EXHIBIT 10.1
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT, dated as of July 3, 2003 (this
"AGREEMENT"), is entered into by and among the Investors who are signatories
hereto (each an "INVESTOR" and together the "INVESTORS") and Datatec Systems,
Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate (i) $4,900,000 principal
amount of Notes (as defined below) and (ii) Warrants (as defined below) to
purchase shares of the Common Stock (as defined below);
WHEREAS, such purchase and sale will be made in reliance upon the
provisions of Section 4(2) ("SECTION 4(2)") and/or Section 4(6) ("SECTION 4(6)")
of the United States Securities Act of 1933, as amended (the "SECURITIES ACT"),
and/or Regulation D ("REGULATION D") and the other rules and regulations
promulgated thereunder, and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments in securities to be made hereunder; and
WHEREAS, the obligations of the Company under the Notes and the
Warrants will be secured pursuant to the terms of (i) the Pledge Agreement,
dated as of the date hereof, made by the Company in favor of the Investors (the
"PLEDGE AGREEMENT"), (ii) the Security Agreement, dated as of the date hereof,
between the Investors and the Company (the "SECURITY AGREEMENT") and (iii) the
Security Agreement, dated as of the date hereof, between the Investors and
certain of the Company's subsidiaries (the "SUBSIDIARY SECURITY AGREEMENT").
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties hereto agree as follows.
ARTICLE I
CERTAIN DEFINITIONS
In addition to the definitions set forth in the text of this
Agreement, the following capitalized terms shall have the meanings ascribed to
them below.
"AFFILIATE" shall mean, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has a 5% or more
equity interest in that person or entity, (ii) has 5% or more common ownership
with that person or entity, (iii) controls that person or entity, or (iv) shares
common control with that person or entity. "CONTROL" or "CONTROLS" for purposes
hereof means, when used with respect to any person, means the power to direct
the management and policies of such person, directly or indirectly, whether
through the ownership of voting securities, through representation on such
person's Board of Directors or other management committee or group, by contract
or otherwise.
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"BLOOMBERG" means Bloomberg Financial Markets.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks or the New York Stock Exchange are authorized or
required by law to close in New York, New York or the State of New Jersey.
"CAPITAL SHARES" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
"CAPITAL SHARES EQUIVALENTS" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
"CLOSING" shall mean the closing of the purchase and sale of the
Notes and Warrants pursuant to Section 2.1.
"CLOSING BID PRICE" shall mean, for the Common Stock as of any date,
the last closing bid price for the Common Stock on the Principal Market as
reported by Bloomberg, or if the Principal Market begins to operate on an
extended hours basis, and does not designate the closing bid price, then the
last bid price at 4:00 p.m. (eastern time), as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price of the Common Stock in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price is reported for such security
by Bloomberg, the last closing trade price for such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price cannot be calculated for the
Common Stock on such date on any of the foregoing bases, the Closing Bid Price
of such the Common Stock on such date shall be the fair market value as mutually
determined by the Company and the holders of no less than 80% of principal
amount of the Notes then outstanding. If the Company and the holders of the
Notes are unable to agree upon the fair market value of the Common Stock, then
such dispute shall be submit via facsimile to an independent, reputable
investment banking firm selected jointly by the Company and the holders of no
less than 80% of principal amount of the Notes then outstanding. The Company
shall cause such investment banking firm to perform such determination and
notify the Company and the holders of the Notes of the results no later than two
(2) Business Days from the time it receives the disputed determination. Such
investment banking firm's determination shall be deemed conclusive absent
manifest error. All such determinations shall be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period.
"CLOSING DATE" shall mean the date hereof.
"COMMON STOCK" shall mean the Company's common stock, $0.001 par
value per share.
"CONVERSION SHARES" shall mean the shares of Common Stock issuable
upon conversion of the Notes and any shares of Common Stock issued in payment of
interest on the Notes.
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"DAMAGES" shall mean any loss, claim, damage, judgment, penalty,
deficiency or liability, including reasonable out-of-pocket costs and expenses
(including, without limitation, reasonable attorney's fees and disbursements and
reasonable costs and expenses of expert witnesses and investigation), but shall
exclude any loss of profits or other consequential damages (provided, however,
that such exclusion shall in no way limit the payment of liquidated damages as
provided in this Agreement).
"DISCLOSURE SCHEDULE" shall mean the written disclosure schedule
delivered on or prior to the date hereof by the Company to the Investors that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Agreement.
"EFFECTIVE DATE" shall mean the date on which the SEC first declares
effective a Registration Statement registering the resale of the Registrable
Securities as set forth in the Registration Rights Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"IBM CREDIT FACILITY" shall mean the Inventory and Working Capital
Financing Agreement between the Company and IBM Credit Corporation dated as of
November 10, 2000, as amended, supplemented, restated, extended, renewed or
otherwise modified and in effect from time to time.
"IBM DEBT" means all indebtedness and obligations of the Company and
Datatec Industries, Inc. to IBM Credit Corporation pursuant to the IBM Credit
Facility.
"IBM LENDER" shall mean IBM Credit Corporation and its successors or
assigns.
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS" shall mean the Irrevocable
Transfer Agent Instructions, in the form of EXHIBIT C attached hereto, from the
Company to the Company's transfer agent.
"ISSUE DATE" shall mean the date on which Notes and Warrants are
issued pursuant to Article II.
"LEGEND" shall mean the legend set forth in Section 9.1.
"MARKET PRICE" on any given date shall mean the average of the
Closing Bid Prices on the Principal Market of the Common Stock occurring during
the five (5) Trading Day period ending on the Trading Day immediately prior to
such date.
"MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, prospects or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and Affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under the Transaction Documents in any material respect.
"NOTES" shall mean the Subordinated Secured Convertible Notes
substantially in the form attached hereto as EXHIBIT A.
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"OPTIONAL CONVERSION PRICE" shall have the meaning set forth in the
Notes.
"OUTSTANDING" when used with reference to Shares, shall mean, at any
date as of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; PROVIDED, HOWEVER, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
"PERSON" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"PRINCIPAL MARKET" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market, or the NASDAQ SmallCap Market,
whichever is at the time the principal trading exchange or market for the Common
Stock, based upon share volume, or if the Common Stock is not traded on an
exchange market, the OTC Bulletin Board or the National Quotation Bureau, as the
case may be.
"PURCHASE PRICE" shall mean the principal amount of the Notes to be
purchased pursuant to Section 2.1.
"REGISTRABLE SECURITIES" shall mean the Conversion Shares and the
Warrant Shares until (i) the Registration Statement has been declared effective
by the SEC, and all Conversion Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Conversion Shares and Warrant
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Conversion Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as all Conversion Shares and Warrant Shares
may be sold pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investors substantially in
the form attached hereto as EXHIBIT D.
"REGISTRATION STATEMENT" shall mean one or more registration
statements on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale by the
Investors of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement, the Registration Rights
Agreement and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investors of the
Registrable Securities under the Securities Act.
"REGULATION D" shall have the meaning set forth in the recitals of
this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
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"SECTION 4(2)" AND "SECTION 4(6)" shall have the meanings set forth
in the recitals of this Agreement.
"SECURITIES" shall mean the Notes, the Warrants, the Conversion
Shares and the Warrant Shares, collectively.
"SECURITIES ACT" shall have the meaning set forth in the recitals of
this Agreement.
"SEC DOCUMENTS" shall mean the Company's Annual Report on Form 10-K
for the fiscal year ended April 30, 2002, and each report, proxy statement or
registration statement filed by the Company with the SEC pursuant to the
Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
"SHARES" shall mean shares of Common Stock or Capital Shares.
"SUBSIDIARIES" (each a "SUBSIDIARY") shall mean all of the Company's
subsidiaries including, without limitation, Datatec Industries, Inc., HH
Communications of Illinois, Inc., Datatec Systems Inc. (Canada), xXxxxxx.xxx,
Inc., and Millennium Care Inc.
"TRADING DAY" shall mean any day during which the Principal Market
is open for business and on which trading in the Common Stock on the Principal
Market has not been suspended or otherwise curtailed.
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Registration
Rights Agreement, the Notes, the Warrants, the Irrevocable Transfer Agent
Instructions, the Pledge Agreement, the Security Agreement and the Subsidiary
Security Agreement, and each of the other agreements, documents and instruments
entered into and delivered by the parties hereto in connection with the
transactions contemplated by this Agreement or any other Transaction Document.
"VOLUME WEIGHTED AVERAGE PRICE" shall mean the dollar
volume-weighted average price for the Common Stock on the Principal Market
during the period beginning at 9:30 a.m. (eastern time) and ending at 4:00 p.m.,
(eastern time) as reported by Bloomberg through its "Volume at Price" function
or, if the foregoing does not apply, the dollar volume-weighted average price of
such security in the over-the-counter market on the electronic bulletin board
for such security during the period beginning at 9:30 a.m. (eastern time) and
ending at 4:00 p.m. (eastern time) as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg for
such hours, the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If
the Volume Weighted Average Price cannot be calculated for such security on such
date on any of the foregoing bases, the Weighted Average Price of such security
on such date shall be the fair market value as mutually determined by the
Company and the holders of no less than 80% of the principal amount of the Notes
then outstanding. If the Company and the holders of the Notes are unable to
agree upon the fair market value of the Common Stock, then such dispute shall be
resolved as described under the definition of "Closing Bid Price" above, with
the term "Volume Weighted Average Price" being substituted for the term "Closing
Bid Price." All such determinations shall be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period.
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"WARRANTS" shall mean the Warrants substantially in the form of
EXHIBIT B to be issued to the Investors hereunder.
"WARRANT SHARES" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 2.1 INVESTMENT.
(a) Upon the terms and subject to the conditions set forth herein,
on the Closing Date, the Company shall sell, and the Investors shall purchase,
(i) Four Million Nine Hundred Thousand Dollars ($4,900,000) aggregate principal
amount of Notes and (ii) Warrants exercisable in the aggregate into a number of
shares of Common Stock and with an exercise price as provided in Section 2.1(c).
The principal amount of the Note to be purchased by each Investor is as set
forth on the signature pages hereto.
(b) The Closing shall occur on the Closing Date at which time (x)
the Company shall issue and deliver to each Investor the Note and Warrant to be
purchased by it on the Closing Date and (y) each Investor shall deliver to the
Company the Purchase Price payable by such Investor by wire transfer of
immediately available funds.
(c) The Warrant to be issued to each Investor at the Closing shall
be exercisable into a number of shares of Common Stock equal to twenty-five
percent (25%) of the number of shares of Common Stock into which the principal
amount of the Note to be issued to such Investor at the Closing is convertible
on the Closing Date (without regard to any limitations on such conversion then
in effect) at the Optional Conversion Price. The exercise price of all Warrants
shall be 120% of the Market Price on the Closing Date. All Warrants shall have a
term of four years from the Closing Date.
(d) The obligation of the Company hereunder to issue and sell a Note
and Warrant to each Investor at the Closing is subject to the satisfaction, on
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Investor with prior
written notice thereof.
(i) The Investors shall have executed each of the Transaction
Documents to be executed by them and delivered the same to the
Company.
(ii) The representations and warranties of the Investors shall
be true and correct as of the date when made and as of the Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Investors
shall have performed, satisfied and complied with the covenants,
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agreements and conditions required by the Transaction Documents to
be performed, satisfied or complied with by them at or prior to the
Closing Date.
(e) The obligation of each Investor hereunder to purchase a Note and
Warrant at the Closing is subject to the satisfaction, on or before the Closing
Date, of each of the following conditions, provided that these conditions are
for such Investor's sole benefit and may be waived by such Investor at any time
in its sole discretion by providing the Company with prior written notice
thereof.
(i) The Company and each other Investor shall have executed
each of the Transaction Documents to be executed by it and delivered
the same to such Investor.
(ii) The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been
suspended by the Principal Market or the SEC at any time beginning
on the date hereof and through and including the Closing Date, and
the Company shall not have been notified of any pending or
threatened proceeding or other action to delist or suspend trading
in the Common Stock.
(iii) The representations and warranties of the Company in the
Transaction Documents shall be true and correct as of the date when
made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific
date), and the Company shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by
the Company on or prior to the Closing Date. Such Investor shall
have received a certificate, executed by the Company's President or
Chief Executive Officer, dated as of the Closing Date, to the
foregoing effect, including, without limitation, an update as of the
Closing Date regarding the representation contained in Section 4.3
below and confirmation that the Company is not in default to the IBM
Lender and that the Company reasonably expects to remain in
compliance with its loan covenants for the foreseeable future.
(iv) Such Investor shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to such Investor and in
substantially the form of EXHIBIT F attached hereto.
(v) The Company shall have executed and delivered to such
Investor the Note (in such denominations as such Investor shall
request) being purchased by such Investor at the Closing.
(vi) The Company shall have executed and delivered to such
Investor the Warrant being purchased by such Investor at the
Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 4.2 below and in a form
reasonably acceptable to such Investor (the "RESOLUTIONS").
(viii) As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the
purpose of effecting the issuance of the shares of Common Stock
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issuable in connection with this Agreement, a number of shares of
Common Stock equal to at least 150% of the number of (x) Conversion
Shares issuable upon conversion of the aggregate principal amount of
the Notes issued at the Closing at the Mandatory Conversion Price
and (y) Warrant Shares issuable upon exercise of the Warrants issued
at the Closing (without regard, in the case of (x) or (y), to any
limitations on such conversion or exercise).
(ix) The Company shall have delivered the Irrevocable Transfer
Agent Instructions to its Transfer Agent, and such Transfer Agent
shall have acknowledged receipt thereof and agreement to comply
therewith in writing.
(x) The Company shall have delivered to such Investor a
certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such corporation's state of
incorporation issued by the Secretary of State of such state of
incorporation as of a date within twenty (20) days of the Closing
Date.
(xi) The Company shall have delivered to such Investor a
certified copy of its Certificate of Incorporation as certified by
the Secretary of State of the State of Delaware within twenty (20)
days of the Closing Date.
(xii) The Company shall have delivered to such Investor a
certificate, executed by the Company's Secretary and dated the
Closing Date, stating that (i) the Resolutions, (ii) the Certificate
of Incorporation and (iii) the Bylaws, are each in full force and
effect on the Closing Date, and have not been amended or revised in
any respect.
(xiii) Each other Investor shall have purchased its pro rata
share of the Securities to be purchased by it at the Closing.
(xiv) The Company shall have delivered to such Investor
documentation reasonably satisfactory to the Investors evidencing
Directors' and Officers' liability insurance coverage for the
Company and its officers and directors insuring against liability of
at least $1.0 million per occurrence.
(xv) Such Investor shall have received a certificate, executed
by the Company's President or Chief Executive Officer, dated as of
the Closing Date, to the effect that since April 30, 2002, (i) no
Material Adverse Effect has occurred or exists with respect to the
Company, except as disclosed in any SEC documents filed at least
five (5) days prior to the Closing Date and available on XXXXX or
otherwise provided to the Investors, and (ii) the Company has not
taken any steps, and does not currently expect to take any steps, to
seek protection pursuant to 11 U.S.C. xx.xx. 101 et seq. (the
"BANKRUPTCY CODE") or any similar state bankruptcy law nor does the
Company have any knowledge or reason to believe that its creditors
intend to initiate an involuntary proceeding under the Bankruptcy
Code or any such state law.
(xvi) The Company shall have delivered to such Investor a copy
of the Company's amendment to its Rights Plan (as defined in Section
4.32 hereof) as approved by the Company's Board evidencing the fact
that the Investors are not and will not become an "Acquiring Person"
as that term is defined under the Rights Plan.
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Section 2.2 LIQUIDATED DAMAGES. The parties hereto acknowledge and
agree that certain sums payable pursuant to this Agreement, the Registration
Rights Agreement, the Notes and the other Transaction Documents upon the failure
of the Company to fulfill its obligations thereunder shall constitute liquidated
damages and not penalties. The parties further acknowledge that (a) the amount
of loss or damages likely to be incurred is incapable or is difficult to
precisely estimate, (b) the amounts specified in this Agreement, the
Registration Rights Agreement, the Notes and the other Transaction Documents
bear a reasonable proportion and are not plainly or grossly disproportionate to
the probable loss likely to be incurred by the Investors in connection with the
failure by the Company to satisfy its obligations, including but not limited to
the timely registration of the Registrable Securities and (c) the parties are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement and the other
Transaction Documents in good faith and at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor, severally and not jointly, represents and warrants to
the Company that:
Section 3.1 INTENT. The Investor is entering into this Agreement for
its own account for investment purposes only and not with a view to or for sale
in connection with any distribution of the Securities. The Investor has no
present arrangement (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by making
the representations herein, the Investor does not agree to hold such securities
for any minimum or other specific term and reserves the right to dispose of the
Conversion Shares and Warrant Shares at any time in accordance with federal and
state securities laws applicable to such disposition.
Section 3.2 SOPHISTICATED INVESTOR. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
knowledge and experience in business and financial matters that it has the
capacity to protect its own interests in connection with this transaction and is
capable of evaluating the merits and risks of an investment in the Securities.
The Investor acknowledges that an investment in the Securities is speculative
and involves a high degree of risk.
Section 3.3 AUTHORITY. This Agreement and each agreement attached as
an Exhibit hereto that is required to be executed by Investor has been duly
authorized and validly executed and delivered by the Investor and is a valid and
binding obligation of the Investor enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
Section 3.4 NOT AN AFFILIATE. The Investor is not an Affiliate of
the Company.
Section 3.5 DISCLOSURE; ACCESS TO INFORMATION. The Investor has
received all documents, records, books and other publicly available information
pertaining to Investor's investment in the Company that have been requested by
the Investor. The Investor has been given the opportunity to ask questions of
the Company's management and has received satisfactory responses to such
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questions, provided that the Investor and the Company each acknowledges that the
Company offered to disclose certain confidential information concerning the
Company's pending earnings estimate to the Investor, but that, at the Investor's
request, the Company did not disclose such information to the Investor. The
Investor acknowledges that the Company is subject to the periodic reporting
requirements of the Exchange Act, and the Investor has reviewed copies of all
SEC Documents deemed relevant by Investor.
Section 3.6 MANNER OF SALE. At no time was Investor presented with
or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that, except as
set forth on the Disclosure Schedule, if any, prepared by the Company and
delivered herewith:
Section 4.1 ORGANIZATION OF THE COMPANY. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Delaware and has all requisite corporate authority to own its
properties and to carry on its business as now being conducted. The Subsidiaries
are corporations duly organized, validly existing and in good standing under the
laws of the jurisdictions in which they are organized and have the requisite
corporate power and authority to own their respective properties and to carry on
their businesses as now being conducted. The Company and each of its
Subsidiaries is duly qualified and is in good standing as a foreign corporation
to do business in every jurisdiction in which the nature of the business
conducted or property owned or leased by it makes such qualification necessary,
other than those in which the failure so to qualify would not have a Material
Adverse Effect.
Section 4.2 AUTHORITY. (i) The Company has the requisite corporate
power and corporate authority to enter into and perform its obligations under
the Transaction Documents and, as the case may be, to issue the Notes, the
Conversion Shares, the Warrants and the Warrant Shares pursuant to their
respective terms, (ii) the execution, issuance and delivery of the Transaction
Documents by the Company and the consummation of the transactions contemplated
thereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required, and (iii) the Transaction Documents have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable against it and in accordance with their
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. The Company has duly and validly authorized and reserved for
issuance a number of shares of Common Stock equal to at least 150% of the number
of (x) Conversion Shares issuable upon conversion of the aggregate principal
amount of the Notes issued at the Closing at the Mandatory Conversion Price and
(y) Warrant Shares issuable upon exercise of the Warrants issued at the Closing
(without regard, in the case of (x) or (y), to any limitations on such
conversion or exercise). The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the
Conversion Shares. The Company further acknowledges that its obligation to issue
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Conversion Shares upon conversion of the Notes and Warrant Shares upon exercise
of the Warrants in accordance with this Agreement is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company and notwithstanding the
commencement of any case under the Bankruptcy Code.
Section 4.3 CAPITALIZATION. The authorized capital stock of the
Company consists of 75,000,000 shares of Common Stock, $0.001 par value per
share, of which 43,292,268 shares were issued and outstanding as of May 19, 2003
and 4,000,000 shares of Preferred Stock, $0.001 par value per share, none of
which were issued and outstanding as of May 19, 2003. Except for outstanding
options and warrants as set forth in the SEC Documents filed at least two (2)
Business Days prior to the Closing Date and available on XXXXX or otherwise
provided to the Investors, there are no outstanding Capital Shares Equivalents
nor any agreements or understandings pursuant to which any Capital Shares
Equivalents may become outstanding. The Company is not a party to any agreement
granting preemptive, registration or anti-dilution rights to any Person with
respect to any of its equity or debt securities, except as set forth in the SEC
Documents filed at least two (2) Business Days prior to the Closing Date and
available on XXXXX or otherwise provided to the Investors. All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable and were issued in
compliance with all applicable federal and state securities laws.
Section 4.4 COMMON STOCK. The Company has registered its Common
Stock pursuant to Section 12(b) or (g) of the Exchange Act and is in full
compliance with all reporting requirements of the Exchange Act, and the Company
is in compliance with all requirements for the continued listing or quotation of
its Common Stock, and such Common Stock is currently listed or quoted on, the
Principal Market. As of the date hereof, the Principal Market is the Nasdaq
SmallCap Market and the Company has not received any notice regarding, and to
its knowledge there is no threat of, the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5 SEC DOCUMENTS. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. The Company has filed all documents required to
be filed by it under the Exchange Act and Securities Act during the prior three
years. As of their respective dates, the SEC Documents (a) complied in all
material respects with the requirements of the Exchange Act, and rules and
regulations of the SEC promulgated thereunder, and (b) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents complied in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC or other applicable rules and regulations with respect
thereto at the time of such inclusion. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments). Neither the Company nor any of its Subsidiaries has any material
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due) that would have been
11
required to be reflected in, reserved against or otherwise described in the
financial statements or in the notes thereto in accordance with generally
accepted accounting principles, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents filed at least two (2) Business Days prior to the
Closing Date and available on XXXXX or otherwise provided to the Investors or
was not incurred in the ordinary course of business consistent with the
Company's past practices since the last date of such financial statements. No
other information provided by or on behalf of the Company to the Investors that
is not included in the SEC Documents, including, without limitation, information
referred to in Section 3.5 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 circumstances under which they are or
were made, not misleading.
Section 4.6 EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject to
the accuracy of the Investors' representations in Article III, the sale of the
Securities to the Investors will not require registration under the Securities
Act and/or any applicable state securities law. The Notes and the Warrants, when
issued and paid for at the Closing, will be duly and validly issued, fully paid,
and non-assessable, subject to no lien, claim or encumbrance. When issued and
paid for in accordance with the Warrants and validly converted or otherwise
issued in accordance with the terms of the Notes, the Conversion Shares and the
Warrant Shares will be duly and validly issued, fully paid, and non-assessable,
subject to no lien, claim or encumbrance. Neither the sales of the Securities
pursuant to, nor the performance by the Company of its obligations under, the
Transaction Documents will (i) result in the creation or imposition by the
Company of any liens, charges, claims or other encumbrances upon the Securities
or, except as contemplated herein, any of the assets of the Company, or (ii) be
subject to preemptive or other rights to subscribe for or acquire the Capital
Shares or other securities of the Company. The Securities shall not subject the
Investors to personal liability to the Company or its creditors by reason of the
possession thereof.
Section 4.7 NO DIRECTED SELLING, GENERAL SOLICITATION OR ADVERTISING
IN REGARD TO THIS TRANSACTION. Neither the Company nor any of its Affiliates
nor, to the knowledge of the Company, any person acting on its or their behalf
(i) has conducted or will conduct any general solicitation (as that term is used
in Rule 502(c) of Regulation D) or general advertising with respect to the sale
of the Notes or the Warrants, or (ii) made any offers or sales of any security
or solicited any offers to buy any security under any circumstances that would
require registration of the sale of the Securities under the Securities Act.
Section 4.8 NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
and payment of interest upon the Notes, the Conversion Shares, the Warrants and
the Warrant Shares, do not and will not (i) result in a violation of the
Certificate of Incorporation or By-Laws of the Company or (ii) conflict with, or
constitute a default (or an event that 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, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state or local law, rule, regulation, order, judgment 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,
nor is the Company otherwise in violation of, conflict with or default under any
12
of the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not have, individually or in the aggregate, a Material Adverse Effect);
PROVIDED, HOWEVER, that in making the representation contained in clause (ii)
above, the Company further represents to the Investors that it has been informed
orally by IBM Credit LLC (as successor to IBM Credit Corporation, "IBM CREDIT")
that IBM Credit's consent is not required under the IBM Credit Facility and,
therefore, takes the position that IBM Credit has waived any right it may have
under the IBM Credit Facility to consent to or approve the transactions
contemplated hereby and by the other Transaction Documents. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly or
in the aggregate would not result in a Material Adverse Effect. The Company's
business is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly or
in the aggregate would not result in a Material Adverse Effect. The Company is
not required under any 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 this Agreement or to issue and sell the Notes or
the Warrants in accordance with the terms hereof (other than any SEC, Principal
Market or state securities filings that may be required to be made by the
Company subsequent to Closing, any registration statement that may be filed
pursuant hereto, and any stockholder approval required by the rules applicable
to companies whose common stock trades on the Principal Market); 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 Investors herein. The Company is not in violation of the
listing or posting requirements of the Principal Market as in effect on the date
hereof and is not aware of any facts that would reasonably lead to delisting of
the Common Stock by the Principal Market in the foreseeable future.
Section 4.9 NO MATERIAL ADVERSE CHANGE. Since April 30, 2002, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents filed at least two (2) Business Days
prior to the date hereof and available on XXXXX or otherwise made available by
the Company to the Investors.
Section 4.10 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since April 30,
2002, 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, that, under applicable law, rule
or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed
in the SEC Documents filed at least two (2) Business Days prior to the Closing
Date and available on XXXXX or otherwise provided to the Investors.
Section 4.11 NO INTEGRATED OFFERING. The Company has not, directly
or indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of any
of the Securities under the Securities Act or cause this offering of securities
to be integrated with prior offerings of securities by the Company for purposes
of the Securities Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of the Principal
Market; nor will the Company or any of its Subsidiaries take any action or steps
that would require registration of the securities offered hereby under the
13
Securities Act or cause the offering of such securities to be integrated with
other offerings.
Section 4.12 LITIGATION AND OTHER PROCEEDINGS. Except as disclosed
in the SEC Documents filed at least two (2) Business Days prior to the Closing
Date and available on XXXXX or otherwise provided to the Investors, there are no
lawsuits or proceedings pending or, to the knowledge of the Company, threatened,
against the Company or any subsidiary, nor has the Company received any written
or oral notice of any such action, suit, proceeding or investigation, which
could reasonably be expected to have a Material Adverse Effect. Except as set
forth in the SEC Documents filed at least two (2) Business Days prior to the
Closing Date and available on XXXXX or otherwise provided to the Investors, no
judgment, order, writ, injunction or decree or award has been issued by or, to
the knowledge of the Company, requested of any court, arbitrator or governmental
agency which could result in a Material Adverse Effect. There is no action,
proceeding or investigation by the Company currently pending or that the Company
intends to initiate.
Section 4.13 NO MISLEADING OR UNTRUE COMMUNICATION. The Company and,
to the knowledge of the Company, any person representing the Company, or any
other person selling or offering to sell the Notes or the Warrants in connection
with the transaction contemplated by this Agreement, have not made, at any time,
any oral communication in connection with the offer or sale of the same that
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.14 INSURANCE. The Company and each Subsidiary maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury, directors' and officers' liability and other similar
types of insurance with financially sound and reputable insurers that is
adequate, consistent with industry standards and the Company's historical claims
experience other than insurance that failure to so maintain would not have a
Material Adverse Effect (provided the Company acknowledges that any failure to
maintain directors' and officers' liability insurance shall be conclusively
deemed to have a Material Adverse Effect). Neither the Company nor any
Subsidiary has received notice from, or has any knowledge of any threat by, any
insurer (that has issued any insurance policy to the Company or a Subsidiary)
that such insurer intends to deny coverage under or cancel, discontinue or not
renew any insurance policy presently in force.
Section 4.15 TAX MATTERS. The Company has accurately prepared and
timely filed all United States income tax returns and all state and municipal
tax returns that are required to be filed by it, if any, and has paid or made
provision for the payment of all taxes, if any, that have become due pursuant to
such returns. No deficiency assessment or proposed adjustment of the Company's
United States income tax or state or municipal taxes is pending and there is no
liability as of the date hereof for any tax for which there is not an adequate
reserve reflected in the Company's publicly filed financial statements. All
federal, state, local and foreign franchise, sales, use, occupancy, excise,
withholding and other taxes and assessments (including interest and penalties)
payable by, or due from, the Company have been fully paid or adequately
disclosed and fully provided for in the books and financial statements of the
Company, except where the failure to provide for or pay such taxes and
14
assessments would not have a Material Adverse Effect on the Company. No
examination of any tax return of the Company is currently in progress, except
where such examinations would not have a Material Adverse Effect on the Company.
There are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any tax return of the Company.
Section 4.16 PROPERTY. Except as disclosed in the SEC Documents
filed at least two (2) Business Days prior to the Closing Date and available on
XXXXX or otherwise provided to the Investors, each of the Company and its
Subsidiaries has good and marketable title to all real and personal property
owned by it, free and clear of all liens, encumbrances and defects except such
as do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company; and to the Company's knowledge any real property and buildings held
under lease by the Company as tenant are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and intended to be made of such property and buildings by the
Company.
Section 4.17 INTELLECTUAL PROPERTY RIGHTS. Each of the Company and
its Subsidiaries has sufficient title and ownership of or is licensed under all
patents, patent applications, trademarks, service marks, trade names,
copyrights, and all registrations and applications for registration of any of
the foregoing, and all trade secrets, information, inventions, computer programs
owned or licensed by the Company, documentation, proprietary rights and
processes (collectively, "Intellectual Property") necessary for its business as
now conducted and as currently proposed to be conducted without any conflict
with and without infringement of the rights of others. The Company has not
received any communications alleging that it has violated or, by conducting its
businesses as currently proposed to be conducted, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity, and the Company has no
knowledge of any basis for such claim.
Section 4.18 PROPRIETARY INFORMATION; NONCOMPETITION COVENANTS. The
Company has done nothing to compromise the secrecy, confidentiality or value of
any of its trade secrets, know-how, inventions, prototypes, designs, processes
or technical data required to conduct its business as now conducted or as
proposed to be conducted. The Company has taken in the past and will take in the
future reasonable security measures to protect the secrecy, confidentiality and
value of all its trade secrets, know-how, inventions, prototypes, designs,
processes, and technical data important to the conduct of its business.
Section 4.19 INTERNAL CONTROLS AND PROCEDURES. The Company maintains
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company or any Subsidiary is a
party or by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's consolidated assets
is compared with existing assets at regular intervals; (iii) access to the
Company's consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any Subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
generally accepted accounting principles.
Section 4.20 PAYMENTS AND CONTRIBUTIONS. Neither the Company, any
Subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
15
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
Section 4.21 ACKNOWLEDGMENT REGARDING INVESTORS' PURCHASE OF THE
SECURITIES. The Company acknowledges and agrees that each of the Investors is
acting solely in the capacity of arm's-length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The Company
further acknowledges that no Investor is 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 thereby and any advice
given by any of the Investors or any of their respective representatives or
agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to such Investor's purchase of the
Note and the Warrant purchased by it. The Company further represents to each
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.
Section 4.22 EMPLOYEES. To the best of the Company's knowledge, no
employee of the Company or any Subsidiary is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency that would conflict with such employee's obligation to use his best
efforts to promote the interests of the Company or any Subsidiary or that would
conflict with the Company's business as conducted or as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company or any
Subsidiary, nor the conduct of the Company's business as currently proposed,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. To
the best of the Company's knowledge, no employee or consultant of the Company or
any Subsidiary is in violation of any term of any employment contract,
proprietary information and inventions agreement, noncompetition agreement or
any other contract or agreement relating to the relationship of any such
employee or consultant with the Company or any previous employer. To the best of
the Company's knowledge, no officer of the Company or any Subsidiary nor any Key
Employee (as hereinafter defined) of the Company or any Subsidiary, the
termination of whose employment, either individually or in the aggregate, would
have a Material Adverse Effect, has any intention of terminating his or her
employment with the Company. Neither the Company nor any Subsidiary has any
collective bargaining agreements with any of its employees and there is no
labor-union-organizing activity pending or to the best of the Company's
knowledge threatened with respect to the Company or any Subsidiary. For purposes
of this Agreement, "KEY EMPLOYEE" means and includes each officer of the Company
or any Subsidiary and each employee who contributes to the invention, design or
authorship of the Company's Intellectual Property. The Company and its
Subsidiaries have complied in all material respects with all applicable laws
relating to employment of labor, including provisions relating to wage, hours,
ERISA, equal opportunity, collective bargaining and the payment of social
security and other taxes.
16
Section 4.23 ENVIRONMENTAL MATTERS.
(a) The Company has duly complied with, and, to the best knowledge
of the Company, all the real estate owned or leased by it either currently or in
the past (hereinafter referred to collectively as the "PREMISES") are in
compliance in all material respects with, the provisions of all federal, state
and local environmental, health and safety laws, codes and ordinances and all
rules and regulations promulgated thereunder.
(b) The Company has been issued, and will maintain, all federal,
state and local permits, licenses, certificates and approvals known to the
Company to be required relating to (i) air emissions, (ii) discharges to surface
water or ground water, (iii) noise emissions, (iv) solid or liquid waste
disposal, (v) the use, generation, storage, transportation or disposal of toxic
or hazardous substances or wastes (intended hereby and hereafter to include any
and all such materials listed in any federal, state or local law, code or
ordinance and all rules and regulations promulgated thereunder, as hazardous or
potentially hazardous), or (vi) other environmental, health and safety matters.
(c) The Company has not received notice of, nor does the Company
know of any facts that might constitute, any violation of any federal, state or
local environmental, health or safety laws, codes or ordinances, and any rules
or regulations promulgated thereunder, that relate to the use, ownership or
occupancy of any of the Premises, and the Company is not in violation of any
covenants, conditions, easements, rights-of-way or restrictions affecting any of
the Premises or any rights appurtenant thereto.
(d) Except in accordance with a valid governmental permit, license,
certificate or approval, the Company has not caused any emission, spill, release
or discharge into or upon (i) the air, (ii) soils or any improvements located
thereon, (iii) surface water or ground water, or (iv) the sewer, septic system
or waste treatment, storage or disposal system servicing any of the Premises, of
any toxic or hazardous substances or wastes at or from any of the Premises.
(e) There has been no complaint, order, directive (other than
directives applicable to the general public), claim, citation or notice by any
governmental authority or any other person or entity with respect to (i) air
emissions, (ii) spills, releases or discharges to soils or any improvements
located thereon, surface water, ground water or the sewer, septic system or
waste treatment, storage or disposal systems servicing any of the Premises,
(iii) noise emissions, (iv) solid or liquid waste disposal, (v) the use,
generation, storage, transportation or disposal of toxic or hazardous substances
or wastes or (vi) other environmental, health or safety matters affecting the
Company, any of the Premises or any improvements located thereon, or the
businesses thereon conducted.
Section 4.24 REGULATORY PERMITS. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such items would not
have, individually or in the aggregate, a Material Adverse Effect, 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.
17
Section 4.25 NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation that
in the judgment of the Company's officers has a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is a party to any contract or agreement
that in the reasonable judgment of the Company's officers has or is expected to
have a Material Adverse Effect.
Section 4.26 CERTAIN TRANSACTIONS. Except as set forth in the SEC
Documents filed at least two (2) Business Days prior to the Closing Date and
available on XXXXX or otherwise provided to the Investors 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, none of the officers or directors 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 or director or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer or director has a substantial interest or is an officer,
director, trustee or partner.
Section 4.27 APPLICATION OF TAKEOVER PROTECTIONS. The Company and
its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the laws of the state of its incorporation
which is or could become applicable to the Investors as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities and the Investor's ownership thereof.
Section 4.28 NO OTHER AGREEMENTS. The Company has not, directly or
indirectly, made any agreements with any Investors relating to the terms or
conditions of the transactions contemplated by the Transaction Documents, except
as set forth in the Transaction Documents.
Section 4.29 NO MISREPRESENTATION. The representations and
warranties of the Company contained in this Agreement, any schedule, annex or
exhibit hereto and any agreement, instrument or certificate furnished by the
Company to the Investors pursuant to this Agreement, do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.30 REGISTRATION RIGHTS. Except as provided in the
Registration Rights Agreement and as disclosed in the SEC Documents filed at
least two (2) Business Days prior to the Closing Date and available on XXXXX or
otherwise provided to the Investors, the Company is not under any obligation to
register any of its presently outstanding securities or any of its securities
that may hereafter be issued.
Section 4.31 FINDERS' FEES. Other than with respect to Cardinal
Securities, L.L.C., the Company represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement. The Company hereby agrees to indemnify and to hold the Investors
harmless of and from any liability for any commission or compensation in the
18
nature of a finder's fee (including any fee listed on the Disclosure Schedule)
to any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which the Company or any of
its employees or representatives is responsible.
Section 4.32 ABSENCE OF RIGHTS AGREEMENT. Except for the Company's
Rights Agreement dated February 24, 1998, as amended (the "RIGHTS PLAN"), the
Company has not adopted a stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change of
control of the Company. The Company represents and warrants that, the Investors
are not and will not become an "Acquiring Person" as that term is defined under
the Rights Plan by virtue of any of the transactions contemplated by the
Transaction Documents.
Section 4.33 COMPLIANCE WITH IBM LENDER COVENANTS. Each of the
Company and its Subsidiaries is in full compliance with all covenants in favor
of the IBM Lender relating to all indebtedness owed by it to the IBM Lender and
the Company reasonably and in good faith believes that it can maintain
compliance with those covenants for the foreseeable future based on the
Company's conservative projections as disclosed to the Investors.
Section 4.34 SOLVENCY. As of the date hereof and after giving effect
to the issuance of the Notes contemplated hereunder (a) the amount of the
"present fair salable value" of the assets of the Company will, as of such date,
exceed the amount of all "liabilities of the Company, contingent or otherwise,"
as of such date, as such quoted terms are determined in accordance with
applicable federal and state laws governing determinations of the solvency of
debtors, (b) the present fair salable value of the assets of the Company will,
as of the date hereof, be greater than the amount that will be required to pay
the liability of the Company on its debts as such debts become absolute and
matured, (c) the Company will not have, as of the date hereof, an unreasonably
small amount of capital with which to conduct its business, and (d) the Company
will be able to pay its debts as they mature. For purposes of this Section
"debt" means "liability or a claim", and "claim" means any (x) right to payment,
whether or not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured; or (y) right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent, matured
or unmatured, disputed, undisputed, secured or unsecured.
Section 4.35 CERTAIN ASSETS. The Subsidiaries have no assets, other
than for (i) not more than US $75,000 of assets held in Signatel, Ltd., (ii)
certain patents (No. 4,245,343, No. 1,164,343 and No. 4,713,811) held in Datatec
Industries Inc. and (iii) certain software, telecommunication assets (including
servers, routers, storage devices), laptop personal computers, desktop personal
computers, and officer furniture and fixtures held in Millennium Care Inc.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company
that:
19
Section 5.1 BEST EFFORTS. Each Investor shall use its commercially
reasonable best efforts to timely satisfy each of the conditions to be satisfied
by it as provided in Article II of this Agreement.
Section 5.2 RESTRICTIONS ON SHORT-SELLING. For so long as any of the
Notes remain outstanding, each Investor, severally and not jointly, covenants
with the Company that it will not, directly or indirectly through any Affiliate,
or instruct anyone to, sell short any shares of Common Stock if, as a result of
any such sale, such Investor would have a short position in the Common Stock in
excess of the number of shares of Common Stock issuable upon conversion of the
entire Principal Amount of the Note held by such Investor, such conversion to be
deemed made at the Mandatory Conversion Price in effect at the time of such sale
and without regard to any limitation on such conversion.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 BEST EFFORTS. The Company shall use its commercially
reasonable best efforts to timely satisfy each of the conditions to be satisfied
by it as provided in Article II of this Agreement.
Section 6.2 REGISTRATION RIGHTS. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply with the terms thereof.
Section 6.3 RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has authorized and reserved, free of preemptive rights, solely for the
purpose of effecting the issuance of the shares of Common Stock issuable in
connection with this Agreement, a number of shares of Common Stock equal to at
least 150% of the number of (x) Conversion Shares issuable upon conversion of
the aggregate principal amount of the then outstanding Notes at the Mandatory
Conversion Price and (y) Warrant Shares issuable upon exercise of the then
outstanding Warrants (without regard, in the case of (x) or (y), to any
limitations on such conversion or exercise), as may be adjusted from time to
time (the "REQUIRED RESERVED AMOUNT"). The Company further agrees that if at any
time the number of shares of Common Stock authorized and so reserved for
issuance is less than seventy-five percent (75%) of the Required Reserved
Amount, the Company shall promptly commence all corporate and stockholder action
necessary to increase its authorized and reserved capital to the Required
Reserved Amount.
Section 6.4 LISTING OF COMMON STOCK. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
reasonably practicable following the Closing to list the Conversion Shares and
the Warrant Shares on the Principal Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Principal Market,
it will include in such application the Conversion Shares and the Warrant
Shares, and will take such other action as is necessary or desirable in the
opinion of the Investors to cause the Conversion Shares and Warrant Shares to be
listed on such other Principal Market as promptly as possible. The Company will
take all action necessary to continue the listing and trading of its Common
Stock on its current Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
20
of the Principal Market and shall provide Investors with copies of any
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock, within three (3) Trading Days of the Company's
receipt thereof, until the Investors have disposed of all of their Registrable
Securities.
Section 6.5 EXCHANGE ACT REGISTRATION. The Company will cause its
Common Stock to continue to be registered under Section 12(b) or (g) of the
Exchange Act, will use its best efforts to comply in all respects with its
reporting and filing obligations under 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 registration or to terminate or
suspend its reporting and filing obligations under the Exchange Act until the
Investors have disposed of all of their Registrable Securities.
Section 6.6 LEGENDS. The certificates evidencing the Registrable
Securities shall be free of legends, except as set forth in Article IX.
Section 6.7 CORPORATE EXISTENCE; CONFLICTING AGREEMENTS. The Company
will take all steps necessary to preserve and continue the corporate existence
of the Company. The Company shall not enter into any agreement, the terms of
which agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
Transaction Documents.
Section 6.8 CONSOLIDATION; MERGER. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity (a "CONSOLIDATION EVENT") unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
or by operation of law the Company's obligations under this Agreement and the
other Transaction Documents, including the obligation to deliver to the
Investors such shares of stock and/or securities as the Investors are entitled
to receive pursuant to this Agreement, the Notes or the Warrants.
Section 6.9 ISSUANCE OF NOTES AND WARRANT SHARES. The sale of the
Notes and the Warrants and the issuance of the Warrant Shares upon exercise of
the Warrants and the Conversion Shares pursuant to the terms of the Notes shall
be made in accordance with the provisions and requirements of Section 4(2), 4(6)
or Regulation D and any applicable state securities law. The Company shall make
any necessary SEC and "blue sky" filings required to be made by the Company in
connection with the sale of such securities to the Investors as required by all
applicable laws, and shall provide a copy thereof to the Investors promptly
after such filing.
Section 6.10 RELIEF IN BANKRUPTCY. The Company shall not seek
judicial relief from its obligations hereunder or under the other Transaction
Documents except pursuant to the Bankruptcy Code. In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in
respect of the conversion of the Notes and the exercise of the Warrants. The
Company agrees, without cost or expense to the Investors, to take or consent to
any and all action necessary to effectuate relief under 11 U.S.C. ss. 362.
21
Section 6.11 USE OF PROCEEDS. The Company will use the proceeds from
the sale of the Notes and the Warrants for general working capital purposes,
which may include repayment of principal and interest on the IBM Debt and
regular installments of principal and interest due on other indebtedness;
provided, however, that the Company may not use such proceeds to repay any loan
made or incurred by a Related Party (as defined below) or to repurchase or
redeem any securities held or beneficially owned, directly or indirectly, by any
such person.
Section 6.12 TRANSACTIONS WITH AFFILIATES. So long as (i) there are
Notes or Warrants outstanding or (ii) any Investor owns Conversion Shares and/or
Warrant Shares with a market value equal to or greater than $300,000, the
Company shall not, and shall cause each of its Subsidiaries not to, enter into,
amend, modify or supplement, or permit any Subsidiary to enter into, amend,
modify or supplement, any agreement, transaction, commitment or arrangement with
any of its or any Subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two (2) years, stockholders who
beneficially own 5% or more of the Common Stock, or Affiliates or with any
individual related by blood, marriage or adoption to any such individual or with
any entity in which any such entity or individual owns a 5% or more beneficial
interest (each, a "RELATED PARTY"), except for (a) customary employment
arrangements and benefit programs on reasonable terms, (b) any agreement,
transaction, commitment or arrangement on an arm's-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party, or (c) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company.
For purposes hereof, any director who is also an officer of the Company or any
Subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment or arrangement.
Section 6.13 SUSPENSION OF TRADING. In addition to any other
remedies which the Investors have under this Agreement and under applicable law,
for each Business Day on which trading in the shares of Common Stock is
suspended or prohibited on the Principal Market, the Company shall pay the
Investors an amount equal to 0.2% of the product of (1) the number of Conversion
Shares and Warrant Shares then held by the Investors or into which the Notes are
then convertible at the Mandatory Conversion Price and for which the Warrants
are then exercisable (without regard to any limitation on such conversion or
exercise) and (2) the Market Price of the Common Stock on the Trading Day prior
to such suspension or prohibition. The Company shall pay every seven (7)
Business Days the cumulative amount that has accrued hereunder to the Investors
after the date of such suspension or prohibition.
Section 6.14 RIGHT OF FIRST REFUSAL. As long as the Investors hold
Notes representing, in the aggregate, a remaining outstanding principal and
interest amount of at least Five Hundred Thousand Dollars ($500,000), the
Company shall not, other than pursuant to any underwritten public offering, sell
or enter into any agreement to sell any Capital Shares Equivalents with Persons
other than the Investors during the period commencing on the date hereof and
ending eighteen (18) months after the Closing Date unless the Company shall
first have satisfied its obligations under this Section 6.14.
(a) If the Company receives a written offer that the Company desires
or intends to accept from any Person or group of Persons other than the
Investors to purchase any of the Company's Capital Shares Equivalents, the
Company shall, within ten (10) Trading Days after the receipt by the Company of
22
such offer, give the Investors a written notice of such offer stating the type,
terms, and purchase price of such Capital Shares Equivalents and the other
material terms and conditions of the sale of such Capital Shares Equivalents and
attaching a copy of any offer signed by the Person or Persons making such offer.
(b) The Investors shall have the right to purchase all or any part
of such Capital Shares Equivalents on the same terms and conditions as are set
forth in the Company's written notice. Each Investor may exercise its right to
purchase such Capital Shares Equivalents by giving a written notice of exercise
to the Company within seven (7) Trading Days after such Investor's receipt of
the Company's notice. Each Investor shall have the right to purchase such
Capital Shares Equivalents pro rata in accordance with the principal amount of
the Note purchased by it under this Agreement. Each Investor may also purchase,
on the same pro rata basis, any Capital Shares Equivalents not purchased by the
other Investors.
(c) If the Investors shall not have exercised their rights to
purchase all of such Capital Shares Equivalents, then the Company shall have the
right to sell all Capital Shares Equivalents not subscribed by the Investors on
the same terms and conditions as those set forth in the Company's notice. If the
Company shall not have sold all such Capital Shares Equivalents within Thirty
(30) days after the expiration of the 7-day period in paragraph (b) above, then
the Company shall not sell any such Capital Shares Equivalents unless it first
offers to sell such securities to the Investors in accordance with the
procedures set forth in this Section 6.14.
Section 6.15 INSURANCE. So long as there remains outstanding any
Notes or Registrable Securities, the Company agrees to obtain and maintain in
full force and effect insurance in such amounts and against such risks as is
customarily carried by companies in similar businesses and owning similar
properties. Without limiting the generality of the foregoing, the Company shall
obtain and maintain at all times directors' and officers' liability insurance
with at least $5 million of aggregate coverage and at least $1 million of per
occurrence coverage.
Section 6.16 COMPLIANCE WITH IBM LENDER COVENANTS. So long as there
remains outstanding any Notes, the Company and Datatec Industries, Inc. ("DI")
(i) shall comply with all loan covenants (including but not limited to borrowing
limits and formula-based covenants) in favor of the IBM Lender (provided,
however, so long as the IBM Lender has not accelerated its indebtedness with
respect to an Event of Default (as such term is defined in the IBM Credit
Facility) for noncompliance by the Company or DI, the Company and DI shall be
deemed in compliance with this Section 6.16(i) while they are negotiating a
default waiver with the IBM Lender for up to 90 days following a year end and up
to 45 days following each quarter with respect to defaults revealed by the
financials disclosed with respect to such time periods and (ii) subject to the
Company's right to impose a blackout period pursuant to Section 3.u of the
Registration Rights Agreement, will deliver, or cause to be delivered, to the
Investors reports within ninety (90) days after the end of each of its fiscal
years, Forty-Five (45) days after the end of each of its fiscal quarters and
Thirty (30) days after the end of each month describing the status of the
Company's compliance with loan covenants in favor of the IBM Lender, including a
detailed statement of any defaults or events of default thereunder and steps
being taken to cure any such defaults or events of defaults. Such reports shall
include the balance outstanding to the IBM Lender.
Section 6.17 ASSET TRANSFERS. For so long as any Notes are
outstanding, the Company will not transfer any assets to any of its
Subsidiaries.
23
Section 6.18 NASDAQ COMPLIANCE. The Company will not issue Common
Stock (i) pursuant to conversion of the Notes, (ii) as repayment of principal on
the Notes or (iii) as payment of interest on the Notes if such issuance would
require stockholder approval pursuant to Rules and Regulations of the NASDAQ
Stock Market without first having obtained such stockholder approval.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1 SURVIVAL. The representations, warranties and covenants
made by the Company and each Investor in this Agreement, the annexes, schedules
and Exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive any Closing
and the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it under
the provisions of this Agreement, irrespective of any investigation made by or
on behalf of such party on or prior to the Closing Date.
Section 7.2 INDEMNITY.
(a) The Company shall indemnify and hold harmless the Investors,
their respective Affiliates (as defined in SEC Rule 405) and their respective
officers, directors, partners and members (collectively, the "INVESTOR
INDEMNITEES"), from and against any and all Damages, and shall reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in any of the
Transaction Documents, the annexes, schedules or exhibits thereto or
any instrument, agreement or certificate entered into or delivered
by the Company pursuant thereto; or
(ii) any failure by the Company to perform any of its
covenants, agreements, undertakings or obligations set forth in any
of the Transaction Documents, the annexes, schedules or exhibits
thereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant thereto; or
(iii) any action instituted against the Investors, or any of
them, by any stockholder of the Company who is not an Affiliate (as
defined above) of an Investor, with respect to any of the
transactions contemplated by the Transaction Documents.
(b) Each Investor, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "COMPANY
INDEMNITEES"), from and against any and all Damages, in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
24
(i) any misrepresentation, omission of fact, or breach of any
of the Investor's representations or warranties contained in any of
the Transaction Documents, the annexes, schedules or exhibits
thereto or any instrument, agreement or certificate entered into or
delivered by the Investor pursuant to any of the Transaction
Documents; or
(ii) any failure by the Investor to perform any of its
covenants, agreements, undertakings or obligations set forth in any
of the Transaction Documents or any instrument, certificate or
agreement entered into or delivered by the Investor pursuant
thereto.
Section 7.3 NOTICE. Promptly after receipt by either party thereto
seeking indemnification pursuant to Section 7.2 (an "INDEMNIFIED PARTY") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party from whom indemnification
pursuant to Section 7.2 is being sought (the "INDEMNIFYING PARTY") of the
commencement thereof, but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is actually prejudiced
by such omission or delay. In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof. Notwithstanding the assumption
of the defense of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party
reasonably shall have concluded that representation of the Indemnified Party and
the Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4 DIRECT CLAIMS. In the event one party hereunder should
have a claim for indemnification that does not involve a claim or demand being
asserted by a third party, the Indemnified Party promptly shall deliver notice
of such claim to the Indemnifying Party. If the Indemnifying Party disputes the
claim, such dispute shall be resolved by mutual agreement of the Indemnified
25
Party and the Indemnifying Party or by any suit, action or proceedings brought
in the United States District Court for the Southern District of New York or any
court of the State of New York located in New York City.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1 DUE DILIGENCE REVIEW. Subject to Section 8.2, the
Company shall make available for inspection and review by the Investors,
advisors to and representatives of the Investors (who may or may not be
affiliated with the Investors and who are reasonably acceptable to the Company),
any underwriter participating in any disposition of the Registrable Securities
on behalf of the Investors pursuant to a Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky,
Nasdaq or other filing, all SEC Documents and other filings with the SEC, and
all other publicly available corporate documents and properties of the Company
as may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such publicly
available information reasonably requested by the Investors or any such
representative, advisor or underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and other
inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of the Registration Statement for the
sole purpose of enabling the Investors and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
Section 8.2 NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not disclose material non-public information
to the Investors, advisors to or representatives of the Investors unless prior
to disclosure of such information the Company identifies such information as
being nonpublic information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investors' advisors and
representatives to enter into a confidentiality agreement in form and content
reasonably satisfactory to the Company and the Investors. In the event that the
Company discloses material non-public information to any Investor, the Company
will publicly disclose such information on or before the Closing Date.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without disclosing the specific event or circumstance except with
the consent of the Investors) of which it becomes aware, constituting material
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
26
material fact required to be stated therein in order to make the statements,
therein in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investors (without the written consent of the
Investors prior to disclosure of such information as set forth in Section
8.2(a)) may not obtain non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that, based on such due diligence by such persons or entities, the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1 LEGENDS. Unless otherwise provided below, each
certificate representing Registrable Securities will bear the following legend
or equivalent (the "LEGEND"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or
transfer (including without limitation a pledge) of any of the Securities is
registered pursuant to an effective registration statement, (B) such Securities
have been sold pursuant to Rule 144 or any successor provision, and such
Purchaser provides the Company with customary seller's and broker's
representation letters, or (C) such Securities are eligible for resale under
Rule 144(k) or any successor provision, such Securities shall be issued without
any legend or other restrictive language and, with respect to Securities upon
which such legend is stamped, the Company shall issue new certificates without
such legend to the holder promptly upon request (but in no event later than five
(5) Business Days following such request).
Section 9.2 TRANSFER AGENT INSTRUCTIONS. Upon Closing, the Company
will issue to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent for its Common Stock upon the Company's appointment
of any such substitute or replacement transfer agent) the Irrevocable Transfer
Agent Instructions. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be.
27
Section 9.3 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No
legend other than the one specified in Section 9.1 and the legend related to the
Company's Rights Plan has been or shall be placed on the share certificates
representing the Registrable Securities and no instructions or "stop transfer
orders," "stock transfer restrictions," or other restrictions have been or shall
be given to the Company's transfer agent with respect thereto other than as
expressly set forth in this Article IX. .
Section 9.4 INVESTORS' COMPLIANCE. Nothing in this Article shall
affect in any way each Investor's obligations to comply with all applicable
securities laws upon resale of the Common Stock.
Section 9.5 TRANSFERS WITHOUT REGISTRATION. If an Investor provides
the Company with an opinion of counsel reasonably acceptable to the Company,
that registration of a resale by such Investor of any Conversion Shares or
Warrant Shares is not required under the Securities Act, the Company shall
permit the transfer and promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Investor and, if such opinion provides that such legends can be removed, without
any restrictive legends.
Section 9.6 INJUNCTIVE RELIEF. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Investors 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 Article IX will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Article IX, that the Investors 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 X
CHOICE OF LAW; VENUE
Section 10.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York and without regard
to its principles of conflicts of laws. The corporate laws of the State of New
York shall govern all issues concerning the relative rights of the Company and
its stockholders.
Section 10.2 VENUE. Each party hereto hereby irrevocably submits to
the exclusive personal and subject matter jurisdiction of the United States
District Court for the Southern District of New York and any court of the State
of New York located in New York City over any suit, action or proceeding arising
out of or relating to this Agreement. Each party hereby irrevocably waives to
the fullest extent permitted by law, (a) the right to trial by jury; (b) any
objection that they may now or hereafter have to the venue of any such suit,
action or proceeding brought in any such court; and (c) any claim that any such
suit, action or proceeding has been brought in an inconvenient forum. Final
judgement in any suit, action or proceeding brought in any such court shall be
conclusive and binding upon each party duly served with process therein and may
28
be enforced in the courts of the jurisdiction of which either party or any of
their property is subject, by a suit upon such judgement
ARTICLE XI
ASSIGNMENT
Section 11.1 ASSIGNMENT. Neither this Agreement nor any rights of
the Investors or the Company hereunder may be assigned by either party to any
other person. Notwithstanding the foregoing, (a) the provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any permitted
transferee of any of the Securities, and (b) each Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any Affiliate of the Investor) who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement, provided that such transfer complies with
applicable securities laws.
ARTICLE XII
NOTICES
Section 12.1 NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) hand delivered,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, 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 first Business Day following the date of sending by reputable
courier service, fully prepaid, addressed to such address, or (c) upon actual
receipt of such mailing, if mailed. The addresses for such communications shall
be:
If to the Company: Datatec Systems, Inc.
00 Xxxxxxx Xxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxx Xxxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to
(which shall not constitute notice): Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx &
Wolosky LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
29
Attention: Xxxxxx X. Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investors: As set forth on the signature pages hereto
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 COUNTERPARTS; FACSIMILE. This Agreement may be executed
in multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument. Except as otherwise
stated herein, in lieu of the original documents, a facsimile transmission or
copy of the original documents shall be as effective and enforceable as the
original.
Section 13.2 ENTIRE AGREEMENT. This Agreement, including the
agreements attached as Exhibits hereto, which include, but are not limited to
the Notes, the Warrants, and the Registration Rights Agreement, set forth the
entire agreement and understanding of the parties relating to the subject matter
hereof and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as if fully set forth herein.
Section 13.3 SEVERABILITY; CONSTRUCTION. Any invalidity, illegality
or limitation of the enforceability with respect to any one or more of the
provisions of this Agreement, or any part thereof, shall in no way affect or
impair the validity, legality or enforceability of any other provisions of this
Agreement. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, it shall, to the extent practicable, be modified so as to make it
valid, legal and enforceable and to retain as nearly as practicable the intent
of the parties, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. 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 13.4 HEADINGS. The headings used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
Section 13.5 NUMBER AND GENDER. There may be one or more Investors
as parties to this Agreement, which Investors may be natural persons or
entities. All references to plural Investors shall apply equally to a single
Investor if there is only one Investor, and all references to an Investor as
"it" shall apply equally to a natural person.
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Section 13.6 REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given trading day for the purposes of this Agreement
shall be Bloomberg or any successor thereto. The written agreement of the
Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7 REPLACEMENT OF CERTIFICATES. Upon (i) receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of a certificate representing the Notes or any Conversion Shares
or Warrants or any Warrant Shares and (ii) in the case of any such loss, theft
or destruction of such certificate, upon delivery of an indemnity agreement or
security reasonably satisfactory in form to the Company (which shall not include
the posting of any bond unless required by the Company's transfer agent) or
(iii) in the case of any such mutilation, on surrender and cancellation of such
certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new certificate of like tenor.
Section 13.8 FEES AND EXPENSES. Up to a maximum of $25,000, the
Company shall pay the documented fees, expenses and disbursements of the
Investors, including fees, expenses and disbursements of the Investors' legal
counsel and accountants. The Company shall reimburse the Investors for their
reasonable expenses and legal fees incurred in enforcing this Agreement (but
only to the extent the Investors prevail in enforcing the Agreement) or in any
amendments, modifications or waivers with respect thereto. The Investors shall
reimburse the Company for its reasonable expenses and legal fees incurred in
enforcing this Agreement (but only to the extent the Company prevails in
enforcing the Agreement). The Company shall be responsible for all fees and
expenses of any of its financial advisors. The Company's obligations under this
Section 13.8 shall arise and remain in force whether or not the Closing occurs
hereunder, unless such failure to close is solely the result of default by the
Investors.
Section 13.9 BROKERAGE. Each of the parties hereto represents that
it has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other. The
Company, on the one hand, and the Investors, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.10 PUBLICITY. The Company agrees (i) to issue, on the
Closing Date, a press release describing the terms of this Agreement, the other
Transaction Documents and the transactions contemplated hereby and thereby and
(ii) to file, on or before the 2nd Business Day following the Closing Date, a
Form 8-K with the SEC that describes such terms and attaches this Agreement and
the other Transaction Documents as exhibits thereto. The Company shall submit to
each Investor such press release and any other public announcement describing
the transactions contemplated by this Agreement prior to the issuance thereof
and, except to the extent required by law, the Company agrees that it will not
use the name of an Investor or any of its Affiliates in any such press release
or public announcement without the prior written consent of such Investor for
the specific use contemplated..
Section 13.11 PAYMENT SET ASIDE. To the extent that the Company
makes a payment or payments to the Investors hereunder or the Investors enforce
or exercise their rights hereunder, and such payment or payments or the proceeds
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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 or entity 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 13.12 DELAYS OR OMISSIONS. No delay or omission to exercise
any right, power or remedy accruing to the Company or the Investors or any
subsequent holder of any Notes or Warrants upon any breach, default or
noncompliance of the Investors, any subsequent holder of any Notes or Warrants
or the Company under this Agreement, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the part of the Company
or the Investors of any breach, default or noncompliance under this Agreement or
any waiver on the Company's or the Investors' part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing and that all remedies, either
under this Agreement, by law, or otherwise afforded to the Company and the
Investors, shall be cumulative and not alternative.
Section 13.13 AMENDMENTS AND WAIVERS. Except as otherwise expressly
provided herein, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) with the written consent of the Company and the
Investors or their transferees holding at least sixty percent (60%) of the
outstanding indebtedness and Conversion Shares; provided, however, that no such
amendment or waiver shall reduce the aforesaid percentage of Conversion Shares
required under this Section 13.13. Any amendment or waiver effected in
accordance with this Section 13.13 shall be binding upon the Investors and each
transferee of the securities issuable hereunder. Upon the effectuation of each
such amendment or waiver, the Company shall promptly give written notice thereof
to the Investors (or their transferees) who have not previously consented
thereto in writing.
* * * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Note
Purchase Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
COMPANY:
DATATEC SYSTEMS, INC.
By: ________________________________________
Name:_______________________________________
Title: _____________________________________
INVESTORS:
By: ________________________________________
Name:_______________________________________
Address:
Principal Amount of Note:
By: ________________________________________
Name:_______________________________________
Address:
Principal Amount of Note:
33
By: ________________________________________
Name:_______________________________________
Address:
Principal Amount of Note:
By: ________________________________________
Name:_______________________________________
Address:
Principal Amount of Note:
By: ________________________________________
Name:_______________________________________
Address:
Principal Amount of Note:
34
By: ________________________________________
Name:_______________________________________
Address:
Principal Amount of Note:
35
