Exhibit 99.3
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SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
BY AND AMONG
THE PURCHASERS LISTED ON SCHEDULE 1 HERETO,
XXXXXXXX.XXX, INC.
AND
SOFTLOCK SERVICES, INC.
DATED AS OF DECEMBER 30, 1999
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TABLE OF CONTENTS
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Page No.
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SECTION 1 - AUTHORIZATION, PURCHASE AND SALE OF THE SHARES
1.1 Authorization of the Shares................................................................1
1.2 Sale and Purchase of the Shares............................................................1
1.3 Certain Defined Terms......................................................................1
SECTION 2 - CLOSING, PAYMENT AND DELIVERY
2.1 Closings...................................................................................2
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization and Standing; Articles and By-laws............................................3
3.2 Corporate Power............................................................................3
3.3 Subsidiaries...............................................................................3
3.4 Capitalization.............................................................................4
3.5 Authorization..............................................................................4
3.6 Contracts; Insurance.......................................................................5
3.7 SEC Documents..............................................................................6
3.8 Absence of Undisclosed Liabilities.........................................................7
3.9 Absence of Certain Changes.................................................................7
3.10 Taxes ...................................................................................8
3.11 Transactions with Affiliates...............................................................9
3.12 Litigation.................................................................................9
3.13 Consents9
3.14 Title to Properties; Liens and Encumbrances................................................9
3.15 Leases ...................................................................................9
3.16 Franchises, Licenses, Trademarks,
Patents and Other Rights................................................................10
3.17 Issuance Taxes............................................................................11
3.18 Offering11
3.19 Compliance with Other Instruments.........................................................11
3.20 Employees.................................................................................12
3.21 Business of the Company...................................................................13
3.22 Use of Proceeds...........................................................................13
3.23 Applicability of, and Compliance With, Other Laws.........................................14
3.24 Indebtedness..............................................................................15
3.25 Condition of Properties...................................................................16
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3.26 Insurance Coverage........................................................................16
3.27 Registration Rights.......................................................................16
3.28 Illegal or Unauthorized Payments; Political Contributions................................16
3.29 Disclosure................................................................................17
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1 Organization; Good Standing; Power and Authority; Binding Obligation......................17
4.2 Purchase Entirely for Own Account, Etc....................................................17
4.3 Disclosure................................................................................18
4.4 Accredited Investor.......................................................................18
4.5 Restricted Securities.....................................................................18
4.6 Legends 19
SECTION 5 - CONDITIONS TO CLOSING OF PURCHASER
5.1 Representations and Warranties Correct....................................................19
5.2 Performance...............................................................................19
5.3 Compliance Certificate....................................................................19
5.4 Opinion of Company's Counsel..............................................................19
5.5 Good Standing Certificates................................................................20
5.6 Legal Investment..........................................................................20
5.7 Qualifications............................................................................20
5.8 Amendment of Certificate and Filing of Certificate........................................20
5.9 Proceedings and Documents.................................................................20
5.10 Provisions of By-Laws.....................................................................20
5.11 Shareholders' and Rights Agreement........................................................20
5.12 Minimum Purchase..........................................................................20
SECTION 6 - CONDITIONS TO CLOSING OF COMPANY
6.1 Representations and Warranties Correct...............................................21
6.2 Performance..........................................................................21
6.3 Legal Investment.....................................................................21
6.4 Qualifications.......................................................................21
6.5 Proceedings and Documents............................................................21
6.6 Shareholders' and Rights Agreement...................................................21
6.7 Delivery of Bridge Financing Transaction Documents...................................21
6.8 Statement of Accredited Investor.....................................................21
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SECTION 7 - COVENANTS OF THE COMPANY
7.1 Basic Financial Information..........................................................22
7.2 Additional Information and Rights....................................................23
7.3 Prompt Payment of Taxes, etc.........................................................24
7.4 Maintenance of Properties and Leases.................................................25
7.5 Insurance............................................................................25
7.6 Accounts and Records.................................................................25
7.7 Compliance with Requirements of Governmental Authorities.............................25
7.8 Maintenance of Corporate Existence, etc..............................................26
7.9 Availability of Common Stock for Conversion..........................................26
7.10 Proprietary Information Agreement, and
Key Employee Agreement.............................................................26
7.11 Use of Proceeds......................................................................27
7.12 Compliance by Subsidiaries...........................................................27
7.13 Expenses of Board Members............................................................27
7.14 Securities Law Filings...............................................................27
SECTION 8 - NEGATIVE COVENANTS
8.1 Sale/Purchase of Assets; Merger......................................................27
8.2 Future Registration Rights...........................................................28
8.3 Changes in Type of Business..........................................................28
8.4 Dividends and Distributions..........................................................29
8.5 Purchase of Equity Securities........................................................29
8.6 Conflicting Agreements...............................................................29
8.7 Amendment of Charter Documents.......................................................29
8.8 Related Party Transactions...........................................................29
8.9 Subsidiaries.........................................................................29
8.10 Fiscal Year..........................................................................29
8.11 Business Plan........................................................................29
8.12 Amendment of Other Agreements........................................................29
8.13 Employee Stock Plans.................................................................29
8.14 Liens .............................................................................30
8.15 Investments..........................................................................30
8.16 Purchases and Sales..................................................................30
8.17 Leases .............................................................................30
8.18 Indebtedness.........................................................................31
8.19 Loans, Guarantees....................................................................31
8.20 Issuance of Equity Securities........................................................31
8.21 License of Listed Rights and Intellectual Property...................................31
8.22 Compliance by Subsidiaries...........................................................31
SECTION 9 - DEFINITIONS..........................................................................31
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SECTION 10 - MISCELLANEOUS
10.1 Governing Law.............................................................................35
10.2 Survival35
10.3 Successors and Assigns....................................................................35
10.4 Entire Agreement; Amendment...............................................................36
10.5 Notices, etc..............................................................................36
10.6 Delays or Omissions.......................................................................36
10.7 Rights; Severability......................................................................37
10.8 Agent's Fees and Services.................................................................37
10.9 Legal Fees and Expenses...................................................................37
10.10 Titles and Subtitles......................................................................37
10.11 Counterparts..............................................................................37
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SCHEDULES AND EXHIBITS
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SCHEDULE 1 - Schedule of Purchasers
SCHEDULE 2 - Disclosure Schedules
EXHIBIT A - Amended and Restated Certificate of Incorporation
EXHIBIT B - Form of Proprietary Information Agreement
EXHIBIT C - Form of Opinion of Counsel
EXHIBIT D - Shareholders' and Rights Agreement
EXHIBIT E Statement of Accredited Investor
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SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of the 30th day of December, 1999, by and among XxxxXxxx.xxx,
Inc. (the "Company"), a Delaware corporation having offices at Five Clock Tower
Place, Suite 440, Maynard, Massachusetts, SoftLock Services, Inc. ("Subsidiary")
a Delaware corporation having offices at Five Clock Xxxxx Xxxxx, Xxxxx 000,
Xxxxxxx, Xxxxxxxxxxxxx, and each of the parties listed on Schedule 1 hereto (the
"Schedule of Purchasers"). The parties listed on the Schedule of Purchasers are
hereinafter referred to collectively as the "Purchasers".
WHEREAS, the Company desires to issue and sell, and the Purchasers
desire to purchase, certain securities of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the Company, Subsidiary and the
Purchasers (in the case of the Purchasers, severally and not jointly), hereby
agree as follows:
SECTION 1
AUTHORIZATION, PURCHASE AND SALE OF THE SHARES
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1.1 AUTHORIZATION OF THE SHARES. The Company has, or before the First
Closing (as defined in Section 2.1 hereof) will have, authorized the designation
of Series A Preferred Stock, par value $0.01 per share (the "Series A
Preferred"), having the rights, privileges and preferences as set forth in the
Certificate of Designation of the Series A Preferred Stock (the "Certificate"),
the form of which is attached to this Agreement as Exhibit A, and the issuance
and sale under this Agreement of 36,765 shares of the Series A Preferred (the
"Shares").
1.2 SALE AND PURCHASE OF THE SHARES. Upon and subject to the terms and
conditions of this Agreement and in reliance upon the representations,
warranties and agreements contained herein, at the Closing the Company will
issue and sell to the Purchasers, and each Purchaser will purchase from the
Company at the applicable Closing, that number of Shares set forth opposite each
such Purchaser's name on the Schedule of Purchasers.
1.3 CERTAIN DEFINED TERMS. Certain capitalized terms used in this
Agreement shall have the respective meanings ascribed to them in Section 9
hereof.
SECTION 2
CLOSING, PAYMENT AND DELIVERY
2.1 CLOSINGS.
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(A) FIRST CLOSING DATE AND PLACE OF FIRST CLOSING. The first closing of
the purchase and sale of certain of the Shares (the "First Closing") shall be
held on the date (the "First Closing Date") of, and immediately following, the
final execution and delivery of at least one counterpart of this Agreement by
the Company, Subsidiary and the Purchasers listed on the initial Schedule of
Purchasers, or such other date as shall have been agreed to by the Company and
the Purchaser(s) participating in such First Closing. The place of the First
Closing (including the place of delivery to the Purchaser(s) by the Company of
the certificates evidencing the Shares being purchased and the place of payment
to the Company by such Purchaser(s) of the purchase price therefor) shall be at
the offices of Xxxxxxx & Xxxxxxx LLP, Xxx Xxxxxxxx Xxx, Xxxxxxxx, XX 00000-0000,
or such other place as shall have been agreed to by the Company and the
Purchaser(s) participating in such First Closing.
(B) SUBSEQUENT CLOSING DATE(S) AND PLACE OF CLOSING. Subsequent
closings of the purchase and sale of certain additional Shares (each a
"Subsequent Closing") to additional Purchaser(s) shall be held on a date (each a
"Subsequent Closing Date") following the First Closing Date, by execution of a
supplement to this Agreement evidencing the agreement of any such additional
Purchaser to be bound by this Agreement and the addition of such Purchaser's
name, address, facsimile number, number of Shares purchased and Purchase Price
therefor to the Schedule of Purchasers. Each additional Purchaser shall, as a
condition to the purchase of the Shares, become a party to the Shareholders
Agreement as a Preferred Shareholder thereunder. SI Venture Fund II, L.P. ("SI")
shall have the right to approve any additional Purchaser not included on the
Schedule of Purchasers as of the First Closing Date. The place of any Subsequent
Closing (including the place of delivery to the Purchaser(s) by the Company of
the certificates evidencing the Shares being purchased in such Subsequent
Closing and the place of payment to the Company by the participating
Purchaser(s) of the purchase price therefor) shall be at the offices of McGuire,
Woods, Battle & Xxxxxx LLP, 0000 Xxxxxx Xxxx., Xxxxx 0000, Xxxxxx Xxxxxx,
XxXxxx, Xxxxxxxx 00000-0000, or such other place as shall have been agreed to by
the Company and the Purchaser(s) participating in such Subsequent Closing. The
First Closing and any Subsequent Closing shall each be deemed a "Closing" and
the First Closing Date and any Subsequent Closing Date shall each be deemed a
"Closing Date" for purposes of this Agreement. The Company covenants and agrees
that it shall not issue or sell any shares of the Series A Preferred except
pursuant to the terms of this Section 2.1 or pursuant to the warrants issued in
connection with the Bridge Financing Transaction.
(C) CLOSING PAYMENT AND DELIVERY. At any Closing, the Purchaser(s)
participating in such Closing will pay to the Company, in cash or by check or
wire transfer, and, in the case of SI, by the additional surrender and
conversion of the Bridge Note, the amount set forth opposite such Purchaser's
name on the Schedule of Purchasers; and the Company will deliver to such
Purchaser a certificate or certificates registered in such Purchaser's name for
the number of Shares set forth opposite such Purchaser's name on the Schedule of
Purchasers.
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SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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Except as expressly set forth (with reference to a paragraph in this
Section 3) on Schedule 2 (the "Disclosure Schedules") hereto, the Company and
Subsidiary jointly and severally represent and warrant to the Purchasers as of
the Closing Date as follows:
3.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS.
(A) The Company and Subsidiary each is a corporation duly organized,
validly existing and in good standing under the laws of its state of
organization and are qualified, licensed or domesticated as a foreign
corporation in each jurisdiction wherein the nature of its activities or
properties owned or leased by each makes such qualification, licensing or
domestication necessary. The Disclosure Schedules set forth the jurisdictions in
which the Company and/or Subsidiary is qualified, licensed or domesticated as a
foreign corporation. The Company and Subsidiary each has all requisite power,
governmental licenses, authorization consents and approvals to own the
properties owned by it and to conduct the business as it is being conducted by
it and as contemplated by the business plan (the "Plan") prepared by the
Company, a true and correct copy of which has been given to the Purchasers and
special counsel for the Purchasers. The Disclosure Schedules set forth all
jurisdictions in which the Company or Subsidiary owns or leases property or
engages in any activity which under applicable law makes qualification or
license as a foreign corporation necessary.
(B) The Company has furnished special counsel for the Purchasers with
true, correct and complete copies of the Company's and Subsidiary's Certificate
of Incorporation and By-Laws, and all amendments thereto through and including
the Closing Date and copies of the minutes of all Board of Directors, Committees
of the Board of Directors and stockholders meetings of the Company and
Subsidiary. Prior to the Closing, the Company shall have properly filed and
recorded the Certificate with the Secretary of the State of Delaware. Neither
the Company nor Subsidiary is in breach of any of the provisions of its
Certificate of Incorporation or its By-Laws
3.2 CORPORATE POWER. The Company and Subsidiary each has all requisite
corporate power to enter into this Agreement and each of the Financing Documents
to which it is a party and will have on the Closing Date all requisite corporate
power to sell the Shares (with respect to the Company) and to carry out and
perform its obligations under the terms of this Agreement and each of the
Financing Documents to which it is a party.
3.3 SUBSIDIARIES. Except as set forth in the Disclosure Schedules,
neither the Company nor Subsidiary has any Other Subsidiaries and does not own
of record or beneficially any capital stock or equity interest or investment in
any corporation, partnership, association or business entity. The Company is the
sole owner of all securities of Subsidiary.
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3.4 CAPITALIZATION. The Disclosure Schedules contain a true and correct
list of all securities of the Company and Subsidiary (including the amounts
thereof) outstanding immediately prior to the Closing, and the holders of any
interest exceeding five percent (5%) of the amount of such issued securities and
the number of securities held by the Company's management and directors.
Immediately prior to the Closing, the Company's authorized capital stock will
consist of (a) Fifty Million (50,000,000) shares of Common Stock, par value
$0.01 per share ("Common Stock") of which 12,819,582 shares were issued and
outstanding as of December 23, 1999, and (b) 5,000,000 shares of preferred
stock, of which 40,000 shares shall be designated Series A Preferred Stock and
none of which shall be issued and outstanding prior to the Closing. Upon
consummation of the Closing, all issued and outstanding shares of capital stock
of the Company will have been duly authorized and validly issued, fully paid and
nonassessable, owned of record and beneficially by the shareholders, and,
subject in part to the truth and accuracy of the Purchasers' representations set
forth in this Agreement, will have been offered issued, sold and delivered by
the Company in compliance with applicable federal and state securities laws.
Except as set forth in the Disclosure Schedules and the Shareholders' and Rights
Agreement, there are no outstanding preemptive or other preferential rights,
conversion rights or other rights, options, warrants (excluding any warrants
issued pursuant to the Bridge Financing Transaction) or agreements granted or
issued by or binding upon the Company for the purchase or acquisition of any
shares of its capital stock. The Company holds no shares of its capital stock in
its treasury.
3.5 AUTHORIZATION.
(A) All action on the part of the Company, Subsidiary, their respective
directors and shareholders, necessary for the authorization, execution, delivery
and performance by the Company and Subsidiary, as applicable, of this Agreement
and each of the Financing Documents and for the consummation of the transactions
contemplated herein and therein, and for the authorization, issuance and
delivery of the Shares and of the Conversion Shares has been taken or will be
taken prior to the Closing.
This Agreement and each of the Financing Documents is a valid and
binding obligation of the Company and Subsidiary parties hereto and thereto,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general application affecting enforcement of creditors' rights generally. The
execution and delivery by the Company and Subsidiary, as applicable, of this
Agreement and each of the Financing Documents, and compliance herewith and
therewith, and the issuance and sale of the Shares and the Conversion Shares
will not, with or without notice or the passage of time or both, result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under any provision of, any state or federal
law to which the Company or Subsidiary is subject, the Certificate of
Incorporation or By-Laws of the Company or Subsidiary as amended, or any
mortgage, indenture, agreement, instrument, judgment, decree, order, rule or
regulation or other restriction to which the Company or Subsidiary is a party or
by which it or any of its property is bound, or may be affected, or result in
the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company or Subsidiary pursuant to any such term
or give any other person or entity the right to accelerate the time for
performance of any obligation of the Company or Subsidiary. Except as
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set forth in the Shareholders' and Rights Agreement, no shareholder has any
preemptive rights or rights of first refusal by reason of or in connection with
the issuance of the Shares. The Shares, when issued in compliance with the
provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances. The Conversion
Shares have been duly and validly reserved (and are in addition to any other
shares reserved for any other purpose) and are not subject to any preemptive
rights or rights of first refusal and, upon such issuance, will be validly
issued, fully paid and nonassessable.
(B) The execution, delivery and performance of this Agreement and each
of the Financing Documents, and the consummation of the transactions
contemplated hereby and thereby require no governmental or judicial approval to
be obtained by the Company or Subsidiary, except for post-sale filings with the
Securities and Exchange Commission (the "Commission") and, as required under
state law, state securities commissions, which filings will be carried out in a
timely fashion.
3.6 CONTRACTS; INSURANCE. The Disclosure Schedules set forth a true and
correct list of all material contracts, obligations, commitments, agreements,
plans and the like, whether written or oral, and all administrative, judicial
and similar orders to which the Company and/or Subsidiary is a party or by which
it or any of its properties is bound, including, without limitation, the
following:
(A) Any employment, bonus or consulting agreement, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plan, or agreement evidencing rights to
purchase securities, phantom stock or similar plan of the Company or Subsidiary
or any agreement among shareholders of the Company or Subsidiary;
(B) Other than the documents related to the Bridge Financing
Transaction, any loan or other agreement, note, indenture or instrument relating
to, or evidencing, indebtedness for borrowed money, or mortgaging, pledging or
granting or creating a lien or security interest or other encumbrance on any
property of the Company or Subsidiary or any agreement or instrument evidencing
any guaranty by the Company or Subsidiary of payment or performance by any other
party;
(C) Any material agreement with any dealer, sales representative,
broker or other distributor, jobber, advertiser or sales agency;
(D) Any agreement with any labor union or collective bargaining
organization or any other labor agreement;
(E) Any contract for the furnishing, purchase or lease of machinery,
equipment, goods or services (including, without limitation, any agreement with
processors and subcontractors) in an amount in excess of $10,000 per year;
(F) Other than the documents related to the Bridge Financing
Transaction, any indenture, agreement or other document (including private
placement brochures) relating to the future sale or repurchase of securities;
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(G) Other than the documents related to the Bridge Financing
Transaction, any agreement to register under the Securities Act of 1933, as
amended (the "Securities Act"), any of the securities of the Company;
(H) Any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses;
(I) Any agreement (other than distributorship agreements or similar
agreements providing for the distribution of the Company's or Subsidiary's
products with dealers, distributors and sales representatives of the Company or
Subsidiary) limiting the freedom of the Company or Subsidiary to compete in any
line of business or in any geographic area or with any party; and
(J) Any agreement providing for disposition of any line of business,
assets or securities of the Company or Subsidiary, or any agreement with respect
to the acquisition of any line of business, assets or shares of any other
business, any agreement of merger or consolidation or letter of intent with
respect to the foregoing.
A copy of each contract and commitment listed on the Disclosure
Schedules has been delivered to special counsel for the Purchasers. The Company
and Subsidiary each has complied with all material provisions of each such
contract and commitment. No event has occurred and no condition exists which,
with notice or the passage of time or both, would constitute a material default
under any such contract or commitment. To the Company's and Subsidiary's
knowledge, no party to such contract or commitment has threatened to terminate
its obligations thereunder.
3.7 SEC DOCUMENTS. The Company has filed all required reports,
schedules, forms, statements and other documents with the Commission (any of the
foregoing are referred to herein as the "SEC Documents"). As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act, or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be, and the rules and regulations of the
Commission promulgated thereunder applicable to such SEC Documents, and to the
Company's and Subsidiary's knowledge, none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except to
the extent that information contained in any SEC Document has been revised or
superseded by a later-filed SEC Document, to the Company's and Subsidiary's
knowledge, none of the SEC Documents currently contains any untrue statement of
a material fact at the time that it was made or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein as of the date thereof, in light of the circumstances under which they
were made, not misleading. The financial statements of the Company and
Subsidiary included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-QSB of the Commission) applied on
a
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consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company, Subsidiary and their consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). All of the SEC Documents have been provided to the
Purchasers. As used in this Agreement, "Balance Sheet" shall mean the unaudited,
consolidated balance sheet of the Company and Subsidiary as of November 30,
1999, provided to the Purchasers and "Financial Statements" shall mean the
unaudited, consolidated financial statements of the Company and Subsidiary as of
and for the eleven (11) months ended November 30, 1999 as provided to the
Purchasers.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Company nor
Subsidiary knows of, any liabilities (fixed or contingent, including without
limitation any tax liabilities due or to become due), which, either individually
or in the aggregate, are material and not disclosed on the Balance Sheet.
3.9 ABSENCE OF CERTAIN CHANGES. Except as set forth on the Disclosure
Schedules and except for the Bridge Financing Transaction, since the date of the
Balance Sheet, there has not been:
(A) Any change in the condition, assets, liabilities, prospects or
business of the Company or Subsidiary from that shown on the Balance Sheet
which, either individually or in the aggregate, has been or is reasonably likely
to be materially adverse;
(B) Any damage to, or destruction or loss of, any of the properties or
assets of the Company or Subsidiary (whether or not covered by insurance)
materially adversely affecting the business or plans of the Company or
Subsidiary or the Technology;
(C) Any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock (or any warrant,
option or other right with respect to such stock) by the Company or Subsidiary
or any repayment of Company or Subsidiary debt held by any Related Party or by
an Affiliate;
(D) Any organizational activity, collective bargaining activity, labor
dispute or labor trouble;
(E) Any event or condition of any character, which, either individually
or in the aggregate, materially adversely affects the business, operations or
plans of the Company or Subsidiary;
(F) Any action taken or entered into by the Company or Subsidiary
involving any transaction other than in the usual and ordinary course of
business, except this Agreement and the Bridge Financing Transaction;
(G) Any wage or salary increase made or granted, or entered into by the
Company or Subsidiary involving any employment agreement with an officer or key
employee other than any agreement set forth in the Disclosure Schedules;
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(H) Any disclosure to any person of any material trade secrets, except
for disclosures made to persons subject to valid and enforceable confidentiality
agreements; or
(I) Any material disposition of assets outside the ordinary course of
business.
3.10 TAXES. The Company and Subsidiary has each filed or will file
within the time prescribed by law (including extensions of time approved by any
appropriate taxing authority) all tax returns and reports required to be filed
with the United States Internal Revenue Service and with the States of Delaware,
Massachusetts and New York, and (except to the extent that the failure to file
would not have a material adverse effect on the condition or operations of the
Company or Subsidiary) with all other jurisdictions where such filing is
required by law; and the Company and Subsidiary has paid, or made adequate
provision in the Balance Sheet for the payment of, all taxes, interest,
penalties, assessments or deficiencies due in connection therewith. Neither the
Company nor Subsidiary has ever had any tax deficiency proposed or assessed
against it and neither the Company nor Subsidiary has executed any waiver of any
statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's or Subsidiary's federal income tax
returns nor any state income, sales or franchise tax returns has ever been
audited by governmental authorities. No tax audit, action, suit, proceeding,
investigation or claim is now pending nor, to the best of the Company's and
Subsidiary's knowledge after reasonable inquiry, threatened against the Company
or Subsidiary, and no issue or question has been raised (and is currently
pending) by any taxing authority in connection with any of the Company's or
Subsidiary's tax returns or reports.
The Company and Subsidiary each has withheld or collected from each
payment made to each of their employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
3.11 TRANSACTIONS WITH AFFILIATES. Except as set forth on the
Disclosure Schedule, there is no loan, lease or other continuing transaction
between the Company or Subsidiary and any Related Party and/or Affiliate.
3.12 LITIGATION. Except as set forth on the Disclosure Schedule, there
is neither pending nor threatened any action, suit, proceeding or claim, whether
or not purportedly on behalf of the Company or Subsidiary, to which the Company,
Subsidiary or any employee of the Company or Subsidiary is or may be named as a
party or to which the Company's, Subsidiary's or any such person's property is
or may be subject. Except as set forth on the Disclosure Schedule, to the
Company's and Subsidiary's knowledge and belief, there is no basis for any such
action, suit, proceeding or claim, in which an unfavorable outcome, ruling or
finding in any such matter or for all such matters, taken as a whole, might have
a material adverse effect on the condition, financial or otherwise, operations
or prospects of the Company or Subsidiary or on the Technology. Except as set
forth on the Disclosure Schedule, the Company and Subsidiary have no knowledge
of any unasserted claim, the assertion of which is likely
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and which, if asserted, will seek damages, an injunction or other legal,
equitable, monetary or nonmonetary relief which if granted would have a material
adverse effect on the condition, financial or otherwise, operations or prospects
of the Company or Subsidiary.
3.13 CONSENTS. No consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority on the part
of the Company or Subsidiary, including qualification under applicable state
securities laws of the offer and sale of the Shares and of the issuance of the
Conversion Shares, is required in connection with the valid execution and
delivery of this Agreement, the offer, sale or issuance of the Shares, the
conversion of the Shares into Common Stock or the issuance of the Conversion
Shares, or the consummation of any other transaction contemplated on the Closing
Date by this Agreement or any of the Financing Documents, except the filing of
the Certificate with the Secretary of the State of Delaware, which filing has
been made and is effective as of the date hereof.
3.14 TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Except as set forth
on the Disclosure Schedule, the Company and Subsidiary each has good and
marketable title to all its properties and assets, free from all mortgages,
pledges, liens, security interests, conditional sale agreements, encumbrances or
charges.
3.15 LEASES. Set forth on the Disclosure Schedules is a correct and
complete list of all leases (including, with respect to each lease, the material
provisions of such lease, including the term, the amount of rent called for and
a description of the leased property) under which the Company or Subsidiary is a
lessee, other than personal property requiring rental payments of less than
$10,000 per year. The Company and Subsidiary each enjoys peaceful and
undisturbed possession under all such leases, all of such leases are valid and
subsisting and none of them is in default in any respect, and to the knowledge
of the Company and Subsidiary, no event has occurred and no condition exists
which, with notice or the passage of time or both, would constitute such a
default.
3.16 FRANCHISES, LICENSES, TRADEMARKS, PATENTS AND OTHER RIGHTS.
(A) All (i) franchises, permits, licenses and other similar authority,
(ii) patents, patent applications, patent rights, service marks, trademarks,
trademark applications, trademark rights, trade names, trade name rights and
copyrights (whether registered or not), and (iii) know-how, technology and trade
secrets, which, in any case, are owned, possessed or used by any employee of the
Company or Subsidiary, or which any employee has the right to own, possess or
use, and which in any way are or may be usable now or in the future for the
conduct of the Company's and Subsidiary's business as now conducted or as
planned to be conducted, have been duly and validly transferred in full to the
Company or Subsidiary. The documents and instruments evidencing such transfer
are listed in the Disclosure Schedules, and a copy thereof has been delivered to
special counsel for the Purchasers.
(B) The Company and Subsidiary each has all franchises, permits,
licenses and other similar authority, necessary for the conduct of its business
as now being conducted by it and believes it can obtain any similar authority
necessary for the conduct of its business as planned to be conducted, and it
-9-
is not in violation, nor will the transactions contemplated by this Agreement
cause a violation of the terms or provisions of any such franchise, permit,
license or other similar authority.
(C) The Disclosure Schedules list all patents, patent applications,
patent rights, trademarks, trademark applications, trademark rights, trade
names, trade name rights, service marks and copyrights (whether registered or
not) owned or possessed by the Company and Subsidiary (collectively, the "Listed
Rights"). The Listed Rights comprise all the patents, patent applications,
patent rights, trademarks, trademark applications, trademark rights, trade
names, trade name rights, service marks and copyrights (whether registered or
not) necessary to the conduct of the Company's and Subsidiary's business as now
being conducted, and the Company and Subsidiary believe that the Company and
Subsidiary can obtain any such rights necessary for the conduct of their
business as planned to be conducted. The Company and Subsidiary each has and
possesses the know-how, technology and trade secrets not included in the Listed
Rights (such know-how, technology and trade secrets being collectively called
the "Intellectual Property") which they believe to be necessary (i) to conduct
the Company's and Subsidiary's business as now being conducted and (ii) with
additional know-how, technology and trade secrets which the Company and
Subsidiary plan to develop or acquire, for the conduct of their business as
planned to be conducted. (The Listed Rights and the Intellectual Property
collectively constitute the "Technology".) Except as set forth on the Disclosure
Schedule, there is neither pending, nor, to the best of the Company's and
Subsidiary's knowledge and belief, threatened, any claim or litigation against
the Company or Subsidiary contesting the validity or right to use any of the
Listed Rights or any of the Intellectual Property, nor is the Company or
Subsidiary aware of any basis therefor, and neither the Company nor Subsidiary
has received any notice of infringement upon or conflict with any asserted right
of others. To the Company's and Subsidiary's knowledge and belief, no person,
corporation or other entity is infringing or violating the Listed Rights or any
of the Intellectual Property. Except as described in the Disclosure Schedules,
neither the Company nor Subsidiary is under any obligation to compensate others
for the use of any Listed Right or any Intellectual Property, nor has the
Company or Subsidiary granted any license or other right to use, in any manner,
any of the Listed Rights or Intellectual Property, whether or not requiring the
payment of royalties.
(D) Except as set forth on the Disclosure Schedule, to the Company's
and Subsidiary's knowledge, all computer software owned, licensed or used by the
Company or Subsidiary: (i) includes Year 2000 date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, correct date sort ordering (if date sorting is an included function),
and date data interface values that reflect the century; (ii) will not cause an
abnormal abend or abort within the application on account of date data properly
entered into the application or result in the generation of incorrect values or
invalid outputs involving such date; (iii) provides that all date related user
interface functionalities and data fields include the indication of the correct
century, and (iv) include four digit year format and recognize and correctly
process dates for leap years.
3.17 ISSUANCE TAXES. All taxes imposed by any state in connection with
the issuance, sale and delivery of the Shares shall have been fully paid, and
all laws imposing such taxes shall have been fully complied with, prior to the
Closing Date.
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3.18 OFFERING. Except as set forth on the Disclosure Schedule and in
the Company's SEC Documents, within the past six (6) months, the Company has
not, either directly or through any agent, offered any of the Shares or any
preferred security or securities similar to the Shares for sale to, or solicited
any offers to buy the Shares or any part thereof or any such similar preferred
security or securities from, or otherwise approached or negotiated in respect
thereof with, any party or parties other than the Purchasers or institutional or
other sophisticated investors, each of which was offered all or a portion of the
Shares at private sale for investment.
Subject in part to the truth and accuracy of the Purchasers'
representations set forth in this Agreement, the offer, sale and issuance of the
Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act, and all state securities laws, and neither
the Company nor anyone acting on its behalf will take any action hereafter that
would cause the loss of such exemption.
3.19 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor
Subsidiary is in violation of any term of its Certificate of Incorporation or
By-Laws. Neither the Company, Subsidiary, nor any of their property is in
violation of any term of any mortgage, indenture, contract, agreement,
instrument, judgment, decree, order, statute, rule or regulation to which the
Company, Subsidiary or any of such property is subject, a violation of which
would materially adversely affect the Company's or Subsidiary's condition,
financial or otherwise, or operations.
3.20 EMPLOYEES.
(A) To the Company's and Subsidiary's knowledge, no employee of the
Company or Subsidiary and no Related Party is, or is now expected to be, in
violation of any term of any employment contract, patent disclosure agreement,
non-competition agreement, or any other contract or agreement with any prior
employer or any other person, corporation, or other entity or any restrictive
covenant in such an agreement, or any obligation imposed by common law or
otherwise, relating to the right of any such employee or Related Party to be
employed by the Company, Subsidiary or companies similarly situated because of
the nature of the business conducted or to be conducted by the Company, or
Subsidiary or companies similarly situated or relating to the use of trade
secrets or proprietary information of others, and the continued employment of
the Company's or Subsidiary's employees and/or Related Parties does not subject
the Company, Subsidiary or any Purchaser to any liability for any such
violation.
(B) Each of the Company's and Subsidiary's other present or former
employees who has had access to proprietary information of the Company or
Subsidiary has executed a Xxxxxxxx.xxx Non-Disclosure And Solicitation,
Confidentiality and Assignment of Intellectual Property Agreement ("Proprietary
Information Agreement") to the effect and in substantially the form provided to
the Purchasers and special counsel for the Purchasers, a copy of which is set
forth in Exhibit B hereto. The Disclosure Schedules set forth a complete list of
the name and position of each person who has executed a Proprietary Information
Agreement. To the Company's and Subsidiary's knowledge and belief, no employee
or former employee of the Company or Subsidiary is, or to the Company's and
Subsidiary's
-11-
knowledge and belief now is expected to be, in violation of the terms of the
aforesaid agreement or of any other obligation relating to the use of
confidential or proprietary information of the Company or Subsidiary. Each of
such Proprietary Information Agreements remains in full force and effect.
(C) The Disclosure Schedules set forth the current compensation of each
officer or director of the Company and Subsidiary, and of each employee being
paid (or to whom the Company or Subsidiary has agreed to pay) annual salary at a
rate of $120,000 per year or more.
(D) To the knowledge of the Company and Subsidiary, except as set forth
on the Disclosure Schedule, no officer or key employee of the Company or
Subsidiary has any present intent of terminating such officer's or key
employee's employment with the Company or Subsidiary.
(E) The Company and Subsidiary each complies in all material respects
with all laws regarding employment, wages, hours, equal opportunity, collective
bargaining and payment of Social Security and other taxes. The Company and
Subsidiary each is in compliance in all material respects with all applicable
foreign, federal, state and local laws and regulations regarding occupational
safety and health standards and has received no complaints from any foreign,
federal, state or local agency or regulatory body alleging violations of any
such laws and regulations.
(F) Except as set forth on the Disclosure Schedules hereto, the
employment of all persons and officers employed by the Company and Subsidiary is
terminable at will without any penalty or severance obligation of any kind on
the part of the employer. All sums due for employee compensation and benefits
and all vacation time owing to any employees of the Company and Subsidiary have
been duly and adequately accrued on the accounting records of the Company. All
employees of the Company and Subsidiary are either United States citizens or
resident aliens specifically authorized to engage in employment in the United
States in accordance with all applicable laws.
(G) Neither the Company nor Subsidiary has experienced, nor does it
know or have reasonable grounds to know of any basis for, any strike, labor
troubles or strife, work stoppages, slow downs, or other interference with or
impairment of its business. Neither the Company nor Subsidiary has experienced,
nor does it know or have reasonable grounds to know of, any union or collective
bargaining organization efforts or negotiations, or requests for negotiations,
for any representation or any labor contract relating to any employees of the
Company or Subsidiary.
3.21 BUSINESS OF THE COMPANY. Except as set forth on the Disclosure
Schedule, the Company and Subsidiary have no knowledge or belief that (i) there
is pending or threatened any claim or litigation against or affecting the
Company or Subsidiary contesting its right to manufacture, sell or use any
product or service presently manufactured, sold or used or planned to be
manufactured, sold or used by the Company or Subsidiary, or (ii) there exists,
or there is pending or planned, any statute, rule, law, regulation, standard or
code which would materially adversely affect the condition, financial or
otherwise, the operations or the prospects of the Company or Subsidiary. The
Company and Subsidiary currently intend to engage in the business of the general
type described in the Plan (the "Business").
-12-
3.22 USE OF PROCEEDS. The Company and Subsidiary will use the proceeds
of the offering for working capital purposes. The Company and Subsidiary will
not use the proceeds of the offering for other business purposes. None of the
transactions contemplated in this Agreement (including, without limitation, the
use of the proceeds from the sale of the Shares) will violate or result in a
violation of Section 7 of the Exchange Act, or any regulations issued pursuant
thereto, including, without limitation, Regulations G, T and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter 11. Neither the
Company nor Subsidiary owns or intends to carry or purchase any "margin
security" within the meaning of said Regulation G, including margin securities
originally issued by it. None of the proceeds from the sale of the Shares will
be used to purchase or carry (or refinance any borrowing the proceeds of which
were used to purchase or carry) any "security" within the meaning of the
Securities Act.
3.23 APPLICABILITY OF, AND COMPLIANCE WITH, OTHER LAWS.
(A) Neither the Company nor Subsidiary has or makes contributions to
any pension plans, defined benefit plans or defined contribution plans for its
employees which are subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), except as set forth on the Disclosure Schedules.
With respect to such plans, if any, listed on the Disclosure Schedules, the
Company and Subsidiary is in compliance with the applicable provisions of ERISA.
Neither the Company nor Subsidiary has incurred any unremedied accumulated
funding deficiency within the meaning of ERISA or any unsatisfied liability to
the Pension Benefit Guaranty Corporation established under ERISA in connection
with any employee pension plan established or maintained by the Company or such
Subsidiary under the jurisdiction of ERISA. No Reportable Event or Prohibited
Transaction (as defined in Section 4043 of ERISA) has occurred with respect to
any plan administered by the Company or Subsidiary.
(B) The Company's and Subsidiary's employment practices and policies
comply in all material respects with (i) all applicable laws of the United
States and each applicable jurisdiction relating to equal employment
opportunity, and any rules, regulations, administrative orders and Executive
Orders relating thereto; and (ii) the applicable terms, relating to equal
opportunity, of any contract, agreement or grant the Company and Subsidiary has
with, from or relating (by way of subcontract or otherwise) to any other
contract, agreement or grant of, any federal or state governmental unit. Neither
the Company nor Subsidiary has been the subject of any charge of unfair labor
practices, employment discrimination made against it by the National Labor
Relations Board, the United States Equal Employment Opportunity Commission or
any other governmental unit, or is presently subject to any formal or informal
proceedings before, or investigations by, such Commission or governmental unit.
To the Company's and Subsidiary's knowledge, neither the Company, nor
Subsidiary, nor any employees of the Company or of Subsidiary, nor any Related
Parties are presently under investigation by any commission or governmental
agency for purposes of security clearance or otherwise.
(C) Neither the Company nor Subsidiary or any property owned or
occupied by the Company or Subsidiary is in material violation of any Federal or
State Environmental Law of any sort or in
-13-
violation of any Federal or State "OSHA" law, so-called. The Disclosure
Schedules contain a list of all environmental permits held by the Company and
Subsidiary. Without limiting the foregoing:
(i) ENVIRONMENTAL PERMITS. The Company and Subsidiary each has
obtained all environmental, health and safety permits and governmental
authorizations (collectively, the "Environmental Permits") necessary
for the construction of their facilities or the conduct of their
operations, and all such Environmental Permits are in good standing and
the Company and Subsidiary each is in compliance with all terms and
conditions of the Environmental Permits. No notice to, approval of or
authorization or consent from any governmental or regulatory authority
is necessary for the transfer of or modification to any Environmental
Permit and the consummation of the transactions contemplated by this
Agreement will not violate, alter, impair or invalidate, in any
respect, any Environmental Permit.
(ii) ENVIRONMENTAL CLAIMS. There is no Environmental Claim
pending, threatened or likely to be threatened (a) against the Company
or Subsidiary, (b) to the Company's and Subsidiary's knowledge, against
any person or entity whose liability for any Environmental Claim the
Company or Subsidiary has or may have retained or assumed either
contractually or by operation of law, or (c) against any real or
personal property or operations which are now or have been previously
owned, leased, operated or managed, in whole or in part, by the Company
or Subsidiary; provided however that to the extent the Environmental
Claim is based on the liability of another person or entity that the
Company or Subsidiary has or may have retained or assumed either
contractually or by operation of law such representation and warranty
under this clause (c) is limited to the knowledge of the Company and
Subsidiary.
(iii) RELEASES. There have been no Releases of any Hazardous
Materials that would be likely to form the basis of any Environmental
Claim against the Company, Subsidiary or, to the Company's and
Subsidiary's knowledge, against any person or entity whose liability
for any Environmental Claim the Company or Subsidiary has or may have
retained or assumed either contractually or by operation of law.
(iv) ENVIRONMENTAL ASSESSMENTS. There are no environmental
reports, audits, investigations or assessments of the Company,
Subsidiary, or any real or personal property or operations which are
now or have been previously owned, leased, operated or managed, in
whole or in part, by the Company or Subsidiary.
(v) ENVIRONMENTAL DISCLOSURE. To the knowledge of the Company
and Subsidiary upon diligent review, the Company and Subsidiary have
disclosed to the Purchasers all relevant facts with respect to
potential or actual environmental liabilities of the Company and
Subsidiary.
(D) Neither the Company nor Subsidiary has violated any law or any
governmental law, rule, order or regulation or requirement which violation
through the date hereof has had or would reasonably be expected to have a
material adverse effect upon the financial condition, operating results, assets,
-14-
operations or business prospects of the Company and Subsidiary and neither the
Company nor Subsidiary has received notice of any such violation.
3.24 INDEBTEDNESS. Other than the Bridge Financing Transaction, the
Disclosure Schedules contain a true and complete list, including the names of
the parties thereto and summary description of the terms thereof, of all debt
instruments, loan agreements, indentures, guaranties or other obligations,
whether written or oral, other than (a) obligations which may be terminated
without payment or penalty by the Company or Subsidiary upon not more than
thirty (30) days notice, (b) obligations which are otherwise disclosed in this
Agreement and (b) obligations for less than $10,000. Except for the Bridge
Financing Transaction, all of the aforesaid items were entered into in the
ordinary course of business, are valid and binding, in full force and effect and
are enforceable in accordance with their respective terms and there exists no
breach or default, or any event which with notice or lapse of time or both,
would constitute a breach or default by any party thereto. All of the Company's
and Subsidiary's Indebtedness which is required to be disclosed under generally
accepted accounting principles is disclosed on the Balance Sheet.
3.25 CONDITION OF PROPERTIES. All facilities, machinery, equipment,
fixtures, vehicles and other properties owned, leased or used by the Company and
Subsidiary are in good operating condition and repair, are reasonably fit and
usable for the purposes for which they are being used, are adequate and
sufficient for the Company's and Subsidiary's businesses and conform in all
material respects with all applicable ordinances, regulations and laws.
3.26 INSURANCE COVERAGE. Neither the Company nor Subsidiary has been
refused any insurance coverage sought or applied for, and the Company and
Subsidiary have no reason to believe that they will be unable to obtain one or
more policies of insurance issued by insurers of recognized responsibility,
insuring the Company, Subsidiary and their properties and business against such
losses and risks, and in such amounts, as are customary in the case of
corporations of established reputation engaged in the same or similar business
and similarly situated. The Disclosure Schedules set forth each insurance policy
(specifying the insurer, the amount of coverage, the type of insurance, the
policy number, and the expiration date), maintained by the Company and
Subsidiary relating to their properties, assets, business or personnel. Neither
the Company nor Subsidiary is in material default with respect to any provision
contained in any insurance policy, and neither the Company nor Subsidiary has
failed to give any notice or present any presently existing claims under any
insurance policy in due and timely fashion.
3.27 REGISTRATION RIGHTS. Other than under the Financing Documents or
the documents related to the Bridge Financing Transaction or as listed in the
Disclosure Schedules, neither the Company nor Subsidiary has agreed to register
under the Securities Act any of its authorized or outstanding securities.
3.28 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS. To the
Company's and Subsidiary's knowledge, neither the Company, Subsidiary nor any of
their officers, directors, employees, agents or other representatives of the
Company, Subsidiary or any other business entity or enterprise
-15-
with which the Company or Subsidiary is or has been affiliated or associated,
has, directly or indirectly, made or authorized any payment, contribution or
gift of money, property, or services, whether or not in contravention of
applicable law, (a) as a kickback or bribe to any person or (b) to any political
organization, or the holder of or any aspirant to any elective or appointive
public office except for personal political contributions not involving the
direct or indirect use of funds of the Company or Subsidiary.
3.29 DISCLOSURE. Neither this Agreement, the Disclosure Schedules nor
other written statement furnished to the Purchasers or their counsel in
connection with the offer and sale of the Shares, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained therein or herein not misleading in the light of the
circumstances under which they were made. The forecasts, projections, estimates
and other forward-looking matters furnished to the Purchasers were prepared on
the basis of the Company's and Subsidiary's best estimates. The Company and
Subsidiary do not have any reason to believe that any assumptions or statements
of opinion contained in such forecasts, projections, estimates or other
forward-looking matters are unreasonable or false.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Each of the Purchasers represents and warrants to the Company, as to
itself only, as follows:
4.1 ORGANIZATION; GOOD STANDING; POWER AND AUTHORITY; BINDING
OBLIGATION. It has full power and authority to enter into this Agreement, and is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and all action on its part necessary for the
authorization, execution and delivery of this Agreement and the Financing
Documents, the performance of all of its obligations hereunder, including,
without limitation, the payment of the purchase price for the Shares
contemplated by this Agreement, has been taken, and it has all the requisite
power and authority to enter into this Agreement and each of the Financing
Documents to which it is a party. This Agreement and each of the Financing
Documents to which it is a party has been duly executed and delivered by
Purchaser and constitutes its valid and legally binding obligation enforceable
against it in accordance with its terms, subject to the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally, subject, as to enforceability, to the effect of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and subject to the effect of
applicable securities laws as to rights of indemnification.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT, ETC. It is acquiring the Shares
solely for investment for its own account, not as a nominee or agent and not
with the view to, or for resale in connection with, any distribution thereof. It
has no present intention of selling, granting any participation in, or otherwise
distributing the Shares or the Conversion Shares. It does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations
-16-
to any person with respect to the Shares or the Conversion Shares. It
understands that the Shares and the Conversion Shares have not been registered
under the Securities Act by reason of an exemption from the registration
provisions of the Securities Act, and that the Company's and Subsidiary's
reliance on such exemption is predicated in part upon its representations and
warranties set forth in this Section 4.
4.3. DISCLOSURE. It has received or reviewed all the information which
it has requested for the purposes of determining the merits of the purchase of
the Shares and the execution of this Agreement and the Financing Documents. It
also has received and reviewed a copy of the Company's consolidated, unaudited
financial statements for the period ended November 30, 1999, (the "Unaudited
Financials"). It has had an opportunity to ask questions and receive answers
from the Company and Subsidiary regarding such entities, their business,
operations and financial condition and the terms and conditions of the purchase
of the Shares, this Agreement and each of the Financing Documents to which it is
a party, and answers have been provided to its full satisfaction. It has fully
reviewed all corporate and governance documents of the Company and Subsidiary
provided to it, understands all relevant terms and has asked all questions and
received answers thereto to its full satisfaction. If deemed necessary by it, it
has consulted with a professional advisor who has provided it with advice
concerning these terms. IT ACKNOWLEDGES AND AGREES THAT THE PURCHASE OF THE
SHARES INVOLVES A HIGH DEGREE OF RISK, AND MAY RESULT IN A LOSS OF THE ENTIRE
AMOUNT INVESTED. IT FURTHER ACKNOWLEDGES AND AGREES THAT THERE IS NO PUBLIC
MARKET FOR THE SHARES. THERE IS NO ASSURANCE THAT THE COMPANY'S OR SUBSIDIARY'S
OPERATIONS WILL RESULT IN REVENUES OR BE PROFITABLE OR THAT A PUBLIC MARKET FOR
THE SHARES WILL DEVELOP AT ANY TIME.
4.4 ACCREDITED INVESTOR. It is an accredited investor as defined in
Rule 501(a) of Regulation D under the Securities Act. The information provided
by it on the Statement of Accredited Investor, attached hereto as EXHIBIT E, is
true and correct in all respects. It is capable of bearing the economic risk of
an investment in the purchase of the Shares, including the possible loss of its
entire investment. It has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of an investment
in the Shares and Conversion Shares offered hereby. It has not been organized
solely for the purpose of acquiring the Shares or Conversion Shares. It has not
construed the contents of this Agreement, any Financing Document or any
additional agreement with respect to the proposed purchase of the Shares or any
prior or subsequent communications from the Company or Subsidiary, or any of
their officers, employees or representatives, as investment, tax or legal advice
or as information necessarily applicable to its particular financial situation.
It has consulted its own financial advisor, tax advisor, legal counsel and
accountant, as necessary or desirable, as to matters concerning the purchase of
the Shares and Conversion Shares.
4.5 RESTRICTED SECURITIES. It understands that the Shares and the
Conversion Shares are "restricted securities" as defined in the Securities Act,
and that under federal and state securities laws the Shares and the Conversion
Shares may be resold without registration under the Securities Act only in
certain limited circumstances. It is familiar with Rule 144 promulgated by the
Commission under the Securities Act, and understands the resale limitations
imposed thereby and by the Securities Act generally. It also acknowledges that
the Shares and the Conversion Shares are subject to significant
-17-
restrictions on transfer, pledge or hypothecation. It agrees that in no event
will it make a transfer or disposition of the Shares or the Conversion Shares
other than in compliance with all applicable securities laws.
4.6 Legends. It is understood that certificates or other evidence of
the Shares and the Conversion Shares may bear the following legend, as well as
any legend required by the laws of any state:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED PURSUANT TO A VALID EXEMPTION
THEREFROM UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS."
SECTION 5
---------
CONDITIONS TO CLOSING OF PURCHASER
----------------------------------
The obligation of the Purchasers to purchase the Shares to be purchased
by them at the Closing is subject to the fulfillment to their satisfaction on or
prior to the Closing Date of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company and Subsidiary in Section 3 hereof, as qualified
by the Disclosure Schedules, shall be true and correct in all respects when
made, and shall be true and correct in all respects on the Closing Date.
5.2 PERFORMANCE. All covenants, agreements and conditions contained in
this Agreement (including those in Section 2.1) to be performed or complied with
by the Company and/or Subsidiary on or prior to the Closing Date shall have been
so performed or complied with in all material respects.
5.3 COMPLIANCE CERTIFICATE. The Company and Subsidiary shall have
executed and delivered to the Purchasers a certificate of the President or
Executive Vice President of the Company and Subsidiary, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1 and
5.2 of this Agreement and such other matters as the Purchasers may reasonably
request.
5.4 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received an
opinion of counsel from McGuire, Woods, Battle & Xxxxxx LLP, counsel to the
Company and Subsidiary, addressed to them, dated the Closing Date, to the effect
and in substantially the form set forth in Exhibit C.
-18-
5.5 GOOD STANDING CERTIFICATES. The Company shall have delivered to the
Purchasers a certificate of recent date from the Secretary of State of the State
of the Company's and Subsidiary's state of incorporation with respect to the
Company's and Subsidiary's due incorporation, good standing, legal corporate
existence, due authorization to conduct business and the payment of all
franchise taxes, and, certificates from the Secretary of State in each
jurisdiction in which the Company or Subsidiary is required to be qualified to
do business with respect to the Company's or Subsidiary's good standing and due
authorization to conduct business therein and payment of all qualification fees.
5.6 LEGAL INVESTMENT. At the time of the Closing, the purchase of the
Shares to be purchased by the Purchasers hereunder shall be legally permitted by
all laws and regulations to which it and the Company and Subsidiary are subject.
5.7 QUALIFICATIONS. All authorizations, approvals, or permits of any
governmental authority or regulatory body that are required in connection with
the lawful issuance and sale of the Shares pursuant to this Agreement, the
conversion of the Shares into Common Stock and the issuance of such Common Stock
upon such conversion shall have been duly obtained and shall be effective on and
as of the Closing Date, including, if necessary, permits from applicable state
securities authorities, qualifying the offer and sale of the Shares and the
Conversion Shares.
5.8 AMENDMENT OF CERTIFICATE AND FILING OF CERTIFICATE. The Certificate
of Incorporation of the Company shall have been duly amended by the filing of
the Certificate with the Secretary of the State of Delaware.
5.9 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to the Purchasers and special counsel for the Purchasers.
5.10 PROVISIONS OF BY-LAWS. The By-Laws of the Company shall provide
that (a) a majority of the Directors constituting the Board shall constitute a
quorum for the transaction of any business at a meeting of the Board, and (b)
the holders of Shares which represent 15% or more of outstanding voting shares
of the Company can call special meetings of stockholders.
5.11 SHAREHOLDERS' AND RIGHTS AGREEMENT. The Company and the Purchasers
shall have executed and delivered a Shareholders' and Rights Agreement (the
"Shareholders' and Rights Agreement") to the effect and in substantially the
form set forth in Exhibit D hereto.
5.12 MINIMUM PURCHASE. As to the First Closing, this Agreement shall
have been entered into by Purchasers which in the aggregate are purchasing
Shares with an aggregate purchase price of at least $3,200,000.
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SECTION 6
CONDITIONS TO CLOSING OF COMPANY
--------------------------------
The Company's obligation to sell the Shares to be purchased at the
Closing is subject to the fulfillment to its satisfaction on or prior to the
Closing Date of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Purchasers pursuant to Section 4 hereof shall be true and
correct when made and shall be true and correct in all respects on the Closing
Date and with respect thereto, after giving effect to the purchase of the Shares
at the Closing.
6.2 PERFORMANCE. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Purchasers on or prior to
the Closing Date shall have been so performed or complied with in all material
respects.
6.3 LEGAL INVESTMENT. At the time of the Closing, the conditions set
forth in Sections 5.6 and 5.7 shall have occurred and the purchase of the Shares
to be purchased by the Purchasers hereunder shall be legally permitted by all
laws and regulations to which the Purchasers and the Company are subject.
6.4 QUALIFICATIONS. All authorizations, approvals, or permits of any
governmental authority or regulatory body that are required in connection with
the lawful issuance and sale of the Shares pursuant to this Agreement, the
conversion of the Shares into Common Stock and the issuance of such Common Stock
upon such conversion shall have been duly obtained and shall be effective on and
as of the Closing Date, including, if necessary, permits from applicable state
securities authorities, qualifying the offer and sale of the Shares and the
Conversion Shares.
6.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to the Company and the Subsidiary and their special counsel.
6.6 SHAREHOLDERS' AND RIGHTS AGREEMENT. The Company and the Purchasers
shall have executed and delivered the Shareholders' and Rights Agreement to the
effect and in substantially the form set forth in Exhibit D hereto.
6.7 DELIVERY OF BRIDGE FINANCING TRANSACTION DOCUMENTS. SI Venture
Associates, L.L.C. shall have delivered to the Company the Bridge Note and the
Common Stock Purchase Default Warrant entered into in connection with the Bridge
Financing Transaction so that such documents may be marked cancelled or
satisfied and paid in full, as the case may be.
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6.8 STATEMENT OF ACCREDITED INVESTOR. The Purchasers shall have
executed and delivered to the Company and the Subsidiary a Statement of
Accredited Investor to the effect and in substantially the form set forth in
Exhibit E hereto.
SECTION 7
COVENANTS OF THE COMPANY
------------------------
The Company and Subsidiary hereby jointly and severally covenant and
agree, for the benefit of any Purchaser who owns 15% or more of the Shares sold
under this Agreement which remain outstanding and which have not been converted
to Common Stock:
7.1 BASIC FINANCIAL INFORMATION. The Company will furnish to each such
Purchaser the following reports:
(A) Within seven (7) days following the filing with the Commission,
copies of its reports filed on Form 10-K, Form 10-Q, Form 8-K or any successor
form or forms, its Form of Proxy and any other reports and financial statements
sent or made available to stockholders or directors or filed with the
Commission.
(B) Each set of financial statements delivered to a Purchaser pursuant
to Section 7.1 will be accompanied by a certificate of the Chief Financial
Officer of the Company setting forth:
(i) Covenant Compliance - any information required in order to
establish whether the Company, Subsidiary and their Other Subsidiaries
were in compliance with the requirements of this Section 7 during the
period covered by the income statement then being furnished; and
(ii) Event of Default - that the signer has reviewed the
relevant terms of this Agreement, the Certificate and the other
Financing Documents and have made, or caused to be made, under their
supervision, a review of the transactions and conditions of the
Company, Subsidiary and their Other Subsidiaries, if any, from the
beginning of the accounting period covered by the income statements
being delivered therewith to the date of the certificate and that such
review has not disclosed the existence during such period of any
condition or event which constitutes a breach or default under this
Agreement, the Certificate or any of the other Financing Documents or,
if any such condition or event existed or exists, specifying the nature
and period of existence thereof and what action the Company and
Subsidiary have taken or propose to take with respect thereto.
(iii) Notice of Material Litigation and Other Material Events
- any information regarding any litigation or other event that might
have a material adverse effect on the condition, financial or
otherwise, operations or prospects of the Company, Subsidiary or any
Other Subsidiary or on the Technology.
-21-
7.2 ADDITIONAL INFORMATION AND RIGHTS.
The Company and Subsidiary will, for any such Purchaser:
(A) Permit such Purchaser (or its designated representative) to visit
and inspect any of the properties of the Company, Subsidiary and their Other
Subsidiaries, including its books of account, and to discuss its affairs,
finances and accounts with the Company's, Subsidiary's and their Other
Subsidiaries' officers and its independent public accountants, all during
ordinary business hours upon reasonable prior written notice to the Company and
as often as any such party may reasonably request. Any such visitation or
inspection shall be performed in a reasonable manner with a minimum of
disruption to the Company's and Subsidiary's business and with due regard to the
proprietary and confidential nature of any information received by it.
(B) Deliver the reports and data described below to such Purchaser:
(i) As soon as available (but in any event before the
commencement of its fiscal year except in the case of the Annual Plan
for fiscal year 2000 which shall be delivered no later than January 31,
2000) the Company's consolidated capital and operating expense budgets
and its operating plan (the "Annual Plan") approved by the Board
indicating, among other things, monthly income statements, balance
sheets and cash flow statements for the next fiscal year, all itemized
in reasonable detail, together with the underlying assumptions
therefor, plans for incurring indebtedness and projections regarding
other sources of funds; any material changes in such financial plan
shall be submitted as promptly as practicable after such changes have
been approved by the Board;
(ii) As soon as available, information and data on any
material adverse changes in or any event or condition which materially
adversely affects or could materially adversely affect the business,
operations, properties or plans of the Company, Subsidiary and/or any
Other Subsidiary;
(iii) Immediately upon becoming aware of any condition or
event which constitutes a breach of this Agreement, the Financing
Documents or any agreement contemplated hereby or thereby, written
notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect thereto;
(iv) With reasonable promptness, copies of audit response
letters, accountants' management letters and any other written reports
submitted to the Company by its independent public accountants in
connection with an annual or interim audit of the books of the Company,
Subsidiary or any of their Other Subsidiaries;
(v) Such other information and data with respect to the
Company, Subsidiary and their Other Subsidiaries as any such party may
from time to time reasonably request;
-22-
(vi) Promptly after the commencement thereof, notice of all
actions, suits, claims, proceedings, investigations and inquiries of
the type described in Section 3.12 that could materially adversely
affect the Company, Subsidiary or any of their Other Subsidiaries;
(vii) Promptly upon sending, making available or filing the
same, all press releases, reports and financial statements that the
Company, Subsidiary or any of their Other Subsidiaries sends or makes
available to its stockholders or directors or files with the
Commission;
(viii) At the time of delivery to the Company's Board of
Directors, reports, minutes, consents, waivers or such other
information substantially similar to such reports, minutes, consents,
waivers or other information delivered to the members of the Company's
Board of Directors (such obligation being satisfied by delivery to such
Purchasers' board representative, if such Purchaser has a board
representative, for signature or consent) provided that each Purchaser
understands that it could be subject to fines, penalties and other
liabilities under applicable securities laws in the event of trading in
the Company's securities while in the possession of any material,
non-public information concerning the Company and agrees to abide by
these legal prohibitions on tipping and trading and each Purchaser
agrees to maintain the confidentiality of such information in
accordance with its applicable nondisclosure agreement with the
Company; and
(ix) Promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations,
property or affairs of the Company, Subsidiary and their Other
Subsidiaries as such Purchaser reasonably may request.
7.3 PROMPT PAYMENT OF TAXES, ETC. The Company, Subsidiary and any Other
Subsidiary will promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Company,
Subsidiary or such Other Subsidiary; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall at the
time be contested in good faith by appropriate proceedings, and provided,
further, that unless otherwise approved by the Board, the Company, Subsidiary
and any Other Subsidiary will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien which may
have attached as security therefor. Unless otherwise approved by the Board, the
Company, Subsidiary and any Other Subsidiary will promptly pay or cause to be
paid when due, or in conformance with customary trade terms, all other
obligations incident to their operations.
7.4 MAINTENANCE OF PROPERTIES AND LEASES. The Company, Subsidiary and
each Other Subsidiary will keep their properties in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make all
needful and proper, or legally required, repairs, renewals, replacements,
additions and improvements thereto; and the Company, Subsidiary and each Other
Subsidiary will at all times comply with each provision of all leases to which
it is a party or under which it occupies, or has possession of, property if the
breach of such provision might have a material adverse
-23-
effect on the condition, financial or otherwise, or operations of the
Company, Subsidiary or any Other Subsidiary.
7.5 INSURANCE. The Company, Subsidiary and any Other Subsidiary will
keep their assets which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by fire, extended coverage
and explosion in amounts sufficient to prevent the Company, Subsidiary or any
Other Subsidiary from becoming a co-insurer. The Company, Subsidiary and any
Other Subsidiary will maintain for themselves with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated.
7.6 ACCOUNTS AND RECORDS. The Company, Subsidiary and any Other
Subsidiary will keep true records and books of account in which full, true and
correct entries will be made of all dealings or transactions in relation to
their business and affairs in accordance with generally accepted accounting
principles applied on a consistent basis.
7.7 COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES. The
Company, Subsidiary and Other Subsidiaries shall duly observe and conform in all
material respects to all valid requirements of governmental authorities relating
to their conduct of their businesses or to their property or assets. Without
limiting the generality of the foregoing, the Company, Subsidiary and their
Other Subsidiaries will:
(A) Comply with all minimum funding requirements applicable to any
pension plans, employee benefit plans or employee contribution plans which are
subject to ERISA or to the Internal Revenue Code of 1986, as amended (the
"Code"), and comply in all other material respects with the provisions of ERISA
and the provisions of the Code applicable to such plans; and
(B) Comply in all material respects with all applicable laws of the
United States and of each applicable jurisdiction relating to equal employment
opportunity, any rules, regulations, administrative orders and Executive Orders
relating thereto and the applicable terms, relating to equal employment
opportunity, of any contract, agreement or grant the Company, Subsidiary or any
Other Subsidiary has with, from or relating (by way of subcontract or otherwise)
to any other contract, agreement or grant of, any federal or state governmental
unit; and keep all records required to be kept, and file all reports,
affirmative action plans and forms required to be filed, pursuant to any such
applicable law or the terms of any such government contract.
(C) So conduct its business that neither the Company, Subsidiary, any
Other Subsidiaries nor any property owned or occupied by any of them is in
material violation of any Federal or State Environmental Law of any sort or in
material violation of any Federal or State "OSHA" Law so-called.
7.8 MAINTENANCE OF CORPORATE EXISTENCE, ETC. The Company, Subsidiary
and each Other Subsidiary maintain in full force and effect its corporate
existence, rights, government approvals and
-24-
franchises and all licenses and other rights to use patents, processes,
licenses, trademarks, trade names or copyrights owned or possessed by it and
deemed by it to be necessary to the conduct of its business.
7.9 AVAILABILITY OF COMMON STOCK FOR CONVERSION. The Company will, from
time to time, in accordance with the laws of the state of its incorporation,
increase the authorized amount of Common Stock if at any time the number of
shares of Common Stock remaining unissued and available for issuance shall be
insufficient to permit the conversion of all the then outstanding shares of the
Series A Preferred.
7.10 PROPRIETARY INFORMATION AGREEMENT, AND KEY EMPLOYEE AGREEMENT.
(A) The Company, Subsidiary and each Other Subsidiary will enter into a
Proprietary Information Agreement to the effect and in substantially the form of
Exhibit B hereto or as otherwise approved by the Board with each person
hereafter employed by any of them with access to confidential information
(B) At such time as the Board of Directors of the Company authorizes
the Company, Subsidiary or any Other Subsidiary to enter into an agreement or
other arrangement that would constitute consideration for such key employee
agreement, the Company, Subsidiary and each Other Subsidiary will require all
persons now or hereafter employed by the Company, Subsidiary or such Other
Subsidiary and designated as a "key person" by the Company's Board to execute a
key employee agreement in favor of the Company containing the non-competition
provisions approved by the Board and reasonably satisfactory to the Purchasers
as a condition to the entering into of such agreement or arrangement with the
key person.
(C) The Company, Subsidiary and each Other Subsidiary will cause all
technological developments, inventions, discoveries or improvements made by
employees of the Company, Subsidiary and such Other Subsidiary to be fully
documented in engineering notebooks in accordance with the best prevailing
industrial professional standards, and where possible and appropriate, cause all
employees to file and prosecute United States and foreign patent applications
relating to and protecting such developments.
7.11 USE OF PROCEEDS. The Company and Subsidiary will use the proceeds
from the sale of the Shares for the purposes described in Section 3.22 hereof.
7.12 COMPLIANCE BY SUBSIDIARIES. The Company and Subsidiary will each
cause any Other Subsidiary which it may now have and/or which it may organize or
acquire in the future to comply fully with all the terms and provisions of this
Section 7.
7.13 EXPENSES OF BOARD MEMBERS. The Company agrees to reimburse each of
the directors elected to the Company's Board by the Purchasers for their
reasonable and properly documented out-of-pocket travel and lodging expenses in
connection with attending Board meetings and performing their
-25-
respective obligations and responsibilities as directors of the Company upon
receipt of an itemized invoice or expense report with appropriate receipts or
other evidence in support of such expenses.
7.14 SECURITIES LAW FILINGS. Based on the Purchaser's representations
and warranties made pursuant to this Agreement, the Company will make any
filings necessary to perfect in a timely fashion exemptions from (i) the
registration and prospectus delivery requirements of the Securities Act and (ii)
the registration or qualification requirements of all applicable securities or
blue sky laws of any state or other jurisdiction, for the issuance of the Shares
to the Purchasers.
SECTION 8
NEGATIVE COVENANTS
------------------
The Company and Subsidiary jointly and severally agree, for the benefit
of any Purchaser who holds 15% or more of the Shares sold under this Agreement
which have not been converted to Common Stock, that so long as less than 75% of
the Shares have been converted into Common Stock each of the Company, Subsidiary
and each of their Other Subsidiaries (unless the context otherwise requires)
will not do any of the following set forth in Sections 8.1 through 8.7 unless
the holders of a majority of the Shares sold under this Agreement which remain
outstanding and have not been converted to Common Stock otherwise agree in
writing, or any of the following set forth in Sections 8.8 through 8.21 without
the approval of a majority of the Board:
8.1 SALE/PURCHASE OF ASSETS; MERGER. Hereafter:
(A) Sell or otherwise dispose of the capital stock of
Subsidiary or any Other Subsidiary or of all or a substantial part of the
Company's assets or business or of all or a substantial part of the assets or
business of Subsidiary or any Other Subsidiary (whether by sale of assets,
exclusive license or otherwise);
(B) Purchase or otherwise acquire all or substantially
all of the capital stock of any corporation or equity interest in any other
entity or lend money to any person or entity, or purchase a substantial part of
the operating assets of any person or entity for a purchase price in excess of
the lower of (i) $5,000,000, and (ii) 20% of the Company's net revenues for the
twelve month period immediately preceding such purchase; or
(C) Consolidate with or merge into or with any other
person or entity or permit any other person or entity to consolidate with or
merge into it (except that Subsidiary may merge into the Company, and a 100%
Other Subsidiary may consolidate with or merge into Subsidiary or the Company or
into another 100% Other Subsidiary); provided that the foregoing restriction
does not apply to the merger of another corporation into the Company or
Subsidiary, if:
-26-
(i) In the case of a merger into the Company, the Company is
the surviving corporation and more than 50% of the outstanding common
stock of the surviving corporation is owned by persons who prior to
such merger owned Common Stock of the Company;
(ii) In the case of a merger into Subsidiary, Subsidiary is
the surviving corporation, remains a 100% subsidiary of the Company and
more than 50% of the outstanding Common Stock of the Company after the
merger is owned by persons who prior to such merger owned Common Stock
of the Company
(iii) After giving effect to the proposed merger or
consolidation the surviving corporation will be engaged in
substantially the same lines of business; and
(iv) Immediately after the consummation of the transaction,
and after giving effect thereto, no default under this Agreement, the
Certificate or any other Financing Document would exist.
8.2 FUTURE REGISTRATION RIGHTS. Except as expressly permitted by the
Financing Documents and except for an underwriting agreement between the Company
and one or more professional underwriters of securities, the Company shall not
agree to register any Equity Securities under the Securities Act that will
provide such other Equity Securities with registration rights which are
preferential to or inconsistent with those granted to Purchasers under the
Shareholders and Rights Agreement.
8.3 CHANGES IN TYPE OF BUSINESS. Make any substantial change in the
character of its business. Any business activities related to repetitive locking
techniques or the distribution of electronic content will not constitute a
substantial change in the character of its business.
8.4 DIVIDENDS AND DISTRIBUTIONS. Directly or indirectly declare or pay
any dividends or make any distributions upon any of its Equity Securities other
than the Series A Preferred.
8.5 PURCHASE OF EQUITY SECURITIES. Directly or indirectly redeem,
purchase or otherwise acquire, any of the Company's, Subsidiary's or any Other
Subsidiary's Equity Securities except (a) as permitted by this Agreement, the
Shareholders' and Rights Agreement, and the Certificate or (b) from any employee
upon termination of employment, but subject to Board approval.
8.6 CONFLICTING AGREEMENTS. Become subject to any agreement or
instrument, which by its terms would (under any circumstances) restrict the
Company's, Subsidiary's or any Other Subsidiary's right to perform any of its
obligations pursuant to the terms of this Agreement or any agreement
contemplated hereby, the Certificate, the Financing Documents, or the Company's
By-laws (including, without limitation, all obligations relating to payment of
dividends on and making redemptions of the Series A Preferred and conversions of
the Series A Preferred).
-27-
8.7 AMENDMENT OF CHARTER DOCUMENTS. Except as contemplated by this
Agreement, make any amendment to the Company's, Subsidiary's or any Other
Subsidiary's Certificate of Incorporation or make any amendment to the By-laws
that has not been approved by action of the Board of Directors in which the
director nominated by the holders of the Shares participated and assented.
8.8 RELATED PARTY TRANSACTIONS. Enter into any transaction with any
Related Party or Affiliate, except as otherwise expressly contemplated by this
Agreement or referred to in Section 3.11 hereto.
8.9 SUBSIDIARIES. Establish or acquire (a) any Other Subsidiaries other
than wholly-owned Other Subsidiaries or (b) any Other Subsidiaries organized
outside of the United States and its territorial possessions.
8.10 FISCAL YEAR. Change its fiscal year.
8.11 BUSINESS PLAN. Make any material changes in the Plan or the
Company's, Subsidiary's and their Other Subsidiaries' operation of the
Business.
8.12 AMENDMENT OF OTHER AGREEMENTS. Amend, modify or waive any
provision of any of the Financing Documents, fail to enforce the provisions of
any of the Financing Documents or avail itself of all rights and remedies
thereunder.
8.13 EMPLOYEE STOCK PLANS. Hereafter issue, sell, grant or award any
Equity Security or any option to acquire any Equity Security to officers,
directors, employees, consultants or advisors to the Company; provided, however
that this provision shall not limit the ability of the Board of Directors to
delegate authority to issue, sell, grant or award Equity Securities or options
to the Compensation Committee.
8.14 LIENS. Create, assume or permit, any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, except (a) Liens
existing as of the date hereof as disclosed in Section 3.14 hereof, (b) any Lien
on any asset of a corporation existing at the time such corporation is merged
into or consolidated with the Company, Subsidiary or any Other Subsidiary and
not created in contemplation of such event, (c) any Lien existing on any asset
prior to the acquisition thereof by the Company, Subsidiary or any Other
Subsidiary and not created in contemplation of such event, (d) any Lien created
on any real property or equipment in connection with the leasing of such real
property or equipment, (e) Liens contemplated by the Annual Plan and (f)
Permitted Liens.
8.15 INVESTMENTS. Own, purchase or acquire any stock, obligations or
securities of, or any interest in, or make any capital contribution to, any
other Person, or own, purchase or acquire any property not used in the usual and
ordinary course of business, except that the Company, Subsidiary or any Other
Subsidiary may (a) own, purchase or acquire certificates of deposit in or
repurchase agreements from United States commercial banks having capital
resources in excess of $100,000,000 and obligations of the United States
Government or any agency thereof and obligations guaranteed by
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the United States Government, (b) invest in commercial paper rated at least
Prime 1 by Xxxxx'x Industrial Manual, (c) deposit funds in money market accounts
in financial institutions having capital resources in excess of $100,000,000 and
(d) make such investments as are approved by a majority of the Board.
8.16 PURCHASES AND SALES. Hereafter, except as contemplated by the
Annual Plan:
(A) other than normal operating expenditures made as a part of the
ordinary course of business, purchase, directly or indirectly, any item (or
group of items) of real or personal property which has a purchase price in
excess of $75,000 or enter into any other transaction with respect to such item
(or group of items) which, under generally accepted accounting principles is or
should be treated as a purchase or capital expenditure for accounting purposes;
or
(B) (i) Pay or provide annual salary in excess of $120,000, or (ii)
increase the compensation of any person listed in part 3.20(d) of the Disclosure
Schedules and will not compensate any other officer, director or employee at an
annual salary of $120,000 per year or more.
8.17 LEASES. Enter into any leases or other rental agreements
(excluding capitalized leases) that are not within the scope of an Annual Plan
unless entered into in the ordinary course of business.
8.18 INDEBTEDNESS. Create, incur, issue, assume, guarantee or otherwise
become or remain directly or indirectly liable for any Indebtedness other than
as contemplated by the Annual Plan.
8.19 LOANS, GUARANTEES. Make any loan or advance to any person or
entity, including, without limitation, any employee or director of the Company,
Subsidiary or any Other Subsidiary, except advances for travel and entertainment
expenses, relocation costs and similar expenditures in the ordinary course of
business, as contemplated by the Annual Plan or under the terms of an employee
stock option plan or stock purchase agreement approved by the Board; or
guarantee, directly or indirectly, any Indebtedness except for trade accounts or
personal property leases of the Company, Subsidiary or any Other Subsidiary
arising in the ordinary course of business.
8.20 ISSUANCE OF EQUITY SECURITIES. Hereafter issue, sell, grant or
award or enter into any agreement or adopt any plan to issue, sell, grant or
award any Equity Security or option to acquire any Equity Security except to
officers, directors and employees of, and consultants or advisors to, the
Company, Subsidiary and Other Subsidiaries in compliance with Section 8.13
hereof.
8.21 LICENSE OF LISTED RIGHTS OR INTELLECTUAL PROPERTY. Not transfer,
assign or license any of its Listed Rights or Intellectual Property now owned or
hereafter acquired by it (except for licenses to Company's or Subsidiary's
customers in the ordinary course of business).
8.22 COMPLIANCE BY SUBSIDIARIES. The Company and Subsidiary will cause
any Other Subsidiary which either of them may now have and/or which either of
them may organize or acquire in the future to comply with all the terms and
provisions of this Section 8.
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SECTION 9
DEFINITIONS
-----------
As used in this Agreement or in the Financing Documents, capitalized
terms shall have the respective meanings set forth in this Agreement or set
forth below or in the Section of this Agreement referred to below:
AFFILIATE shall mean, as to any person, any other person, which
directly or indirectly controls, is controlled by or is under common control
with such person.
ANNUAL PLAN shall have the meaning ascribed to it in Section 7.2
hereof.
BALANCE SHEET shall have the meaning ascribed to it in Section 3.7
hereof.
BUSINESS shall have the meaning ascribed to it in Section 3.21 hereof.
BOARD shall mean the entire Board of Directors of the Company.
BRIDGE FINANCING TRANSACTION shall mean the transactions contemplated
by the Bridge Note, the Note and Warrant Purchase Agreement dated September 22,
1999 by and among the Company, Subsidiary and SI Venture Associates, L.L.C., the
Stock Purchase Warrant dated September 22, 1999 between the Company and SI
Venture Associates, L.L.C. (as assigned by SI Venture Associates, L.L.C. to SI
Venture Fund II, L.P.), the Common Stock Default Purchase Warrant dated
September 22, 1999 between the Company and SI Venture Associates, L.L.C. (as
assigned by SI Venture Associates, L.L.C. to SI Venture Fund II, L.P.) and the
Stock Purchase Warrant dated December 23, 1999 between the Company and SI
Venture Associates, L.L.C. (as assigned by SI Venture Associates, L.L.C. to SI
Venture Fund II, L.P.).
BRIDGE NOTE shall mean that certain Convertible Promissory Note dated
September 22, 1999, in the original principal amount of $500,000, issued by the
Company to SI Venture Associates, L.L.C. which note is being assigned by SI
Venture Associates, L.L.C. to SI Venture Fund II, L.P. and converted into Shares
upon the Closing.
CLOSING shall have the meaning ascribed to it in Section 2.1 hereof.
CLOSING DATE shall have the meaning ascribed to it in Section 2.1
hereof.
CODE shall have the meaning ascribed to it in Section 7.7 hereof.
COMMISSION shall have the meaning ascribed to it in Section 3.5 hereof.
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COMMON STOCK shall have the meaning ascribed to it in Section 3.4
hereof.
CONVERSION SHARES shall mean at any time, shares of Common Stock (i)
issued and then outstanding upon the conversion of the Series A Preferred, (ii)
issuable upon the conversion of the Series A Preferred, and (iii) issued and
then outstanding or issuable in respect of the Common Stock referred to in
clause (i) of this definition upon any stock split, stock dividend,
recapitalization or similar event.
ENVIRONMENTAL CLAIM shall mean any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of compliance or violation (written or
oral) by any person or entity (including any governmental authority) alleging
potential liability (including, without limitation, potential liability for
enforcement, investigatory costs, cleanup costs, governmental response costs,
removal costs, remedial costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from (a)
the presence, or Release or threatened Release into the environment, of any
Hazardous Material at any location, whether owned, operated, leased or managed
by the Company, Subsidiary or any Other Subsidiary; or (b) circumstances forming
the basis of any violation, or alleged violation, of any Environmental Law; or
(c) any and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
the presence or Release of any Hazardous Materials.
ENVIRONMENTAL LAWS shall mean all laws or orders relating to the
regulation or protection of human health, safety or the environment (including,
without limitation, ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata), including, without limitation, laws and regulations
relating to Releases or threatened Releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, recycling or handling of Hazardous Materials.
ENVIRONMENTAL PERMITS shall have the meaning ascribed to it in Section
3.23 hereof.
EQUITY SECURITIES shall mean any stock or similar security, including
without limitation securities containing equity features and securities
containing profit participation features, or any security convertible or
exchangeable, with or without consideration, into any stock or similar security,
or any security carrying any warrant or right to subscribe to or purchase any
stock or similar security, or any such warrant or right.
ERISA shall have the meaning ascribed to it in Section 3.23 hereof.
EXCHANGE ACT shall have the meaning ascribed to it in Section 3.7
hereof.
FINANCING DOCUMENTS shall mean collectively, the Certificate, the
Shareholders' and Rights Agreement, and all other documents set forth in any
other schedules or exhibits hereto under which, upon its execution thereof, the
Company, Subsidiary, any Other Subsidiary, or any Related Party shall
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have an obligation to any Purchaser, all in the respective forms thereof as
executed and as amended from time to time.
FINANCIAL STATEMENTS shall have the meaning ascribed to it in Section
3.7 hereof.
HAZARDOUS MATERIALS shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
above ground or underground storage tanks and compressors or other equipment
that contain polychlorinated biphenyls ("PCBs"); and (b) any chemicals,
materials or substances which are now defined as or included in the definition
of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "pollutants," "contaminants" or words of similar import, under any
Environmental Law; and (c) any other chemical, material, substance or waste,
exposure to which is now prohibited, limited or regulated under any
Environmental Law.
INDEBTEDNESS shall mean any obligation of the Company, Subsidiary or
any Other Subsidiary, contingent or otherwise, which under generally accepted
accounting principles is required to be shown on the balance sheet of the
Company, Subsidiary or such Other Subsidiary as a liability. Any obligation
secured by a Lien on, or payable out of the proceeds of or production from,
property of the Company, Subsidiary or any Other Subsidiary shall be deemed to
be Indebtedness even though such obligation is not assumed by the Company,
Subsidiary or Other Subsidiary.
LISTED RIGHTS shall have the meaning ascribed to it in Section 3.16
hereof.
OTHER SUBSIDIARY shall mean any corporation, partnership, joint
venture, association or other business entity at least fifty percent (50%) of
the outstanding voting stock or voting interests of which is at the time owned
or controlled, directly or indirectly, by the Company, or by Subsidiary, or by
one or more of such Other Subsidiary entities or both.
PERMITTED LIENS shall mean (a) Liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which the
validity thereof shall currently be contested in good faith by appropriate
proceedings conducted with due diligence and for the payment of which the
Company, Subsidiary or Other Subsidiary has furnished adequate security; (b)
Liens in respect of pledges or deposits under workers' compensation laws or
similar legislation, carriers', warehousemen's, mechanics', laborers' and
materialmen's and similar Liens, if the obligations secured by such Liens are
not then delinquent or are being contested in good faith by appropriate
proceedings conducted with due diligence and for the payment of which the
Company, Subsidiary or Other Subsidiary has furnished adequate security; and (c)
statutory Liens incidental to the conduct of the business of the Company,
Subsidiary or any Other Subsidiary which were not incurred in connection with
the borrowing of money or the obtaining of advances or credits and which do not
in the aggregate materially detract from the value of its property or materially
impair the use thereof in the operation of its business; and (d) purchase money
liens or security interests securing the cost of acquisition of assets subject
to such liens or security interests.
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PERSON shall include all natural persons, corporations, business
trusts, associations, companies, partnerships, joint ventures and other entities
and governments, agencies and political subdivisions.
PLAN shall have the meaning ascribed to it in Section 3.1 hereof.
PROPRIETARY INFORMATION AGREEMENT shall have the meaning ascribed to it
in Section 3.20 hereof.
QUALIFIED PUBLIC OFFERING shall mean an underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offering and sale of Common Stock for the account of the Company,
on a firm commitment basis, yielding aggregate proceeds to the Company of
$20,000,000 at a public offering price that is at least four times the then
effective "Conversion Price" of the Series A Preferred (as defined in the
Certificate).
RELATED PARTY shall mean any officer, director, employee or consultant
of the Company, Subsidiary or any Other Subsidiary or any holder of five percent
(5%) or more of any class of capital stock of the Company, Subsidiary or any
Other Subsidiary or any member of the immediate family of any such officer,
director, employee, consultant or shareholder or any Person controlled by any
such officer, director, employee, consultant or shareholder or a member of the
immediate family of any such officer, director, employee, consultant or
shareholder.
RELEASE shall mean any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, ground water or property.
SECURITIES ACT shall have the meaning ascribed to it in Section 3.6
hereof.
SERIES A PREFERRED shall have the meaning ascribed to it in Section 1.1
hereof.
SHAREHOLDERS' AND RIGHTS AGREEMENT shall have the meaning ascribed to
it in Section 5.11 hereof.
SHARES shall have the meaning ascribed to it in Section 1.1 hereof.
TECHNOLOGY shall have the meaning ascribed to it in Section 3.16
hereof.
SECTION 10
MISCELLANEOUS
-------------
10.1 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Connecticut. The
parties agree that any legal or equitable suit, action or proceeding arising out
of this Agreement may be instituted and prosecuted in any state or
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xxxxxxx xxxxx in the State of Connecticut and for the purposes of this
Agreement, irrevocably submit to the jurisdiction of any such court in any such
suit, action or proceeding.
10.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
shall survive the Closing.
10.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the Company may not assign its rights
hereunder. Without limiting the generality of the foregoing, all
representations, covenants and agreements benefiting the Purchasers shall inure
to the benefit of any and all subsequent holders from time to time of the
Shares.
10.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement (including the
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Except as otherwise expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated, except by a written instrument signed by the
Company and the holders of two-thirds or more of the Shares which have not been
converted to Common Stock, but in no event shall this paragraph be amended or
the obligation of any Purchaser hereunder increased, except upon the written
consent of such Purchaser.
10.5 NOTICES, ETC.
(A) All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first-class, registered or
certified mail, postage prepaid, or delivered either by hand, overnight delivery
service, or by messenger, or sent via telex, telecopier, computer mail or other
electronic means, addressed (a) if to a Purchaser, at the address shown on the
Schedule of Purchasers, or at such other address as such Purchaser shall have
furnished to the Company in writing, or (b) if to any other holder of any Shares
or any Conversion Shares, at such address as such holder shall have furnished to
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (c) if to the Company or Subsidiary,
Five Clock Xxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxxxxxxxx 00000, or at such
other address as the Company shall have furnished to the Purchasers and each
such other holder in writing.
(B) Any notice or other communications so addressed and mailed, postage
prepaid, by registered or certified mail (in each case, with return receipt
requested) shall be deemed to be given when so mailed. Any notice so addressed
and otherwise delivered shall be deemed to be given when actually received by
the addressee.
10.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any holder of Shares, upon any breach or default of
the Company under this Agreement,
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shall impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
10.7 RIGHTS; SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
10.8 AGENT'S FEES AND SERVICES.
(A) The Company represents and warrants that it has retained no finder
or broker or other person or firm in connection with the transactions
contemplated by this Agreement. The Company hereby agrees to indemnify and to
hold the Purchasers harmless of and from any liability for any commission or
compensation in the nature of an agent's fee to any broker, finder or other
person or firm (and the costs and expenses of defending against such liability
or asserted liability) arising from any act by the Company or any of its
employees or representatives.
(B) Each Purchaser represents and warrants as to itself only that it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement. Each Purchaser hereby agrees to indemnify and to
hold the Company harmless of and from any liability for any commission or
compensation in the nature of an agent's fee to any broker, finder or other
person or firm (and the costs and expenses of defending against such liability
or asserted liability) arising from any act by such Purchaser or any of its
members, employees or representatives.
10.9 LEGAL FEES AND EXPENSES. The Company shall bear its own expenses
and legal fees incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby. On the First Closing Date (or if the First
Closing shall not take place, within thirty (30) days of receiving any statement
or invoice therefor), the Company will pay the reasonable legal fees and
out-of-pocket expenses of Xxxxxxx & Xxxxxxx LLP, special counsel to the
Purchasers (which fees and expenses shall not exceed $30,000 less the invoice
for legal work in connection with the Bridge Financing Transaction without the
prior, written consent of the Company), with respect to this Agreement and the
transactions contemplated hereby.
10.10 TITLES AND SUBTITLES. The titles of the Sections and subsection's
of this Agreement are for convenience or reference only and are not to be
considered in construing this Agreement.
10.11 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which when so executed and delivered shall constitute a complete and
original instrument but all of which together shall
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constitute one and the same agreement, and it shall not be necessary when making
proof of this Agreement or any counterpart thereof to account for any other
counterpart.
[Signatures on Following Page]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first written above.
SOFTLOCK COM., INC.
By: /s/ Xxxxxxx X. Xxxxxxx
-------------------------------
Name:
Title: /s/ Executive VP and CFO
SOFTLOCK SERVICES., INC.
By: /s/ Xxxxxxx X. Xxxxxxx
-------------------------------
Name:
Title: /s/ Executive VP and CFO
SI VENTURE FUND II, L.P.
By: SI VENTURE MANAGEMENT II, L.L.C.,
its General Partner
By: /s/ N. Xxxx Rin
-------------------------------
its Managing Member
APEX INVESTMENT FUND IV, L.P.
By: Apex Management IV, L.L.C.,
its General Partner
By: /s/ Xxxxxx X. Xxxxxxxxx
-------------------------------
Xxxxxx X. Xxxxxxxxx
APEX STRATEGIC PARTNERS IV, LLC
By: Apex Management IV, LLC, Manager
By: /s/ Xxxxxx X. Xxxxxxxxx
-------------------------------
Xxxxxx X. Xxxxxxxxx, Managing Member
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SCHEDULE OF PURCHASERS
----------------------
NAME AND ADDRESS SHARES PURCHASE PRICE
---------------- ------ --------------
SI Venture Fund II, L.P. 17,157 $1,750,014
00000Xxxxxxx Xxxx.
Xxxx Xxxxx, XX 00000
Facsimile (000) 000-0000
Apex Investment Fund IV, L.P. 14,260 $1,454,520
000 X. Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000 0000
Facsimile: (000) 000 0000
Apex Strategic Partners IV, LLC 446 $ 45,492
000 X. Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000 0000
Facsimile: (000) 000 0000
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