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EXHIBIT 4.1
PREFERRED STOCK INVESTMENT AGREEMENT
PREFERRED STOCK INVESTMENT AGREEMENT ("AGREEMENT") dated as of March 3,
1998 between General Magic, Inc., a Delaware corporation (the "COMPANY"), and
each person or entity listed as an investor on Schedule I attached to this
Agreement (each individually an "INVESTOR" and collectively the "INVESTORS").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Investors, and the
Investors wish to purchase from the Company 5,000 shares (with another 5,000 of
such shares being issuable at the option of the Company, and another 2,000 of
such shares being purchasable at the option of the Investors, only upon the
terms and subject to the conditions specified in Section 3.15 and/or Section
3.16, respectively, of this Agreement) of the Company's 5 "% Cumulative
Convertible Series B Preferred Stock, liquidation preference $1,000 per share
(all of such shares being the "PREFERRED SHARES"), having the rights,
designations and preferences set forth in the Certificate of Designations (the
"CERTIFICATE") in the form of Exhibit 1.1A attached hereto, on the terms and
conditions set forth herein; and
WHEREAS, the Preferred Shares will be convertible into shares ("COMMON
SHARES") of common stock, par value $0.001, of the Company ("COMMON STOCK"),
pursuant to the terms of the Certificate, and the Investors will have
registration rights with respect to such Common Shares and the Warrant Shares
(each as defined herein), pursuant to the terms of that certain Registration
Rights Agreement to be entered into between the Company and the Investors
substantially in the form of Exhibit 4.2(f) hereto ("REGISTRATION RIGHTS
AGREEMENT"); and
WHEREAS, to induce the Investors to purchase the Preferred Shares, the
Company has agreed to issue to the Investors warrants exercisable for 400,000
shares of Common Stock and additional warrants exercisable for up to 400,000
shares of Common Stock in the case of a mandatory future purchase pursuant to
Section 3.15 or up to 200,000 shares of Common Stock in the case of an optional
future purchase pursuant to Section 3.16, in the form attached as Exhibit 1.1B
(in each case, and/or collectively, as the context may reasonably and logically
require the "WARRANTS");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
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Section 1.1 Issuance of Preferred Shares. Upon the following terms and
conditions, the Company shall issue and sell to each Investor severally, and
each Investor severally shall purchase from the Company, the number of Preferred
Shares indicated next to such Investor's name on Schedule I attached hereto.
(a) Purchase Price. The purchase price for the Preferred Shares to be
acquired by each Investor (the "PURCHASE PRICE") shall be the Purchase Price set
forth next to such Investor's name on Schedule I.
(b) The Closing.
(i) The closing of the purchase and sale of 5,000 Preferred
Shares and the initial Warrants for 400,000 shares of Common Stock
(the "CLOSING"), shall take place at the offices of Kleinberg, Kaplan,
Xxxxx & Xxxxx, P.C. ("INVESTORS' COUNSEL"), at 10:00 am., local time
on the later of the following: (x) the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof
and applicable to the Closing shall be fulfilled or waived in
accordance herewith, or (y) such other time and place and/or on such
other date as the Investors and the Company may agree. The date on
which the Closing occurs is referred to herein as the "CLOSING DATE".
(ii) On the Closing Date, the Company shall deliver to each
Investor (x) certificates (with the number of and denomination of such
certificates requested by such Investor) representing the Preferred
Shares purchased hereunder by such Investor at the Closing registered
in the name of such Investor or its nominee and (y) such Warrants
registered in the name of such Investor or its nominee in such
denominations as reasonably requested by such Investor, and such
Investor shall deliver to the Company the Purchase Price for the
Preferred Shares purchased by such Investor hereunder by wire transfer
in immediately available funds to an account designated in writing by
the Company. The delivery of payment by each Investor of the Purchase
Price applicable to it as set forth in this paragraph shall constitute
a payment delivered to the Company in satisfaction of such Investor's
obligation to pay the Purchase Price hereunder. In addition, each
party shall deliver all documents, instruments and writings required
to be delivered by such party pursuant to this Agreement at or prior
to the applicable Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to each of the
Investors as of the date hereof and on each Closing Date:
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(a) Organization and Qualification; Material Adverse Effect. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Delaware and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. The Company
does not have any direct or indirect subsidiaries other than the subsidiaries
listed on Schedule 2.1 attached hereto. Except where specifically indicated to
the contrary, all references in this Agreement to subsidiaries shall be deemed
to refer to all direct and indirect subsidiaries of the Company. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any adverse effect on the business, operations,
properties, prospects, or financial condition of the entity with respect to
which such term is used and which is (either alone or together with all other
adverse effects) material to such entity and other entities controlling or
controlled by such entity taken as a whole, and any material adverse effect on
the transactions contemplated under this Agreement, the Registration Rights
Agreement or any other agreement or document contemplated hereby or thereby.
(b) Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Warrants and the Registration Rights Agreement and to issue the Preferred Shares
in accordance with the terms hereof, (ii) the execution and delivery of this
Agreement, the Warrants and the Registration Rights Agreement by the Company and
the consummation by it of the transactions contemplated hereby and thereby,
including the issuance of the Preferred Shares and the Warrant Shares and the
resolutions contained in the Certificate, have been duly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors (or any committee or subcommittee thereof) or
stockholders is required, (iii) this Agreement, the Warrants and the
Registration Rights Agreement have been duly executed and delivered by the
Company, (iv) this Agreement, the Warrants, the Certificate and the Registration
Rights Agreement constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application, and (v) the Preferred Shares
have been duly authorized and, upon issuance thereof in accordance with the
terms of this Agreement, the Preferred Shares and the Warrants will be validly
issued, fully paid and non-assessable, free and clear of any and all liens,
claims and encumbrances.
(c) Capitalization. The authorized capital stock of the Company
consists of 60,000,000 shares of Common Stock and 500,000 shares of preferred
stock, of which 50,000 shares are designated as "Series A Convertible Preferred
Stock, par value $0.001"; there are 26,927,201 shares of Common Stock and 50,000
shares of Series A Convertible Preferred Stock issued and outstanding; and
5,018,640 shares of Common Stock are reserved for issuance upon the exercise of
outstanding employee and non-employee director stock options, 773,863 shares of
Common Stock are available for future option grants, and no other shares of
preferred stock are reserved for issuance to persons other than the Investors.
After the Closing, 9,421,503 shares of Common Stock and no shares of preferred
stock will be reserved for issuance to persons other than the Investors. All of
the outstanding shares of the Company's Common Stock and preferred stock have
been validly issued and are fully paid and nonassessable. Except as set forth in
Schedule 2.1, no shares of capital stock are entitled to preemptive rights; and
there are as of the date hereof outstanding options for 5,018,640 shares of
Common Stock and no outstanding warrants for shares of Common Stock (excluding
the Warrants). The Company's issued and outstanding preferred stock is, and will
be, in all respects junior to the Preferred
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Shares, except the Preferred Shares will be pari passu with the Company's Series
A Convertible Preferred Stock as described in the Certificate. Except as set
forth in Schedule 2.1, there are no other scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
exchangeable or convertible into, any shares of capital stock of the Company, or
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of capital stock of the Company
or options, warrants, scrip, rights to subscribe to, or commitments to purchase
or acquire, any shares, or securities or rights convertible into shares, of
capital stock of the Company. Attached hereto as Exhibit 2.1(c)(i) is a true and
correct copy of the Company's Certificate of Incorporation (the "CHARTER"), as
in effect on the date hereof, and attached hereto as Exhibit 2.1(c)(ii) is a
true and correct copy of the Company's By-Laws, as in effect on the date hereof
(the "BY-LAWS").
(d) Issuance of Common Shares. The Common Shares and the shares of
Common Stock issuable upon the exercise of the Warrants (the "WARRANT SHARES")
are duly authorized and reserved for issuance and, upon such conversion and/or
purchase in accordance with the Certificate and/or exercise in accordance with
the Warrants such Common Shares and Warrant Shares will be validly issued, fully
paid and non-assessable, free and clear of any and all liens, claims and
encumbrances, and entitled to be traded on the Nasdaq National Market System
("NASDAQ NMS") (or the American Stock Exchange, the Nasdaq Small Cap Market or
the New York Stock Exchange, collectively with the Nasdaq NMS, the "APPROVED
MARKETS"), and the holders of such Common Shares and Warrant Shares shall be
entitled to all rights and preferences accorded to a holder of Common Stock. The
outstanding shares of Common Stock are currently listed on the Nasdaq NMS.
(e) No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby and the filing of the Certificate do not and will not (i) result in a
violation of the Company's Charter or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its subsidiaries is
a party, or (iii) result in a violation of any federal, state, local or foreign
law, rule, regulation, order, judgment or decree (including Federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected. The business of the Company and its direct
and indirect subsidiaries is being conducted in material compliance with all
applicable laws, ordinances or regulations of any governmental entity. The
Company is not required under Federal, state, local or foreign law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement and the Certificate and the Warrants or issue and
sell the Preferred Stock in accordance with the terms hereof and issue the
Common Shares upon conversion thereof and issue the Warrant Shares on exercise
of the Warrants, except for the registration provisions provided in the
Registration Rights Agreement, provided that, for purposes of the representation
made in this sentence, the Company is assuming and relying upon the accuracy of
the relevant representations and agreements of the Investors herein.
(f) SEC Documents; Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT") and the
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Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Securities and Exchange Commission ("SEC")
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC (all of the foregoing including filings incorporated by reference
therein being referred to herein as the "SEC DOCUMENTS"). The Company has
delivered or made available to the Investors true and complete copies of all SEC
Documents (including, without limitation, proxy information and solicitation
materials and registration statements) filed with the SEC since December 31,
1996 and all annual SEC Documents filed with the SEC since December 31, 1995.
The Company has not provided to the Investor any material non-public information
or any information which, according to applicable law, rule or regulation,
should have been disclosed publicly by the Company but which has not been so
disclosed. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and 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. The SEC Documents contain all material information
concerning the Company, and no event or circumstance has occurred which would
require the Company to disclose such event or circumstance in order to make the
statements in the SEC Documents not misleading on the date hereof or on the
Closing Date but which has not been so disclosed. The financial statements of
the Company 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 SEC or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g) Principal Exchange/Market. The principal market on which the
Common Stock is currently traded is the Nasdaq NMS.
(h) No Material Adverse Change. Since January 1, 1997, except as
disclosed in the SEC Documents, no Material Adverse Effect has occurred or
exists, and no event or circumstance has occurred that with notice or the
passage of time or both is reasonably likely to result in a Material Adverse
Effect with respect to the Company or its subsidiaries.
(i) No Undisclosed Liabilities. The Company and its subsidiaries have
no liabilities or obligations not disclosed in the SEC Documents or on Schedule
2.1, other than those liabilities incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since September 30, 1997,
which liabilities, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its direct or indirect subsidiaries.
(j) No Undisclosed Events or Circumstances. No event or circumstance
has occurred or exists with respect to the Company or its direct or indirect
subsidiaries or their respective businesses, properties,
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prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(k) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act of 1933, as amended (the
"ACT")) in connection with the offer or sale of the Preferred Shares, Warrants,
Common Shares or Warrant Shares.
(l) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor to its knowledge any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Preferred Shares, the Warrants or the Common Shares or
Warrant Shares under the Act.
(m) Form S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) for secondary
offerings on Form S-3 under the Act and rules promulgated thereunder, and Form
S-3 is permitted to be used for the transactions contemplated hereby under the
Act and rules promulgated thereunder.
(n) Intellectual Property. The Company (and/or its wholly-owned
subsidiaries) owns or has licenses to use certain patents, copyrights and
trademarks ("INTELLECTUAL PROPERTY") associated with its business. Except as set
forth in Schedule 2.1, the Company and its subsidiaries have all intellectual
property rights which are needed to conduct the business of the Company and its
subsidiaries as it is now being conducted or as proposed to be conducted as
disclosed in the SEC Documents. Other than as set forth in Schedule 2.1, the
Company and its subsidiaries have no reason to believe that the intellectual
property rights which it owns are invalid or unenforceable or that the use of
such intellectual property by the Company or its subsidiaries infringes upon or
conflicts with any right of any third party, and neither the Company nor any of
its subsidiaries has received notice of any such infringement or conflict.
Except as set forth in Schedule 2.1, the Company and its subsidiaries have no
knowledge of any infringement of its intellectual property by any third party.
(o) Shareholder Rights Plan. None of the acquisition of Preferred
Shares, Warrants, Common Shares or Warrant Shares nor the deemed beneficial
ownership of shares of Common Stock prior to, or the acquisition of such shares
pursuant to, the conversion of Preferred Shares or the exercise of the Warrants
will in any event under any circumstance trigger the poison pill provisions of
any stockholders' rights or similar agreements, or a substantially similar
occurrence under any successor or similar plan.
(p) No Litigation. Except as set forth in the SEC Documents delivered
to the Investors prior to the date of this Agreement ("PRE-AGREEMENT SEC
DOCUMENTS") and on Schedule 2.1, no litigation or claim (including those for
unpaid taxes) against the Company or any of its subsidiaries is pending or, to
the Company's knowledge, threatened, and no other event has occurred, which if
determined adversely could reasonably be expected to have a Material Adverse
Effect on the Company or could reasonably be expected to materially and
adversely effect the transactions contemplated hereby. The legal proceedings
described in the Pre-Agreement SEC Documents will not have an effect on the
transactions contemplated hereby, and will not have a Material Adverse Effect on
the Company.
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(q) Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company or any Investor relating to this Agreement or the
transactions contemplated hereby.
(r) Acknowledgement of Dilution. The number of shares of Common Stock
constituting Common Shares or Warrant Shares may increase substantially in
certain circumstances, including the circumstance where the trading price of the
Common Stock declines. The Company acknowledges that its obligation to issue
Common Shares upon conversion of Preferred Shares and Warrant Shares upon
exercise of the Warrants is absolute and unconditional, regardless of the
dilution that such issuance may have on other shareholders of the Company.
(s) Other Investors. Except as set forth on Schedule 2.1, there are
no outstanding securities issued by the Company that are entitled to
registration rights under the Act. Except as set forth in Schedule 2.1, there
are no outstanding securities issued by the Company that are directly or
indirectly convertible into, exercisable into, or exchangeable for, shares of
Common Stock of the Company, that have anti-dilution or similar rights that
would be affected by the issuance of the Preferred Shares, the Common Shares,
the Warrant Shares or the Warrants.
(t) Certain Transactions. Except as disclosed in the SEC Documents
and on Schedule 2.1 and except for arm's length transactions pursuant to which
the Company or any of its direct or indirect subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the Company or any
of its direct or indirect subsidiaries could obtain from third parties, none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its direct or indirect subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
(u) Permits; Compliance. The Company and each of its direct and
indirect subsidiaries is in possession of all franchises, grants,
uthorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "COMPANY PERMITS"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits except for such Company Permits the failure of which to
possess, or the cancellation or suspension of which, would not, individually or
in the aggregate, have a material adverse effect on the Company. Neither the
Company nor any of it direct or indirect subsidiaries is in material conflict
with, or in material default or material violation of, any of the Company
Permits. Since January 1, 1997, neither the Company nor any of its direct or
indirect Subsidiaries has received any notification with respect to possible
material conflicts, material defaults or material violations of applicable laws.
(v) Insurance. The Company and each of its direct and indirect
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company and
its direct and indirect subsidiaries are engaged. Neither the Company nor any
such direct or indirect subsidiary has any
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reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(w) Internal Accounting Controls. The Company and each of its direct
and indirect subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(x) Margin Accounts. To the Company's knowledge, at no time since
January 1, 1997 has any director or executive officer of the Company maintained
more than 15% of such individual's Common Stock in a margin account or placed
more than 15% of such individual's Common Stock in a situation which could have
resulted in an involuntary sale thereof.
(y) NASD Contacts. Since July 30, 1997, the Company has not been
contacted by the National Association of Securities Dealers ("NASD"), either
orally or in writing, concerning potential delisting of the Common Stock from
the Nasdaq NMS.
Section 2.2 Representations and Warranties of the Investors. Each of the
Investors, severally (as to itself) and not jointly, hereby makes the following
representations and warranties to the Company as of the date hereof and on the
Closing Date:
(a) Authorization; Enforcement. (i) Such Investor has the requisite
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement and to purchase the Preferred Shares being sold
hereunder or in accordance with the Certificate and to acquire the Warrant
Shares, (ii) the execution and delivery of this Agreement and the Registration
Rights Agreement by such Investor and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate or partnership action, and (iii) this Agreement and the Registration
Rights Agreement constitute valid and binding obligations of such Investor
enforceable against such Investor in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the performance under the
Warrants and the consummation by such Investor of the transactions contemplated
hereby and thereby do not and will not (i) result in a violation of such
Investor's organizational documents, or (ii) conflict with any agreement,
indenture or instrument to which such Investor is a party, or (iii) result in a
material violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Investor. Such
Investor is not required to obtain any consent or authorization of any
governmental agency in order for it to perform its obligations under this
Agreement or the Registration Rights Agreement or the Warrants.
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(c) Investment Representation. Such Investor is purchasing the
Preferred Shares and the Warrants for its own account and not with a view to
distribution in violation of any securities laws. Such Investor has no present
intention to sell the Preferred Shares, Warrants, Common Shares or Warrant
Shares and such Investor has no present arrangement (whether or not legally
binding) to sell the Preferred Shares, Warrants, Common Shares or Warrant Shares
to or through any person or entity; provided, however, that by making the
representations herein, such Investor does not agree to hold the Preferred
Shares, Warrants, Common Shares or Warrant Shares for any minimum or other
specific term and reserves the right to dispose of the Preferred Shares,
Warrants, Common Shares or Warrant Shares at any time in accordance with Federal
and state securities laws applicable to such disposition.
(d) Accredited Investor. Such Investor is an "accredited investor" as
defined in Rule 501 promulgated under the Act. The Investor has such knowledge
and experience in financial and business matters in general and investments in
particular, so that such Investor is able to evaluate the merits and risks of an
investment in the Preferred Shares and to protect its own interests in
connection with such investment. In addition (but without limiting the effect of
the Company's representations and warranties contained herein), such Investor
has received such information as it considers necessary or appropriate for
deciding whether to purchase the Preferred Shares pursuant hereto.
(e) Rule 144. Such Investor understands that there is no public
trading market for the Preferred Shares, that none is expected to develop, and
that the Preferred Shares must be held indefinitely unless and until such
Preferred Shares, or Common Shares received upon conversion thereof are
registered under the Act or an exemption from registration is available. Such
Investor has been advised or is aware of the provisions of Rule 144 promulgated
under the Act.
(f) Brokers. Such Investor has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company relating to this Agreement or the transactions
contemplated hereby, except for amount owing to AFO Capital LLC, which amounts
will be paid exclusively by the Investors.
(g) Reliance by the Company. Such Investor understands that the
Preferred Shares and Warrants are being offered and sold in reliance on a
transactional exemption from the registration requirements of Federal and state
securities laws and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of such Investor set forth herein in order to determine the applicability of
such exemptions and the suitability of such Investor to acquire the Preferred
Shares and Warrants.
ARTICLE III
COVENANTS
Section 3.1 Registration and Listing; Effective Registration. Until such
time as no Preferred Shares or Warrants are outstanding, the Company will cause
the Common Stock to continue at all times to be registered
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under Section 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such reporting and filing obligations.
Until such time as no Preferred Shares or Warrants are outstanding, the Company
shall continue the listing or trading of the Common Stock on the Nasdaq NMS or
one of the other Approved Markets and comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Approved Market on which the Common Stock is listed. The Company shall cause the
Common Shares and the Warrant Shares to be listed on the Nasdaq NMS no later
than the registration of the Common Shares or the Warrant Shares under the Act,
and shall continue such listing(s) on one of the Approved Markets. As used
herein and in the Registration Rights Agreement, the Certificate, and the
Warrants, the term "EFFECTIVE REGISTRATION" shall mean that all registration
obligations of the Company pursuant to the Registration Rights Agreement and
this Agreement have been satisfied, such registration is not subject to any
suspension or stop order (other than suspensions or stop orders resulting in a
Suspension Grace Period (as defined in the Registration Rights Agreement), which
shall be excluded from this definition solely for purposes of determining the
number of days by which the Mandatory Conversion Date (as defined in the
Registration Rights Agreement) will be deferred for 1.5 days), the prospectus
for the Common Shares issuable upon conversion of the Preferred Shares and the
Warrant Shares issuable upon exercise of the Warrants is current and such Common
Shares and Warrant Shares are listed for trading on one of the Approved Markets
and such trading has not been suspended for any reason, and none of the Company
or any direct or indirect subsidiary of the Company is subject to any
bankruptcy, insolvency or similar proceeding.
Section 3.2 Certificates on Conversion and Warrants on Exercise.
(a) Upon any conversion by an Investor (or then holder of Preferred
Shares) of the Preferred Shares pursuant to the Certificate, the Company shall
issue and deliver to such Investor (or holder) within three (3) days of the
Conversion Date (as defined in the Certificate) a new certificate or
certificates for the number of Preferred Shares which such Investor (or holder)
has not yet elected to convert but which are evidenced in part by the
certificate(s) submitted to the Company in connection with such conversion (with
the number of and denomination of such new certificate(s) designated by such
Investor or holder).
(b) Upon any partial exercise by an Investor (or then holder of the
Warrants) of the Warrants, the Company shall issue and deliver to such Investor
(or holder) within three (3) days of the date on which such Warrants are
exercised, a new Warrant or Warrants representing the number of adjusted Warrant
Shares, in accordance with the terms of Section 2 of the Warrants.
Section 3.3 Replacement Certificates and Warrants.
(a) The certificate(s) representing the Preferred Shares held by any
Investor (or then holder) may be exchanged by such Investor (or such holder) at
any time and from time to time for certificates with different denominations
representing an equal aggregate number of Preferred Shares, as requested by such
Investor (or such holder) upon surrendering the same. No service charge will be
made for such registration or transfer or exchange.
(b) The Warrants will be exchangeable at the option of the Investor
(or then holder of the Warrants) at the office of the Company for other Warrants
of different denominations entitling the holder
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thereof to purchase in the aggregate the same number of Warrant Shares as are
purchasable under such Warrants. No service charge will be made for such
transfer or exchange.
Section 3.4 Expenses. The Company shall pay, at the Closing and promptly
upon receipt of any further invoices relating to same, all reasonable due
diligence fees and expenses and reasonable attorneys' fees and expenses of the
Investors' Counsel, up to a maximum amount of $25,000, incurred by the Investors
in connection with the preparation, negotiation, execution and delivery of this
Agreement, the Registration Rights Agreement, the Certificate, the Warrants and
the related agreements and documents and the transactions contemplated hereunder
and thereunder. At Closing, the Company shall pay the amount due for such fees
and expenses (which may include fees and expenses estimated to be incurred for
completion of the transaction including post-closing matters). In the event such
amount is ultimately less than the actual fees and expenses, the Company shall
promptly pay such deficiency upon receipt of an invoice regarding same.
Section 3.5 Securities Compliance. The Company shall notify the SEC and the
Nasdaq NMS, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Certificate, the Registration Rights
Agreement and the Warrants, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Preferred Shares hereunder,
the Common Shares issuable upon conversion thereof, the Warrants and the Warrant
Shares issuable upon exercise of the Warrants.
Section 3.6 Notices. The Company agrees to provide all holders of Preferred
Shares and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of shares of Common Stock, contemporaneously
with the delivery of such notices or information to such Common Share holders.
Section 3.7 Use of Proceeds. The Company agrees that the proceeds received
by the Company from the sale of the Preferred Shares hereunder shall be used for
working capital purposes.
Section 3.8 Reservation of Stock Issuable Upon Conversion and Upon Exercise
of the Warrants. The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares and the exercise of the
Warrants, such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding Preferred Shares and
the full exercise of the Warrants, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding Preferred Shares and the full exercise of
the Warrants, the Company will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including without limitation engaging in best efforts to obtain the requisite
shareholder approval. Without in any way limiting the foregoing, the Company
agrees to reserve and at all times keep available solely for purposes of
conversion of Preferred Shares and the exercise of the Warrants, such number of
authorized but unissued shares of Common Stock that is at least equal to 400% of
the aggregate shares issuable upon conversion of Preferred Shares, and 150% of
the aggregate shares issuable on exercise of Warrants, which number may be
reduced by the number of Common Shares or Warrant Shares actually delivered
pursuant to conversion of Preferred Shares under the Certificate or exercise of
the Warrants and shall be appropriately adjusted for any stock split, reverse
split, stock dividend or reclassification of the Common Stock. If the Company
falls below the reserves specified in
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the immediately preceding sentence and does not cure such non-compliance within
10 days of the beginning of such non-compliance, then the Investors will be
entitled to the default adjustments specified in Section 2(b)(iv)(a) of the
Registration Rights Agreement. If at any time the number of authorized but
unissued shares of Common Stock is not sufficient to effect the conversion of
all the then outstanding Preferred Shares or the full exercise of the Warrants,
the Investors shall be entitled to, inter alia, the premium price redemption
rights provided in the Registration Rights Agreement.
Section 3.9 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article IV of this Agreement.
Section 3.10 Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Preferred Shares, Warrants, Common Shares and Warrant
Shares, as required under Regulation D and to provide a copy thereof to each
Investor promptly after such filing. The Company shall, on or before each
Closing Date, take such action as the Company shall have reasonably determined
is necessary to qualify the Preferred Shares, Warrants, Common Shares and
Warrant Shares for sale to the Investors at the applicable Closing pursuant to
this Agreement under applicable securities or "blue sky" laws of the states of
the United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Investor on or prior to the
Closing Date.
Section 3.11 No Senior Securities. The Company agrees that neither the
Company nor any direct or indirect subsidiary of the Company shall (i) create,
incur, assume, guarantee, secure or in any manner become liable in respect of
any indebtedness, or permit any liens, claims or encumbrances to exist against
the Company or any direct or indirect subsidiary of the Company or any of their
assets, except for indebtedness incurred and liens created in the ordinary
course of business consistent with past practices, (including without limitation
equipment financing occurring in the ordinary course of business consistent with
past practices), or (ii) subject to Section 3.13, issue any shares of its
preferred stock or any securities convertible into its preferred stock without
prior written approval of such preferred stock (or convertible security)
issuance by a majority in interest of the holders of outstanding Preferred
Shares, except for preferred stock which is junior to the Preferred Shares in
all respects, until (A) if the Company's rights under Section 3.15 have expired
or been waived, the earlier of the twelve (12) month anniversary of the Closing
Date and the date on which in excess of eighty percent (80%) of the Preferred
Shares then issued have been converted or (B) if the Company has compelled the
Investors to purchase additional Preferred Shares pursuant to Section 3.15 or
its rights thereunder have not expired or been waived, on the earlier of the
twelve (12) month anniversary of the date of purchase (or the last possible date
of purchase) pursuant to Section 3.15 and the date on which in excess of eighty
percent (80%) of the Preferred Shares then issued and issuable under Section
3.15 have been converted, but in any event the limitation imposed by this
Section 3.11(ii) will expire not later than the twenty-four (24) month
anniversary of the Closing Date, at which time the Company will be permitted to
issue preferred stock that is pari passu with the Preferred Shares; provided
that (subject to Section 3.13) the Company may issue such pari passu preferred
stock (or convertible securities) at any time as part of bona fide registered
public offering by the Company pursuant to a firm commitment underwriting led by
a nationally recognized underwriter resulting in net proceeds to the Company of
at least $10,000,000.
Section 3.12 Delisting. (a) If a conversion by an Investor would result in
the Company issuing to such Investor in excess of such Investor's pro rata
portion of 20% of the Company's outstanding Common Stock (such pro rata portion
adjusted pursuant to Section 3.16), which 20% issuance would, in the written
opinion of
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counsel for the Company, result in the Company being delisted from the Nasdaq
NMS for issuing in excess of 20% of its outstanding Common Stock to the
Investors without the approval of the Company's shareholders, then the Company
shall redeem for cash, within T+3 (as defined in the Certificate) of the
Conversion Date (as defined in the Certificate) (x) those Preferred Shares
covered by the applicable Conversion Notice (as defined in the Certificate) that
could not be converted into 20% or less of the outstanding Common Stock and (y)
at the election of such Investor, all other Preferred Shares (i.e., Preferred
Shares not covered by the applicable Conversion Notice) then held by such
Investor, at a price equal to 130% of the Liquidation Preference in effect at
that time; provided that (i) if the Company fails to complete the redemption of
such Preferred Shares within T+3 it will, at the option of and upon notice from
any Investor who so elects, exchange any or all Preferred shares convertible
into in excess of 20% of the outstanding Common Stock for a senior note in an
aggregate principal amount equal to 130% of the Liquidation Preference in effect
at such time in respect of such Preferred Shares and in the form of Exhibit 3.12
hereto, and (ii) the Company hereby agrees that at such time as the Preferred
Shares would be convertible into at least 15% of its outstanding Common Stock,
the Company will seek (without delay) and use its best efforts to obtain
shareholder approval to issue in excess of 20% of the Company's Common Stock to
the holders of Preferred Shares upon the conversion thereof, and (iii) if any
Investor has fully converted its Preferred Shares without exhausting its pro
rata portion of the 20% of outstanding Common Stock, then each such Investor's
remaining portion of that 20% will be allocated proportionally (subject to
adjustment pursuant to Section 3.16) among those Investors still holding
Preferred Shares in accordance with their pro rata share of the Preferred Shares
initially purchased on the Closing Date; provided that no reallocation under
this Section 3.12(a)(iii) shall occur until all possible purchases under
Sections 3.15 and 3.16 shall have been completed in full or shall have been
waived or shall have expired. The Company will use its best efforts to provide
at least 6 Trading Days prior written notice of any such redemption and will
reimburse converting Investors for any losses incurred as a result of the
failure to provide such notice. Notwithstanding the Company's obligation to so
reimburse for losses, in no event may the Company fail to honor a Conversion
Notice and redeem Preferred Shares submitted for conversion pursuant to this
Section 3.12 unless it has notified a converting Investor of its intention to do
so within 1 hour of such Investor's sending the Company a Conversion Notice.
(b) In the event the NASD threatens to delist the Common Stock from
the Nasdaq NMS because the per share market price of a share of Common Stock is
not at least $1.00, then the Company promptly shall take all steps necessary to
maintain such a $1 per share market price, including but not limited to
effecting a reverse stock split of the Company.
Section 3.13 No Discounted Convertible Offerings. Notwithstanding any other
provisions of this Agreement, the Certificate, the Registration Rights Agreement
or the Warrant, until (A) if the Company's rights under Section 3.15 have
expired or been waived, the earlier of the twelve (12) month anniversary of the
Closing or the date on which in excess of eighty percent (80%) of the Preferred
Shares then issued have been converted or (B) if the Company has compelled the
Investors to purchase additional Preferred Shares pursuant to Section 3.15 or
its rights thereunder have not expired or been waived, on the earlier of the
twelve (12) month anniversary of the date of purchase (or the last possible date
of purchase) pursuant to Section 3.15 and the date on which in excess of eighty
percent (80%) of the Preferred Shares then issued and issuable under Section
3.15 have been converted, but in any event the limitations imposed by this
Section 3.13 will expire not later than the twenty-four (24) month anniversary
of the Closing Date, the Company will not without the consent of the Investors
holding 75% or more of the Preferred Shares offer or sell any securities
convertible into or exercisable or exchangeable for Common Stock where the
conversion, exercise and/or exchange price
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of such security is a function of or varies with (i) the market price of the
underlying security at or during some period of time prior to such conversion or
(ii) the price at which any holder of the underlying security sells that
security on or about the date of such conversion.
Section 3.14 Capitalization Updates. The capitalization information
required by Section 2.1(c) will be updated quarterly in a certificate delivered
by the Company to each Investor on March 31, June 30, September 30 and December
31 of each year, beginning March 31, 1998.
Section 3.15 Mandatory Future Purchases. In the event that:
(i) the closing bid price of a share of Common Stock on the principal
Approved Market has been $3 (such $3 price being subject to the same
adjustments as may from time to time be made to the Fixed Conversion Price
(as defined in the Certificate)) or more for each of the preceding 30
Trading Days, and
(ii) there is, and has been for each of the preceding 60 Trading Days,
Effective Registration, and
(iii) there are not, and have not been in any of the preceding 60
Trading Days, any Interfering Events (as such term is defined in the
Registration Rights Agreement), and
(iv) no transaction or event specified in Section 4(o) of the
Certificate has been announced or is known or reasonably suspected by the
Company to be pending, and
(v) the aggregate market value of all the shares of Common Stock
trading on the principal Approved Market on a single Trading Day (exclusive
of "block trades", which shall mean trades in excess of 25,000 shares of
Common Stock) shall be in excess of $450,000 per Trading Day for each of
the 30 preceding Trading Days, and
(vi) the Company shall have a net worth of at least $17,000,000 as
certified in writing to the Investors by the chief financial officer of the
Company, and
(vii) there have been no breaches by the Company that have not been
fully cured under this Agreement, the Registration Rights Agreement, the
Certificate or the Warrant, and
(viii) all the Company's representations and warranties contained in
this Agreement, the Registration Rights Agreement and the Warrant shall
continue to be true, and all the Company's covenants contained in this
Agreement, the Registration Rights Agreement and the Warrant shall have
been performed when and as required, all as certified in writing by the
chief financial officer of the Company, and
(ix) 200% of the number of shares of Common Stock into which Preferred
Shares (whether already issued and outstanding or issuable pursuant to this
Section 3.15) could be converted shall be authorized, available, reserved
for such conversion and subject to an effective registration statement
under the Securities Act, and
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(x) the issuance of 5,000 Preferred Shares pursuant to this Agreement
as well as the issuance of additional Preferred Shares pursuant to this
Section 3.15 and Section 3.16 have been approved by the shareholders of the
Company pursuant to NASD Rule 4460(i);
then the Company may compel the Investors upon written notice (assuming the
conditions specified in (i) through (x) above were also satisfied as of the date
of such notice and as the date of the closing described below) thereto to
purchase, for immediately available funds, one additional Preferred Share (at a
price of $1,000 per Preferred Share) for each Preferred Share purchased by the
Investors at the Closing; provided that such mandatory purchase must be
consummated within 180 days of the date on which the condition specified in (i)
above is first satisfied and in addition, no later than twelve (12) months
following the Closing Date or else the Company's rights under this Section 3.15
will expire; provided further that such closing will take place no earlier than
5 Trading Days after receipt by the Investors of the written notice hereunder
unless the Investors agree otherwise in writing; provided additionally that such
additional Preferred Shares will be purchased by the Investors in proportion to
their purchases of the initial 5,000 Preferred Shares at the Closing and the
obligations of such Investors under this Section 3.15 shall be in all respects
several and not joint; and provided finally that (x) all the closing conditions
contained in Section 4.2 shall be satisfied again at the time additional
Preferred Shares are issued under this Section 3.15, and (y) the Common Shares
underlying the Preferred Shares to be purchased pursuant to this Section 3.15
will be subject to Effective Registration on the date of closing pursuant to
this Section 3.15. At the closing described in this Section 3.15, the Company
will issue to each Investor, with respect to its purchase of Preferred Shares
pursuant to this Section 3.15, 80 Warrants per Preferred Share purchased, in the
form of Exhibit 1.1B, struck at 150% of the Fair Market Price (as defined in the
Certificate) calculated on the day prior to the closing under this Section 3.15
and exercisable for five years following the date of issuance of such Warrants.
Section 3.16 Optional Future Purchases. In the event that:
(i) the closing bid price of a share of Common Stock on the principal
Approved Market has been $3 (such $3 price being subject to the same
adjustments as may from time to time be made to the Fixed Conversion Price
(as defined in the Certificate)) or more for each of the preceding 30
Trading Days, and
(ii) there is, and has been for each of the preceding 60 Trading Days,
Effective Registration, and
(iii) there are not, and have not been in any of the preceding 60
Trading Days, any Interfering Events (as such term is defined in the
Registration Rights Agreement), and
(iv) no transaction or event specified in Section 4(o) of the
Certificate has been announced or is known or reasonably suspected by the
Company to be pending, and
(v) the aggregate market value of all the shares of Common Stock
trading on the principal Approved Market on a single Trading Day (exclusive
of "block trades", which shall mean trades in
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excess of 25,000 shares of Common Stock) shall be in excess of $450,000 per
Trading Day for each of the 30 preceding Trading Days, and
(vi) the Company shall have a net worth of at least $17,000,000 as
certified in writing to the Investors by the chief financial officer of the
Company, and
(vii) there have been no breaches by the Company that have not been
fully cured under this Agreement, the Registration Rights Agreement, the
Certificate or the Warrant, and
(viii) all the Company's representations and warranties contained in
this Agreement, the Registration Rights Agreement and the Warrant shall
continue to be true, and all the Company's covenants contained in this
Agreement, the Registration Rights Agreement and the Warrant shall have
been performed when and as required, all as certified in writing by the
chief financial officer of the Company, and
(ix) 200% of the number of shares of Common Stock into which Preferred
Shares (whether already issued and outstanding or issuable pursuant to this
Section 3.16) could be converted shall be authorized, available, reserved
for such conversion and subject to an effective registration statement
under the Securities Act, and
(x) the issuance of 5,000 Preferred Shares pursuant to this Agreement
as well as the issuance of additional Preferred Shares pursuant to this
Section 3.16 and this Section 3.16 have been approved by the shareholders
of the Company pursuant to NASD Rule 4460(i);
then each Investor may (assuming the conditions specified in (i) through (x)
above were also satisfied as of the date of such notice and as the date of the
closing described below) purchase up to one (1) additional Preferred Share (at a
price of $1,000 per Preferred Share) for each 2.5 Preferred Shares purchased at
the Closing; provided that such optional purchase must be consummated within 180
days of the date on which the condition specified in (i) above is first
satisfied and, in addition, no later than twelve (12) months following the
Closing Date or else the Investor's rights under this Section 3.16 will expire;
provided further that the rights and obligations of Investors under this Section
3.16 shall be in all respects several and not joint; and provided finally that
all the closing conditions contained in Section 4.2 shall be satisfied again at
the time additional Preferred Shares are issued under this Section 3.16. If the
Investors' exercise of rights pursuant to this Section 3.16 is not in proportion
to the initial purchase of Preferred Shares on the Closing Date, then, for
purposes of Section 3.12, the Investors' pro rata portions of the 20% of the
Company's outstanding Common Stock will be adjusted by setting each such
Investor's percentage to be equal to a fraction, the numerator of which shall be
the total number of Preferred Shares purchased by such Investor and the
denominator of which shall be the total number of Preferred Shares issued to the
Investors. At the closing described in this Section 3.16, the Company will issue
to each Investor, with respect to its purchase of Preferred Shares pursuant to
this Section 3.16, 80 Warrants per Preferred Share purchased in the form of
Exhibit 1.1B, struck at 150% of the Fair Market Price (as defined in the
Certificate) calculated on the day prior to the closing under this Section 3.16
and exercisable for five years following the date of issuance of such warrants.
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Section 3.17 Shareholder Approval. The Company shall present to a
shareholders' meeting, anticipated to be held by June 30, 1998, resolutions
approving the issuance of the Preferred Shares on the Closing Date as well as
the mandatory purchase pursuant to Section 3.15 and the optional purchase
pursuant to Section 3.16, shall solicit proxies in favor of such resolutions and
shall use its best effort to obtain shareholder approval thereof.
Section 3.18 Vote Calculations. For purposes of determining the applicable
percentage of holders in favor of any waivers, consents, amendments or votes
undertaken in connection with this Agreement, the Certificate, the Registration
Rights Agreement or the Warrants between the date of this Agreement and any
closing pursuant to Section 3.15 or any expiration or waiver of all rights
thereunder, the percentage vote or consent will be calculated as a fraction, the
denominator of which will equal the sum of (A) the Liquidation Preference of all
unconverted and outstanding Preferred Shares plus (B) the aggregate of all
Investors' commitment (i.e., $5,000,000) to purchase Preferred Shares pursuant
to Section 3.15 without reference to the 20% limitation described in Section
3.12 (the "Commitment"), and the numerator of which will equal the sum of (C)
the aggregate Liquidation Preferences of all outstanding and unconverted
Preferred Shares being voted in favor of such measure plus (D) the Commitment
being voted in favor of such measure. By way of example, if a 75% vote was
needed under circumstances in which Preferred Shares with a total Liquidation
Preference of $1,000,000 remained unconverted and outstanding (such that the
denominator described above was $6,000,000), the votes of holders of Preferred
Shares with Liquidation Preferences and/or Commitments of $4,500,000 in the
aggregate would need to vote in favor of a measure for it to pass. Additionally,
holders of Preferred Shares (other than the Investors and their affiliates) who
are affiliates of the Company (and the Company itself) shall not participate in
such vote and the Preferred Shares of such holders shall be disregarded and not
deemed outstanding for purposes of any such vote.
ARTICLE IV
CONDITIONS TO CLOSINGS
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Preferred Shares. The obligation hereunder of the Company to issue and/or
sell the Preferred Shares to the Investors at the Closing (unless otherwise
specified) is subject to the satisfaction, at or before the Closing, of each of
the applicable conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investors' Representations and Warranties. The
representations and warranties of each Investor will be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which will be true and correct in all material respects as of such date).
(b) Performance by the Investors. Each Investor shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by such Investor at or prior to the Closing.
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(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement or the Certificate or the
Warrants.
Section 4.2 Conditions Precedent to the Obligation of the Investors to
Purchase the Preferred Shares. The obligation hereunder of each Investor to
acquire and pay for the Preferred Shares at the Closing (unless otherwise
specified) is subject to the satisfaction, at or before the Closing, of each of
the applicable conditions set forth below. (These conditions will also be
satisfied at a closing pursuant to Section 3.15 and/or 3.16, and references to
the Closing and Closing Date herein shall, in such case, be deemed to refer to
the date of closing under Section 3.15 or 3.16, as the case may be.) These
conditions are for each Investor's benefit and may be waived by each Investor at
any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which shall be true and correct in all material respects as of such date).
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.
(c) Nasdaq NMS. From the date hereof to the Closing Date, trading in
the Company's Common Stock shall not have been suspended by the SEC or the
Nasdaq NMS (or other Approved Market), and trading in securities generally as
reported by the Nasdaq NMS (or other Approved Market) shall not have been
suspended or limited, and the Common Stock shall not have been delisted from the
Nasdaq NMS (or any other Approved Market where they are currently listed), and
the market value of the outstanding Common Stock shall not have decreased below
$1.00 per share.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement or the Certificate or the
Warrants.
(e) Opinion of Counsel. At the Closing, the Investors shall have
received an opinion of counsel to the Company in the form attached hereto as
Exhibit 4.2(e) and such other opinions, certificates and documents as the
Investors or their counsel shall reasonably require incident to the Closing.
(f) Registration Rights Agreement. The Company and the Investors
shall have executed and delivered the Registration Rights Agreement in the form
and substance of Exhibit 4.2(f) attached hereto.
(g) Adverse Changes. No event which had or is likely to have, in the
reasonable judgment of the Investors, a Material Adverse Effect on the Company
or any of its direct or indirect subsidiaries shall have occurred.
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(h) Officer's Certificate. The Company shall have delivered to the
Investors a certificate in form and substance satisfactory to the Investors and
the Investors' Counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Charter, By-Laws, good standing and
authorizing resolutions of the Company.
(i) Certificates and Warrants. The Investors shall have received
certificates representing the Preferred Shares and Warrants in the form and
substance of Exhibit 1.1A and 1.1B hereto.
(j) Certificate. The Certificate shall have been accepted for filing
by the Secretary of State of the State of Delaware and a stamped copy thereof
shall have been provided to the Investors' Counsel.
(k) Due Diligence. Each Investor shall have completed its financial,
accounting, operational and legal due diligence in a manner satisfactory to such
Investor in its sole discretion.
ARTICLE V
LEGEND AND STOCK
The Company will issue one or more certificates representing the Preferred
Shares and the Warrants in the name of the Investor or its designees and in such
denominations to be specified by the Investor prior to (or from time to time
subsequent to) Closing. Each certificate representing the Preferred Shares and
the Warrants and any shares of Common Stock issued upon conversion or exercise
thereof shall be stamped or otherwise imprinted with a legend substantially in
the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Preferred Shares and Warrants without the
legend set forth above at such time as (i) the holder thereof is permitted to
dispose of such Preferred Shares and/or Warrants and Common Stock issuable upon
conversion or exercise thereof pursuant to Rule 144(k) under the Act, or (ii)
such Preferred Shares and/or Warrants are sold to a purchaser or purchasers who
(in the opinion of counsel to the seller or such purchaser(s), in form and
substance reasonably satisfactory to the Company and its counsel) are able to
dispose of such shares publicly without registration under the Act.
Prior to the Registration Statement (as defined in the Registration Rights
Agreement) being declared effective, any Common Shares issued pursuant to
conversion of Preferred Shares or Warrant Shares issued upon exercise of the
Warrants shall bear a legend in the same form as the legend indicated above;
provided that such legend shall be removed from the Common Shares and Warrant
Shares and the Company shall issue new certificates without such legend if (i)
the holder thereof is permitted to dispose of such Common Shares and/or Warrant
Shares pursuant to Rule 144(k) under the Act or (ii) such Common Shares and/or
Warrant Shares are sold to a purchaser or purchasers who (in the opinion of
counsel to the seller or such purchaser(s), in form and
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substance reasonably satisfactory to the Company and it counsel) are able to
dispose of such shares publicly without registration under the Act. Upon such
Registration Statement becoming effective, the Company agrees to promptly, but
no later than three (3) business days thereafter, issue new certificates
representing such Common Shares and Warrant Shares without such legend. Any
Common Shares issued pursuant to conversion of Preferred Shares or Warrant
Shares issued upon exercise of the Warrants or after the Registration Statement
has become effective shall be free and clear of any legends, transfer
restrictions and stop orders. Notwithstanding the removal of such legend, each
Investor agrees to sell the Common Shares and Warrant Shares represented by the
new certificates in accordance with the applicable prospectus delivery
requirements (if copies of a current prospectus are provided to such Investor by
the Company) or in accordance with an exception from the registration
requirements of the Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement.
ARTICLE VI
TERMINATION
Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual written consent of the Company
and a majority in interest of the Investors.
Section 6.2 Other Termination. This Agreement may be terminated by action
of the Board of Directors of the Company or by any of the Investors at any time
if the Closing shall not have been consummated by the fifth business day
following the date of this Agreement; provided, however, that the party (or
parties) prepared to close shall retain its (or their) right to xxx for any
breach by the other party (or parties).
ARTICLE VII
MISCELLANEOUS
Section 7.1 Stamp Taxes. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Preferred Shares
pursuant hereto (other than taxes measured against the Investors' income), the
Common Shares issued upon conversion thereof or the Warrant Shares issued upon
exercise of the Warrants.
Section 7.2 Specific Performance; Consent to Jurisdiction; Jury Trial.
(a) The Company and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms
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and provisions hereof, this being in addition to any other remedy to which any
of them may be entitled by law or equity.
(b) THE COMPANY AND EACH OF THE INVESTORS (I) HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT, THE
NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED STATES SITTING IN NEW YORK
COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT AND (II) HEREBY WAIVES, AND AGREES NOT TO
ASSERT IN ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER. THE COMPANY AND EACH OF THE INVESTORS CONSENTS
TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY
THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS
AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR
LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE
LAW.
(c) THE COMPANY AND EACH INVESTOR HEREBY WAIVES ALL RIGHTS TO A TRIAL
BY JURY.
Section 7.3 Entire Agreement; Amendment. This Agreement, together with the
Registration Rights Agreement, the Warrants, the Certificate and the agreements
and documents executed in connection herewith and therewith, contains the entire
understanding of the parties with respect to the matters covered hereby and
thereby and, except as specifically set forth herein or therein, neither the
Company nor any Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the Company and
Investors holding 75% or more of the Preferred Shares.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing by mail, facsimile or
personal delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
General Magic, Inc.
000 X. Xxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: President
Facsimile: (000) 000-0000
with copies to:
Xxxx, Xxxx, Xxxx & Freidenrich
000 Xxxxxxxx Xxxxxx
Xxxxx Xxxx, Xx 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
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to the Investors:
To each Investor at the address and/or fax number set
forth on Schedule I of this Agreement.
with copies to:
Kleinberg, Kaplan, Xxxxx & Xxxxx, P.C.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention:Xxxxxxx X. Xxxxxxx, Esq.
Facsimile:(000) 000-0000
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
Section 7.5 Indemnity. Each party shall indemnify each other party against
any loss, cost or damages (including reasonable attorney's fees but excluding
consequential damages) incurred as a result of such parties' breach of any
representation, warranty, covenant or agreement in this Agreement.
Section 7.6 Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
Section 7.7 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 7.8 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The parties hereto may amend this
Agreement without notice to or the consent of any third party. The Company may
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of all Investors (which consent may be withheld for any
reason in their sole discretion), except that the Company may assign this
Agreement in connection with the sale of all or substantially all of its assets
provided that the Company is not released from any of its obligations hereunder,
such assignee assumes all obligations of the Company hereunder, and appropriate
adjustment of the provisions contained in this Agreement, the Registration
Rights Agreement, the Certificate and the Warrants is made, in form and
substance satisfactory to the Investors, to place the Investors in the same
position as they would have been but for such assignment, in accordance with the
terms of the Certificate and the Warrants. Any Investor may assign this
Agreement (in whole or in part) or any rights or obligations hereunder without
the consent of the Company in connection with any sale or transfer all or any
portion of the Preferred Shares or Warrants held by such Investor, provided that
no Investor may assign this Agreement prior to the Closing Date without the
Company's prior written consent except to an affiliate or affiliates of such
Investor.
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Section 7.9 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.10 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to such state's principles of conflict of laws.
Section 7.11 Survival. The representations and warranties and the
agreements and covenants of the Company and each Investor contained herein shall
survive the Closing.
Section 7.12 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 7.13 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of any Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. The Company agrees
that it will deliver a copy of any public announcement regarding the matters
covered by this Agreement or any agreement and document executed herewith to
each Investor and any public announcement including the name of an Investor to
such Investor, prior to the release of such announcements.
Section 7.14 Severability. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investors hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
Section 7.15 Like Treatment of Holders; Redemption. Neither the Company nor
any of its affiliates shall, directly or indirectly, pay or cause to be paid any
consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption or exchange of Preferred Shares, or otherwise, to any
holder of Preferred Shares, for or as an inducement to, or in connection with
the solicitation of, any consent, waiver or amendment of any terms or provisions
of the Certificate or this Agreement or the Registration Rights Agreement or the
Warrants, unless such consideration is required to be paid to all holders of
Preferred Shares bound by such consent, waiver or amendment whether or not such
holders so consent, waive or agree to amend and whether or not such holders
tender their Preferred Shares for redemption or exchange. The Company shall not,
directly or indirectly, redeem any Preferred Shares unless such offer of
redemption is made pro rata to all holders of Preferred Shares on identical
terms.
Section 7.16 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
GENERAL MAGIC, INC.
By:
------------------------------------
Name:
Title:
INVESTORS:
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in-fact
By: PALLADIN CAPITAL MANAGEMENT, L.L.C.,
General Partner
By:
------------------------------------
Name:
Title:
RGC INTERNATIONAL INVESTORS, LDC
By: XXXX XXXX CAPITAL MANAGEMENT, L.P.,
Investment Manager
By: RGC GENERAL PARTNER CORP.,
General Partner
By:
------------------------------------
Name:
Title:
HERACLES FUND
By: PROMETHEAN INVESTMENT GROUP, L.L.C.,
Its Investment Advisor
By:
------------------------------------
Name:
Title:
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THEMIS PARTNERS L.P.
By: PROMETHEAN INVESTMENT GROUP, L.L.C.,
Its Investment Advisor
By:
------------------------------------
Name:
Title:
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