EXHIBIT 10.1
NOTE AND WARRANT PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") is made as of the
22nd day of September, 1999, by and among XXXXXXXX.XXX, INC., a Delaware
corporation (the "Company"), SOFTLOCK SERVICES, INC., a Delaware corporation
(the "Subsidiary" and together with the Company, the "Obligors" or
individually, an "Obligor") and SI VENTURE ASSOCIATES, L.L.C. (the
"Investor").
W I T N E S S E T H
WHEREAS, the Obligors desire to enter into this Agreement with the Investor
to sell and issue (i) a convertible promissory note of the Obligors in the
aggregate principal amount of Five Hundred Thousand Dollars ($500,000),
which note shall be in substantially the form attached hereto as Exhibit A
(the "Note"), (ii) a warrant to purchase capital stock of the Company in
substantially the form attached hereto as Exhibit B (the "Warrant") and (iii)
a warrant to purchase common stock of the Company only upon certain events, in
substantially the form attached hereto as Exhibit C (the "Default Warrant"
and together with the Warrant, the "Warrants"); and
WHEREAS, the Investor desires to enter into this Agreement to acquire the
Note, the Warrant and the Default Warrant on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration for the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Authorization, Sale and Conversion.
a. Authorization. The Obligors have authorized the issuance and sale of
the Note and the Company has authorized the issuance and sale of the Warrant
and the Default Warrant.
b. Sale. Subject to the terms and conditions hereof, the Investor
agrees to purchase from the Company and/or the Subsidiary (as applicable), and
the Obligors agree to sell and issue to the Investor, the Note, the Warrant
and the Default Warrant for the purchase price of Five Hundred Thousand
Dollars ($500,000.00). The Investor and the Obligors agree that any original
issue discount attributable to the Note as a result of the delivery of the
Warrants is less than one-quarter of one percent (0.25%) of the stated
redemption price at maturity (as such term is defined in Section 1273(a) of
the Internal Revenue Code, as amended), of the Note multiplied by the number
of complete years to maturity of the Note (determined as provided in such
Section 1273(a)).
c. Convertibility Feature; Exercise of Warrants. The Note shall be
convertible into shares of the Company's capital stock in accordance with the
terms and conditions thereof. The Warrant shall be exercisable for shares of
the Company's capital stock in accordance with the terms and conditions
contained in the Warrant. The Default Warrant shall be exercisable for
shares of the Company's common stock in accordance with the terms and
conditions contained in the Default Warrant.
Exhibit 10.1 (continued)
2. Closing; Delivery
a. Closing. The closing of the purchase and sale of the Note and the
issuance of the Warrants under this Agreement shall take place at the
Company's offices, Five Clock Xxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxxxxxxxx
00000 on September ___, 1999 (the "Closing") or at such other time and date
as the parties may agree.
b. Delivery. At the Closing, subject to the terms and conditions
hereof, the Obligors will deliver to the Investor the Note, the Warrants, and
such other certificates, consents, waivers and agreements as are reasonably
requested by the Investor (together with this Agreement, collectively the
"Transaction Documents"), dated the date of the Closing, against payment of
the purchase price therefor payable as of the date of the Closing by check or
wire transfer.
3. Representations and Warranties of the Obligors. The Obligors hereby
jointly and severally represent and warrant to the Investor as follows:
a. Organization, Good Standing and Qualification. Each Obligor is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite power and authority,
governmental licenses, authorizations, consents and approvals to carry on its
business as presently conducted and as contemplated to be conducted, to own,
hold and operate its properties and assets as now owned, held and operated
by it, to enter into this Agreement, to issue the Note and the Warrants (as
applicable) and to carry out the provisions of this Agreement and the terms
of the Note and the Warrants (as applicable). Each of the Obligors is duly
qualified to transact business, and is in good standing, in each
jurisdiction wherein the nature of its activities or its properties owned or
leased makes such qualification necessary. The Company has no subsidiaries,
except for the Subsidiary and the Subsidiary has no subsidiaries.
b. Capitalization. The authorized capital of the Company consists of
Fifty Million (50,000,000) shares of common stock and five million
(5,000,000) authorized shares of preferred stock. As of September 10, 1999
there were 10,913,730 shares of the Company's Common Stock outstanding. In
addition, 2,702,833 shares of the Company's Common Stock have been reserved
for issuance upon the exercise of outstanding options. No shares of the
Company's preferred stock are outstanding. Except as set forth in this
Agreement (including, without limitation, in this Section 3(b)) or on
Schedule 3(b), there are no outstanding or authorized options, warrants,
calls, subscriptions, rights (including any preemptive rights or rights of
first refusal), agreements or commitments of any character obligating the
Company to issue any Common Stock, Preferred Stock or any other equity
security of the Company. All of the outstanding capital stock of the
Subsidiary is owned beneficially and of record by the Company, and there
are no outstanding or authorized options, warrants, calls, subscriptions,
rights (including any preemptive rights or rights of first refusal),
agreements or commitments of any character obligating the Subsidiary to
issue any common stock or any other equity security of the Subsidiary.
Exhibit 10.1 (continued)
c. Authorization. All action on the part of the Obligors necessary for
the authorization, execution and delivery of this Agreement, the Note and the
Warrants (as applicable), the performance of all obligations of the Obligors
hereunder and thereunder and the offer, sale, issuance and delivery of the
Note and the Warrants has been taken or will be taken on or prior to the
Closing, and each of the Obligors has all requisite power and authority to
enter into and perform this Agreement, the Note and the Warrants (as
applicable), and to offer, sell, issue and deliver the Note and the Warrants
(as applicable). This Agreement and the Note have been duly executed and
delivered by the Obligors, the Warrants have been duly executed and delivered
by the Company, this Agreement and the Note constitute the Obligors', and the
Warrants constitute the Company's, valid and legally binding obligations,
enforceable against them in accordance with their 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.
d. Litigation. No claim, action, proceeding or investigation is pending,
or to the best knowledge of the Obligors, threatened, which seeks to delay or
prevent the consummation of the transactions contemplated hereby, or which
would be reasonably likely to adversely affect the Obligors' ability to
consummate the transactions contemplated hereby, or which would have a
material adverse effect on the business, prospects, property, condition
(financial or otherwise), or operations of either Obligor, except for those
claims, actions, proceedings or investigations listed on Schedule 3(d) hereto.
e. Consents and Approvals; No Conflict. The execution and delivery of
this Agreement and the Note by the Obligors, and of the Warrants by the
Company does not, and the performance of this Agreement, the Note and the
Warrants, and the offer, sale, issuance and delivery of the Note by the
Obligors and of the Warrants by the Company will not, require any consent,
approval, authorization or other action by, or filing with or notification to,
any governmental or regulatory authority. The execution, delivery and
performance of this Agreement and the Note by the Obligors and of the Warrants
by the Company does not (i) conflict with or violate the certificate of
incorporation or bylaws of either of the Obligors, (ii) conflict with or
violate any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to either of the Obligors, or (iii) conflict
with or result in a breach or violation of (and upon notice or lapse of time
or both would not result in such a conflict, breach or violation) under any
indenture, mortgage, agreement, contract or other instrument to which either
of the Obligors is a party or by which either of the Obligors or any of its
material properties or assets are bound.
f. SEC Documents. The Company has filed all required reports,
schedules, forms, statements and other documents with the Securities and
Exchange Commission (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 of 1933 (the "1933 Act"), or the Securities Exchange Act of
1934 (the "Exchange Act"), as the case may be, and the rules and regulations
of the Commission
Exhibit 10.1 (continued)
promulgated thereunder applicable to such SEC Documents, and
to the Obligors' 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 Obligors'
knowledge, none of the SEC Documents currently contains any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Obligors 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-Q of
the Commission) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Obligors 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
Company's SEC Documents have been provided to the Investor.
g. Debt; Liens. Schedule 3(g), to the Obligors' knowledge, sets forth
a true and correct list of (1) all indebtedness of either of the Obligors,
and (2) all liens, security interests and other encumbrances on either of the
Obligor's properties and assets.
h. Absence of Undisclosed Liabilities. The Obligors, to their
knowledge, do not have 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 reflected or disclosed
in the Obligors' most recent consolidated balance sheet provided to the
Investor (dated as of August 31, 1999), or on Schedule 3(g) or elsewhere in
this Agreement or its Schedules.
i. Taxes. The Obligors have filed all tax returns and reports required
to be filed and have paid all taxes due in connection therewith. The
Obligors have withheld or collected from each payment made to each of their
employees, the amount of all taxes required to be withheld or collected
therefrom, and have paid the same to the proper tax receiving officers or
authorized depositaries.
j. Transactions With Related Parties and Affiliates. Except as set
forth on Schedule 3(j), there is no loan, lease or other continuing
transaction between either Obligor and any Affiliate or Related Party of such
Obligor. As used in this Agreement, "Affiliate" shall mean any person or
entity controlling, controlled by or under common control with an Obligor and
"Related Party" shall mean the Obligors' respective employees, officers,
directors and shareholders (as applicable) and any affiliate or relative of
any such person.
Exhibit 10.1 (continued)
k. 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 Related Party, or which any Related Party 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 Obligors' business as now conducted or as planned to be
conducted, have been duly and validly transferred in full to the Obligors.
(B) To the best of the Obligors' knowledge, 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 Related Party to be employed by, to hold shares of the capital stock or
to serve as an officer or director of, the Obligors or companies similarly
situated because of the nature of the business conducted or to be conducted by
the Obligors, or companies similarly situated or relating to the use of trade
secrets or proprietary information of others, and the continued employment of,
or other relationship with, the Obligors' Related Parties does not subject
either of the Obligors to any liability for any such violation.
(C) Schedule 3(k) lists 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 Obligors (collectively, the "Listed Rights"). There
is neither pending, nor, to the best of the Obligors' knowledge and belief,
threatened, any claim or litigation against either of the Obligors contesting
the validity or right to use any of the Listed Rights or any know-how,
technology and trade secrets not included in the Listed Rights (the Listed
Rights and such know-how, technology and trade secrets being collectively
called the "Technology"), nor are the Obligors' aware of any basis therefor,
and neither of the Obligors has received any notice of infringement upon or
conflict with any asserted right of others, except as set forth on Schedule
3(g). To the best of the Obligors' knowledge and belief, no person,
corporation or other entity is infringing or violating the Listed Rights or
any of the other Technology. Except as set forth on Schedule 3(k)(C), the
Obligors have no obligation to compensate others for the use of any
Technology, nor have the Obligors granted any license or other right to use,
in any manner, any of the Technology, whether or not requiring the payment of
royalties.
l. Offering. Subject in part to the truth and accuracy of the
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Note and the Warrants as contemplated by this Agreement are
exempt from the registration requirements of the 1933 Act, and all state
securities laws, and neither the Obligors nor anyone acting on their behalf
will take any action hereafter that would cause the loss of such exemption.
m. Disclosure. To the Obligors' knowledge, no representation or
warranty contained in this Agreement or information appearing in any writing
furnished by the Obligors to the Investor or its representatives pursuant
hereto or in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
Exhibit 10.1 (continued)
4. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Obligors as follows:
a. Organization; Good Standing; Power and Authority; Binding Obligation.
The Investor has full power and authority to enter into this Agreement, and,
(i) the Investor is a limited liability company duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and
(ii) all action on the part of the Investor necessary for the
authorization, execution and delivery of this Agreement, the performance of
all obligations of the Investor hereunder, including, without limitation, the
payment of the purchase price for the Note, the Warrant and the Default
Warrant contemplated by this Agreement has been taken, and the Investor has
all the requisite power and authority to enter into this Agreement. This
Agreement has been duly executed and delivered by Investor and constitutes the
Investor's valid and legally binding obligation enforceable against the
Investor 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.
b. Purchase Entirely for Own Account, Etc. The Note and the Warrants
will be acquired for investment for the Investor's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any
part thereof. The Investor has no present intention of selling, granting any
participation in, or otherwise distributing the Note, the Warrant or the
Default Warrant. The Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to any person with respect to the Note, the Warrant or the
Default Warrant or the preferred or common stock issuable upon conversion
and exercise thereof (the "Underlying Stock"). The Investor understands that
the Note, the Warrant, the Default Warrant and the Underlying Stock have not
been registered under the 1933 Act on the grounds that the sale provided for
in this Agreement and the issuance of securities hereunder is exempt from
registration under the 1933 Act, and that the Obligors' reliance on such
exemption is predicated in part upon the Investor's representations and
warranties set forth in this Section 4.
c. Disclosure. The Investor has received or reviewed all the information
which the Investor has requested for the purposes of determining the merits of
the purchase of the Note, the Warrant and the Default Warrant as an
investment. The Investor also has received and reviewed a copy of the
Obligors' consolidated, unaudited financial statements for the period ended
August 31, 1999, attached hereto as Exhibit F (the "Unaudited Financials").
The Obligors plan to provide to the Investor audited financial statements as
soon as practicable after such statements become available from the Obligors'
auditors.
The Investor has had an opportunity to ask questions and receive answers from
the Obligors regarding the Obligors, their business, operations and financial
condition and the terms and conditions of the purchase of the Note and the
Warrant, and answers have been provided to the Investor's full satisfaction.
The Investor has fully reviewed all corporate and governance documents of the
Obligors provided to it, understands all relevant terms and has asked all
questions and received answers thereto to the Investor's full satisfaction.
If deemed necessary by the Investor, the Investor has consulted with a
professional advisor who has provided the Investor with advice concerning
terms. THE INVESTOR ACKNOWLEDGES AND AGREES THAT THE PURCHASE OF THE NOTE AND
Exhibit 10.1 (continued)
THE WARRANTS INVOLVES A HIGH DEGREE OF RISK, AND MAY RESULT IN A LOSS OF THE
ENTIRE AMOUNT INVESTED. THE INVESTOR FURTHER ACKNOWLEDGES AND AGREES THAT
THERE IS NO PUBLIC MARKET FOR THE NOTE OR THE WARRANTS. THERE IS NO ASSURANCE
THAT THE OBLIGORS' OPERATIONS WILL RESULT IN REVENUES OR BE PROFITABLE OR THAT
A PUBLIC MARKET FOR THE NOTE OR THE WARRANTS WILL DEVELOP AT ANY TIME.
d. Accredited Investor. The Investor is an accredited investor as defined
in Rule 501(a) of Regulation D under the 1933 Act. The information provided by
the Investor on the Statement of Accredited Investor, attached hereto as
Exhibit E, is true and correct in all respects. The Investor is capable of
bearing the economic risk of an investment in the purchase of the Note and the
Warrants, including the possible loss of the Investor's entire investment.
The Investor 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 Note and the Warrants offered hereby. The Investor has not been
organized solely for the purpose of acquiring the Note and the Warrants. The
Investor has not construed the contents of this Agreement, or any additional
agreement with respect to the proposed purchase of the Note, the Warrant or
the Default Warrant or any prior or subsequent communications from the
Obligors, or any of their officers, employees or representatives, as
investment, tax or legal advice or as information necessarily applicable to
the Investor's particular financial situation. The Investor has consulted its
own financial advisor, tax advisor, legal counsel and accountant, as necessary
or desirable, as to matters concerning the purchase of the Note, the Warrant
and the Default Warrant.
e. Restricted Securities. The Investor understands that the Note, the
Warrant and the Default Warrant being purchased hereunder, as well as the
Underlying Stock, are "restricted securities" as defined in the 1933 Act, and
that under federal and state securities laws the Note, Warrant, Default
Warrant and the Underlying Stock may be resold without registration under the
1933 Act only in certain limited circumstances. Investor is familiar with
Rule 144 promulgated by the Commission under the 1933 Act, and understands the
resale limitations imposed thereby and by the 1933 Act generally. Investor
also acknowledges that the Note, Warrant, Default Warrant and the Underlying
Stock are subject to significant restrictions on transfer, pledge or
hypothecation. The Investor agrees that in no event will it make a transfer
or disposition of the Note, the Warrant, the Default Warrant or the Underlying
Stock other than in compliance with all applicable securities laws.
f. Legends. It is understood that certificates or other evidence of the
Underlying Stock 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."
Exhibit 10.1 (continued)
5. Covenants of the Obligors.
a. Covenants Prior to Satisfaction of the Note. The Obligors jointly
and severally covenant and agree that for so long as the Note has not been
satisfied in full, each of them will:
i. in the case of the Company, cause to be reserved and kept available
out of its authorized and unissued shares of Preferred Stock (or other equity
securities issuable upon conversion of the Note) such number of shares that
will be sufficient to permit the conversion in full of the Note;
ii. in the case of the Company, take all such action as may be necessary
to ensure that all shares of Preferred Stock (or other equity securities
issuable upon conversion of the Note) delivered upon conversion of the Note
shall, at the time of delivery of the certificates for such shares, be duly and
validly authorized, issued, fully paid and non-assessable;
iii. duly and punctually pay, or cause to be paid, the principal and
interest on the Note on the date(s) on which such principal, premium (if any)
and interest becomes due;
iv. furnish to the Investor promptly after filing, copies of the
Company's reports filed pursuant to the Exchange Act on form 10-K, 10-Q,
8-K, or any successor form or forms;
v. permit the Investor (or its designated representative) to visit
and inspect any of the properties of the Obligors, including their books of
account, and to discuss their affairs, finances and accounts with the
Obligors' officers and its independent public accountants, all at such
reasonable times and as often as any such party may reasonably request;
vi. if the Investor does not have a voting representative on the
Board of Directors of the Company or the Subsidiary, permit the Investor
to send a representative (without voting rights) to each meeting of the
Board of Directors of the Company or the Subsidiary (as applicable) and
all committees of such Board;
vii. promptly pay and discharge, or cause to be paid and discharged,
when due and payable, unless contested by the Obligors in good faith, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Obligors or any subsidiary;
viii. keep their properties in good repair, working order and
condition, and from time to time make all needful and proper, or legally
required, repairs, renewals, replacements, additions and improvements thereto;
and the Obligors will at all times materially comply with each provision of
all leases to which either of them is a party or under which either of them
occupies, or has possession of, any property;
Exhibit 10.1 (continued)
ix. 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 and insurance against other hazards and risks
and liability to persons and property all to the extent, in amounts and in
the manner customary for companies in similar businesses similarly situated;
x. 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;
xi. duly observe and conform in all material respects to all laws,
rules, regulations and requirements of governmental authorities relating to
the conduct of their business or to their property or assets;
xii. maintain in full force and effect its legal existence, rights,
government approvals and franchises and all licenses and other rights to use
patents, processes, licenses, trademarks, trade names or copyrights owned or
possessed by either of them;
xiii. not (without the written consent of the Investor):
(a) Sell or otherwise dispose of all or substantially
all of the assets or business of either Obligor (whether by sale of assets,
exclusive license or otherwise); or
(b) 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 or permit a controlling interest in the Company to be acquired
by one or more parties (through merger, consolidation or otherwise).
xiv. in the case of the Company, not (without the written
consent of the Investor), sell or other dispose of, any shares of the capital
stock of the Subsidiary or any other interest in the Subsidiary;
xv. in the case of the Subsidiary, not (without the written
consent of the Investor), offer, sell or issue, or obligate itself to offer,
sell or issue, any shares of its capital stock or any other interest in
itself;
xvi. not enter into any transaction, including, without limitation,
the purchase, sale or exchange of property, the making of loans or advances
or the rendering of any service with any Affiliate or Related Party except in
the ordinary course of and pursuant to the reasonable requirements of the
applicable Obligor's business and upon fair and reasonable terms no less
favorable to such Obligor than would obtain in a comparable arm's-length
transaction with a person not an Affiliate or Related Party;
xvii. not to make any (i) declaration, setting aside or
payment of any dividend or other distribution in respect of any of the
Company's capital stock, or (ii) 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), or (iii) any repayment of Company or Subsidiary
debt held by any Related Party or by any Affiliate;
Exhibit 10.1 (continued)
xviii. use the proceeds from the issuance of the Note and the
Warrants for the Obligors' working capital purposes;
xix. not change the nature of their business without the prior
written consent of the Investor;
xx. not create, incur, assume or permit to exist any material
indebtedness for borrowed money, or create or suffer to exist any mortgage,
pledge, security interest, lien or encumbrance upon their real or personal
properties, in each case without the prior written consent of the Investor,
except for obligations as lessee under leases that would have been or should
be, in accordance with GAAP, recorded as capital leases.
xxi. require all officers, department heads and those
performing similar functions, and all other persons now or hereafter employed
by the Obligors or their subsidiaries who may be deemed by the Board of
Directors to be a "Key Employee" to execute a non-competition agreement, and
all employees, officers and consultants of the Obligors who have access to
confidential information to execute a proprietary information and
non-disclosure agreement, in favor of the Obligors;
xxii. cause any subsidiary which it may now have and/or which
it may organize or acquire in the future to comply fully with all terms and
provisions of this Article 5 to the same extent as if such subsidiary or
subsidiaries were an "Obligor" herein.
b. Covenants Upon Issuance of Warrants under the Default Warrant. The
Company and Xxxxxxxx Xxxxxx (the "Shareholder"), by signing below, covenant
and agree that, upon the issuance of any shares of Common Stock upon exercise
of the Default Warrant and for the benefit of the Investor as holder of such
shares of Common Stock, they will perform the obligations described in that
certain Term Sheet between the Investor and the Company executed on or about
September 2, 1999 and attached hereto as Exhibit D under the headings
"Registration Rights", "Right of First Refusal on Issuances by SoftLock",
"Right of First Refusal/Co-Sale on Sale by Management", "Financial
Information", "Board of Directors", and "Investor Market Standoff," and the
rights and obligations of the Company, the Investor and the Shareholder set
forth therein shall apply and be binding upon the Company, the Investor and
the Shareholder, provided that such provisions shall apply without regard to
any requirement set forth therein that at least a specified percentage of
"Preferred Stock" or "Common Stock" be held by the Investor. In addition, the
Company and the Shareholder agree that upon request of the Investor, they will
enter into definitive agreements setting forth in greater detail such rights
and obligations, in form reasonably requested by Investor and customary for
institutional venture capital investments (provided that execution of such
definitive agreements shall not be a condition to the effectiveness of such
rights and obligations, which shall automatically bind the parties upon the
issuance of any shares of common stock pursuant to the Default Warrants). By
signing below, Xxxxxxx XxXxxxxx covenants and agrees that in the circumstances
described in the foregoing provisions of this Section 5(b), he will vote all
shares of the Company's Common Stock held by him or over which he has voting
control, at all regular and special meetings of shareholders of the Company
(and in all written consents), for election of one nominee designated by the
Exhibit 10.1 (continued)
Investor for election to the Company's Board of Directors. In addition, the
Company further covenants and agrees for the benefit of the Investor as the
holder of the Default Warrant and the shares of Common Stock issued upon
exercise of the Default Warrant, that it will (i) cause to be reserved and
kept available out of its authorized and unissued shares of common stock such
number of shares that will be sufficient to permit the exercise in full of the
Default Warrant; (ii) take all such action as may be necessary to ensure that
all shares of common stock delivered upon exercise of the Default Warrant
shall, at the time of delivery of the certificates for such shares, be duly
and validly authorized, issued, fully paid and non-assessable; (iii) preserve
and keep in full force and effect its corporate existence and that of each of
its subsidiaries; and (iv) comply with, and the Subsidiary agrees that it will
in such circumstances comply with, the covenants set forth in Sections
5(a)(iv), (v), (vi)-(xvii) and (xxii).
6. Covenants of the Investor.
a. Investment Covenants. The Investor hereby covenants with the Company
that, without in any way limiting the representations set forth in Section 4
above, the Investor shall not make any disposition of all or any portion of
the Note, the Warrant or the Default Warrant unless and until:
i. there is then in effect a registration statement under the 1933 Act
covering such proposed disposition, and such disposition is made in accordance
with such registration statement; or
ii. the Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and, if requested by
the Company (except in transactions in compliance with Rule 144), the Investor
shall have furnished the Company with an opinion of counsel, in form and
substance satisfactory to the Company, that such disposition will not require
registration of the securities under the 0000 Xxx.
b. Covenant to Not Impede Closing Contemplated by Term Sheet. The
Investor acknowledges that there are significant contingencies affecting the
Company's ability to convert the Note into capital stock that are controlled
or affected by the actions of the Investor, including but not limited to (i)
approving the Second Investor (as defined in the Term Sheet), (ii) completing
and being satisfied with its due diligence review of the Company, and (iii)
being satisfied with the legal structure of the Company, its anticipated
sources and uses of funds and the terms and conditions of the transaction
contemplated by the Term Sheet. Accordingly, the Investor hereby covenants
and agrees to use reasonable efforts to diligently and consistently assist the
Company in attracting potential Second Investors, and to not unreasonably
withhold or delay its approval of any willing potential Second Investor and
otherwise to exercise the foregoing rights in good faith and not with a view
to contributing to the Company's inability to convert the Note to capital
stock.
7. Conditions of the Investor's Obligations at Closing. The obligations
of the Investor hereunder are subject to, and contingent upon, the
fulfillment, on or before the Closing, of each of the following conditions:
Exhibit 10.1 (continued)
a. Representations and Warranties. The representations and warranties of
the Obligors contained in Section 3 hereof shall be true and correct on and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
b. Performance. The Obligors shall have performed and complied with all
agreements, obligations and covenants contained in this Agreement that are
required to be performed or complied with by them on or before the Closing.
c. Delivery of the Note and the Warrant. The Obligors shall have
delivered to the Investor the Note, the Warrant and the Default Warrant in the
forms attached hereto as Exhibits A, B and C, respectively.
d. Other. The Investor shall have received such other
certificates, opinions and instruments as the Investor may reasonably request.
8. Conditions of the Obligors' Obligations at Closing. The obligations of
the Obligors to the Investor hereunder are subject to and contingent upon the
fulfillment by the Investor, on or before the Closing, of each of the
following conditions:
a. Representations and Warranties. The representations and warranties of
the Investor contained herein shall be true and correct on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
b. Payment of Purchase Price by the Investor. The Investor shall have
delivered to the Obligors the Purchase Price in the manner specified in
Section 1.b. hereof.
c. Delivery of Note and Statement of Accredited Investor. The Investor
shall have delivered to the Obligors a Statement of Accredited Investor in the
form set forth in Exhibit E attached hereto, and the information provided in
the Statement of Accredited Investor shall be complete and correct on and as of
the Closing with the same effect as though such information had been provided
as of the date of the Closing.
9. Miscellaneous.
a. Survival of Warranties. The representations and warranties of the
Obligors and the Investor contained in this Agreement shall survive the
execution and delivery of this Agreement and the Closing.
b. Successors and Assigns. This Agreement may not be assigned by any
party hereto, except that the Investor may assign or transfer all or a portion
of the Note and the Warrants (i) after the "Trigger Date" (as defined in the
Note) or (ii) to a member or affiliate, subject in either case to compliance
with applicable securities laws (and its rights under this Agreement shall
inure to the benefit of each transferee under the Note and the Warrants). The
terms and conditions of this Agreement shall inure to the benefit of, and be
Exhibit 10.1 (continued)
binding upon, the respective successors and permitted assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party, other than the parties hereto or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided in this Agreement.
c. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, without regard to the
principles of conflict of laws thereof.
d. Counterparts; Delivery by Facsimile. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. Delivery of
this Agreement may be effected by facsimile.
e. Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
f. Notices. Unless otherwise provided, any notice required or permitted
hereunder shall be given by personal service upon the party to be notified, by
nationwide overnight delivery service or upon deposit with the United States
Post Office, by certified mail, return receipt requested and:
i. if to either of the Obligors, addressed to XXXXXXXX.XXX,
INC., Xxxx Xxxxx Xxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxxxxxxxx 00000,
Attention: Xxxxx Xxxxx, with a copy to Clive X. X. X'Xxxxx, Esquire, XxXxxxx,
Xxxxx Battle & Booth LLP, 0000 Xxxxxx Xxxx., Xxxxx 0000, Xxxxxx Xxxxxx,
XxXxxx, Xxxxxxxx 00000-0000 or at such other address as the Company may
designate by notice to the Investor in accordance with the provisions of
this Section 9.f.; and
ii. if to the Investor, at its address indicated on the
signature page hereof, or at such other addresses as the Investor may
designate by notice to the Company in accordance with the provisions of
this Section 9.f.
g. Expenses. The Obligors shall bear their own expenses and legal fees
incurred on their behalf with respect to this Agreement and the transactions
contemplated hereby, whether or not a closing takes place. On the closing
date (or if no closing shall take place, within thirty (30) days of receiving
any statement or invoice therefor), the Obligors will pay the reasonable legal
fees and out-of-pocket expenses of the Investor and special counsel to the
Investor with respect to this Agreement and the transactions contemplated
hereby, but only up to the maximum amount of Ten Thousand Dollars ($10,000).
The Obligors shall also pay the reasonable legal fees and the fees of experts
and consultants engaged by the Investor incurred with respect to the
enforcement of the Agreement, the Note and/or the Warrants and/or with respect
to responding to any request made by either of the Obligors for the consent of
the Investor to any action that the Obligors wish to take that is either
barred under terms of any such document or requires the consent of the
Investor therefor. The Investor shall pay the reasonable legal fees and
expenses incurred by the Company in enforcing this Agreement against the
Investor after a breach by the Investor.
h. Trial by Jury. EACH PARTY HEREBY WAIVES ITS RIGHT TO CLAIM A
TRIAL BY JURY WITH RESPECT TO ANY ACTION BY OR AGAINST INVESTOR ARISING
HEREUNDER.
Exhibit 10.1 (continued)
i. Waiver. EACH PARTY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS
AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED
UNDER CONNECTICUT GENERAL STATUTES SECTION 52-278a TO 52-278g INCLUSIVE, OR BY
ANY OTHER APPLICABLE LAW, STATE OR FEDERAL, HEREBY WAIVES ITS RIGHTS TO NOTICE
AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH ANY PARTY, AND/OR THE
SUCCESSORS OR ASSIGNS OF ANY PARTY MAY DESIRE TO USE.
j. Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either prospectively or retroactively), only with
the written consent of the Obligors and the Investor.
k. Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the intent of the parties, and the validity, legality
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
l. Entire Agreement. This Agreement (including the exhibits hereto)
and the documents referred to herein constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements, understandings, negotiations and discussions, whether
oral or written, of the parties hereto.
m. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Obligors or the Investor upon any breach,
default or noncompliance of the Investor or the Obligors under this Agreement
shall impair any such right, power or remedy, nor shall it be construed to be
a waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent or approval
of any kind or character on the part of the Obligors or the Investor of any
breach, default or noncompliance under this Agreement or any waiver on the
Obligors' or the Investor's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing and that all remedies, either under
this Agreement, by law, or otherwise afforded to the Obligors and the
Investor, shall be cumulative and not alternative.
n. Further Assurances. Prior to and after the Closing, at the request of
the Investor, the Obligors will take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate in doing, as the Investor
may reasonably deem necessary or desirable, all things necessary to consummate
and make effective in a practicable manner, the Closing, and the other
transactions contemplated by this Agreement, the Note, the Warrant and the
Default Warrant, including, without limitation, (i) the execution and delivery
of any additional waivers, consents, confirmations, agreements, instruments or
documents, or the taking of all actions, whether prior to or after the
Closing, necessary to issue and sell the Notes, the Warrant, the Default
Warrant and the Underlying Stock to the Investor and (ii) to otherwise carry
out the purpose and intent of this Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
Exhibit 10.1 (continued)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
XXXXXXXX.XXX, INC., a
Delaware corporation
By:________________________________
Xxxxxxx X. Xxxxxxx
Executive Vice President and Chief Financial Officer
SOFTLOCK SERVICES, INC., a
Delaware corporation
By:________________________________
Xxxxxxx X. Xxxxxxx
Executive Vice President and Chief Financial Officer
SI VENTURE ASSOCIATES, L.L.C., a
Delaware limited liability company
By:_________________________________
Xxxx Xxxxxxxx, Managing Member
[SIGNATURES OF SHAREHOLDERS APPEAR ON FOLLOWING PAGE]
Exhibit 10.1 (continued)
Acknowledged and agreed, for purposes of Section 5(b) only:
Xxxxxxxx Xxxxxx
Xxxxxxx XxXxxxxx
Exhibit List
Exhibit A Promissory Note
Exhibit B Warrant
Exhibit C Default Warrant
Exhibit D Term Sheet
Exhibit E Statement of Accredited Investor
Exhibit F Unaudited Financials
Schedule 3(b) Capitalization Table
Schedule 3(j) Loans, Leases Or Transactions with
Related Parties
Schedule 3(k) Intellectual Property
Schedule 3(k)(c) Licenses
Schedule 5(b) Shareholders
Doc.:250983 v.06
