to the settlement of claims and
Company's right to assume the defense of claims.
ARTICLE IX
GOVERNING LAW, MISCELLANEOUS
Section 9.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING
IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION
CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND
AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS
NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN
ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY
AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND
NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY
ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. IF ANY PROVISION
OF THIS AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY JURISDICTION, SUCH
INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY OR
ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE
VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER
JURISDICTION. EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY.
Section 9.2 COUNTERPARTS. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
Page 22
Section 9.3 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
Section 9.4 SEVERABILITY. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Section 9.5 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS.
(a) This Agreement supersedes all other prior oral or
written agreements between the Investor, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein,
and this Agreement and the instruments referenced herein (including the other
Transaction Documents) contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company nor the Investor makes any
representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Investor, and no
provision hereof may be waived other than by an instrument in writing signed
by the party against whom enforcement is sought. Any covenant or obligation
of the Company hereunder may be waived by a two-thirds vote of the
outstanding Preferred Shares, provided that no such waiver shall be deemed to
be a continuous waiver in the future or a waiver of any other provision
hereunder.
(b) The Investor may at any time elect, by notice to the
Company, to waive (whether permanently or temporarily, and subject to such
conditions, if any, as the Investor may specify in such notice) any of its
rights under any of the Transaction Documents to acquire shares of Common
Stock from the Company, in which event such waiver shall be binding against
the Investor in accordance with its terms; PROVIDED, however, that the
voluntary waiver contemplated by this sentence may not reduce the Investor's
obligations to the Company under the Transaction Documents.
Section 9.6 NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing, must be delivered by (i) courier, mail or hand
delivery OR (ii) facsimile, and will be deemed to have been delivered upon
receipt. The addresses and facsimile numbers for such communications shall be:
If to the Company:
Microware Systems Corporation
0000 X.X. 000xx Xxxxxx
Xxx Xxxxxx, Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xx. Xxxxxxx X. Xxxxxx, President & CEO
With a copy to:
X'Xxxxxx & Xxxxxx
000 Xxxx Xxxxxx Xxxxx
Page 23
Suite 2800
Xxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Arthur Don, Esq.
If to the Transfer Agent:
Norwest Bank Minnesota, N.A.
Shareholder Services
000 Xxxxx Xxxxxxx Xxxxxxxx
Xxxxx Xx. Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Ms. Xxxxxxx Xxxxxxxx
If to the Investor:
Xxxxxxx Associates, L.P.
c/o Stonington Management Corporation
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000 and (000) 000-0000
Attention: Mr. Xxxxx Xxxxx
and
Westgate International, L.P.
c/o Stonington Management Corporation
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000 and (000) 000-0000
Attention: Mr. Xxxxx Xxxxx
With a copy to:
Kleinberg, Kaplan, Xxxxx & Xxxxx, P.C.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 212-986-8866
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Page 24
Each party shall provide five (5) days prior written notice to the
other party of any change in address, telephone number or facsimile number.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date,
recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service
in accordance with clause (i), (ii) or (iii) above, respectively.
Section 9.7 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, including any Permitted
Assignee (as defined below). The Company shall not assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
Investor, including by merger or consolidation. The Investor may assign some
or all of its rights hereunder to any assignee of the Preferred Shares,
Warrants, Options, Common Shares or Option Shares who is an Accredited
Investor, as defined in Rule 501(a) under the 1933 Act (in each case, a
"PERMITTED ASSIGNEE"); PROVIDED, however, that any such assignment shall not
release the Investor from its obligations hereunder unless such obligations
are assumed by such assignee and the Company has consented to such assignment
and assumption. Notwithstanding anything to the contrary contained in the
Transaction Documents, the Investor shall be entitled to pledge the Preferred
Shares, Options, Warrants, Option Shares or Common Shares in connection with
a bona fide margin account.
Section 9.8 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 9.9 SURVIVAL. The representations and warranties of the
Company and the Investor contained in this Agreement shall survive the
Closing until such time as no Preferred Shares, Warrants or Options are
outstanding and the Investor no longer owns any Common Shares or Option
Shares (but in no event shall such survival period be less than 2 years). The
agreements contained herein shall survive the Closing.
Section 9.10 FURTHER ASSURANCES. Each party shall do and perform,
or cause to be done and performed, all such further acts and things, and
shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order
to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
Section 9.11 PLACEMENT AGENT. The Investor and the Company each
acknowledges and warrants that it has not engaged any placement agent in
connection with the sale of the Preferred Shares, the Options and the
Warrants other than the Placement Agent, whose fees will be paid exclusively
by the Company. The Company and the Investor shall each be responsible for
the payment of any other fees or commissions of placement agents or brokers
engaged, directly or indirectly, by the Company or the Investor,
respectively, in connection with the purchase of the Preferred Shares, the
Options and the Warrants by the Investor. The Company and the Investor
Page 25
shall pay, and hold the other party harmless against, any liability, loss or
expense (including, without limitation, reasonable attorneys' fees and
out-of-pocket expenses) arising in connection with any such claim.
Section 9.12 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.
Section 9.13 REMEDIES. The Investor and each Permitted Assignee
shall have all rights and remedies set forth in this Agreement and the
Registration Rights Agreement and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all
of the rights which such holders have under any law. Any person having any
rights under any provision of this Agreement or the Registration Rights
Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach
of any provision of this Agreement or the Registration Rights Agreement and
to exercise all other rights granted by law. The Investor and each Permitted
Assignee without prejudice may withdraw, revoke or suspend its pursuit of any
remedy at any time prior to its complete recovery as a result of such remedy.
Section 9.14 PAYMENT SET ASIDE. (a) To the extent that the Company
makes a payment or payments to the Investor hereunder or under the
Registration Rights Agreement or the Investor enforces or exercises its
rights hereunder or thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any
law (including, without limitation, any bankruptcy law, state or federal law,
common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
(b) To the extent that the Investor makes a payment or
payments to the Company hereunder or under the Registration Rights Agreement
or the Company enforces or exercises its rights hereunder or thereunder, and
such payment or payments or the proceeds of such enforcement or exercise or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Investor, a trustee, receiver
or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
Section 9.15 DAYS. Unless the context refers to "business days" or
"Trading Days", all references herein to "days" shall mean calendar days.
Section 9.16 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything
to the contrary contained in (and without limiting any similar provisions of)
the Transaction
Page 26
Documents, wherever the Investor exercises a right, election, demand or
option under a Transaction Document and the Company does not fully perform
its related obligations within the periods therein provided, then the
Investor in its sole discretion may rescind or withdraw from time to time any
relevant notice, demand or election in whole or in part without prejudice to
its future actions and rights.
Section 9.17 EXPENSES. If the Closing does not occur due to the
default of or choice by the Company, the Company shall promptly reimburse
Investor for all of its out of pocket costs (including without limitation
travel expenses and legal fees) up to a total of $25,000.
* * * *
[SIGNATURE PAGE FOLLOWS]
Page 27
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the date and year first above written.
COMPANY: INVESTOR:
MICROWARE SYSTEMS CORPORATION WESTGATE INTERNATIONAL, L.P.
By: MARTLEY INTERNATIONAL, INC.,
as attorney-in-fact
By: /s/ Xxxxxxx X. Xxxxxx By: /s/ Xxxx X. Xxxxxx
Name: Xxxxxxx X. Xxxxxx Name: Xxxx X. Xxxxxx
Title: Chief Executive Officer Title: President
XXXXXXX ASSOCIATES, L.P.
By: /s/ Xxxx X. Xxxxxx
Name: Xxxx X. Xxxxxx
Title: General Partner
LIST OF SCHEDULES
Schedule 2.1(a) Subsidiaries
Schedule 2.1(c) Capitalization
Schedule 2.1(g) Certain Changes
Schedule 2.1 (h) Litigation
Schedule 2.1 (n) Intellectual Property
Infringement Claims
Schedule 2.1(p) Title
Schedule I Investors
LIST OF EXHIBITS
Exhibit A Certificate
Exhibit A-1 Form of Conversion Notice
Exhibit B Warrant
Exhibit C Option
Exhibit D Registration Rights Agreement
Exhibit E Form of Press Release
Exhibit F Opinion of Counsel
SCHEDULE I
JURISDICTION OF NUMBER OF NUMBER OF DOLLAR AMOUNT OF
INVESTOR ORGANIZATION PREFERRED SHARES WARRANTS PURCHASE PRICE OPTION SHARES
-------- ------------ ---------------- -------- -------------- -------------
Xxxxxxx Associates, L.P. Delaware, U.S.A. 1,750 43,750 $1,750,000 $1,500,000
Westgate International, L.P. Cayman Islands, B.W.I. 1,750 43,750 $1,750,000 $1,500,000
